War On Bad Loans Being Fought By A Headless Warrior
Presiding officers missing: The state of debts recovery tribunals in Mumbai.
Banks’ efforts to recover Rs 51,000 crore in bad loans haven’t made much headway at a debts recovery tribunal in Mumbai as it hasn’t had a full-time chief to pass decrees for nearly nine months.
DRT II, one of the three such tribunals in the country’s financial capital, had a backlog of 3,500 cases as of March 31, according to data independently verified by BloombergQuint. DRT III, too, has been without a full-time presiding officer for six months, and the head of DRT I shares the additional charge of the other two. Officials at DRT I and III refused to share the data on pending cases and recoveries involved.
DRTs are part of the debt-recovery framework in India. They are a key adjudication forum for the recovery of assets underlying bad loans at Indian banks, which at 17 percent of the total advances are the highest among major economies.
The government makes a noise about recoveries and non-performing assets but hasn’t appointed presiding officers, said Menino Dias, a lawyer in a number of cases at the tribunals.
How can one expect any progress? I have seen cases in the system for 15 years.Menino Das, Lawyer
The administrative arm of each tribunals which is headed by a registrar is also not functioning at full capacity, as the post is vacant at all the three tribunals. Assistant registrars have taken charge as a stop-gap measure.
DRTs and appellate tribunals were established under the Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI Act), 1993 to expedite adjudication and recovery of banks’ debts, according to its website. They are also the main adjudication forum under the The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFESI). There are 38 DRTs and five appellate tribunals in India. Appointments are made by the department of financial services of the Union Ministry of Finance.
The ministry did not respond to BloombergQuint’s emailed queries.
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Raghuram Rajan, then RBI governor, too had in 2014 highlighted the slow progress at DRTs.
A low disposal rate has been a perennial problem, said Deep Roy, partner, banking and finance at law firm Economic Laws Practice.
Many of our clients, being financial institutions, are exploring the resolution of disputes under the insolvency and bankruptcy code, after having tried recovery with the Debts Recovery Tribunals, through the civil procedure code and arbitration, enforcement under SARFAESI and restructuring under the various schemes provided by RBI. Such processes have been time consuming and have also not lead to resolution.Deep Roy, Partner, Banking-Finance, Economic Laws Practice
As a result there has been no respite in the stressed assets in India, Roy said. The recently enacted Insolvency and Bankruptcy Code is preferred because it provides for reviving a company and not just winding it down to recover dues, he said.
The mandate of the tribunals is to pass orders within 180 days. A public sector bank official involved in the recovery process said to BloombergQuint, on condition of anonymity, that lenders would be happy if the orders are passed even in six years. Lack of co-ordination between recovery officers and banks only adds to the delay, the official said.
Another reason for the delay could be the routine interference of the higher judiciary despite Section 18 of the RDDBFI Act which aims to prevent this from happening. Raghuram Rajan had mentioned the Supreme Court’s observations regarding this practice in his 2014 speech.
It is a matter of serious concern that despite the pronouncements of this Court, high courts continue to ignore the availability of statutory remedies under the RDDBFI Act and (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act) SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues.Raghuram Rajan In 2014 Speech
(The DRT website as on June 6 mentioned Hari Venkata Subba Rao as the presiding officer of DRT I with additional charge of DRT II, and VN Lothey Patil as the presiding officer of DRT III. BloombergQuint has verified that Patil retired in December 2016.)