In the recent past, several important questions have arisen with respect to the role of the Debt Recovery Tribunal [“DRT]. Some of these have been discussed on this blog. An interesting feature of the DRT is that only banks and financial institutions are entitled to invoke its jurisdiction, while borrowers are not. The question that arises in this context is whether borrowers are entitled to approach civil courts independently.
Section 17 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 [“RDB Act”] provides that the DRT shall have jurisdiction to “entertain and decide applications from banks and financial institutions for recovery of debts due to such banks and financial institutions”. ‘Debt’ is defined in s. 2(g) as any liability which is claimed as due by a bank during the course of business activity. Thus, the jurisdiction of the DRT extends not just to debts as traditionally understood, but to any claim of money that a bank makes during the course of business. S. 18 provides that no court except the Supreme Court and the High Court under Art. 226 shall have any jurisdiction in relation to these matters. In 1995, the constitutionality of the DRT was challenged successfully before the Delhi High Court, which held that the Tribunal could not function validly since it did not have any provision for filing counterclaims. Subsequently, the RDB Act was amended and the constitutionality of the amended act was upheld by the Supreme Court. As things stand, borrowers are entitled to file “counterclaims” under s. 19 of the RDB Act.
The question is whether borrowers must choose this remedy or whether they are also entitled to file an independent suit in the appropriate civil court. There are two conflicting Supreme Court decisions on this point, and two others which are ambiguous. In Indian Bank v. ABS Marine Products, (2006) 5 SCC 72, Indian Bank asked for a suit filed by ABS Marine in the Calcutta High Court to be transferred to the DRT. The Supreme Court held that such an independent suit filed by a borrower could not be transferred to the DRT without his consent, since his right to approach a civil court cannot be taken away. This decision raised fears that the jurisdiction of the DRT could be easily evaded by a borrower filing an independent suit in civil court asking for the exact opposite of what the Bank was asking for in the DRT. In SBI v. Ranjan Chemicals Ltd., (2007) 1 SCC 97, the Supreme Court held that its power to transfer a suit did not depend on the consent of the parties. It is difficult to reconcile this decision with ABS Marine, especially since the Court ordered the transfer of an independent suit on the ground that it would avoid duplication of evidence, counsel, expenses etc. The concern that this decision raised is that the DRT may be unable to handle suits which involve complex questions of law or fact, and that the Bank could prevent a borrower from approaching a civil court to resolve these questions by merely filing a claim in the DRT. The DRT has summary proceedings and has traditionally been considered ill-equipped to consider claims like misrepresentation or fraud, which require cross-examination of witnesses. Other decisions of the Supreme Court do not clarify this matter either, for one seems to support Ranjan Chemicals (Industrial Investment Bank of India v. Marshal’s Power and Telecom, (2007) 1 SCC 106) while another seems to favour ABS Marine (Raghunath Rai Bareja v. Punjab National Bank, (2007) 2 SCC 230). Thus, the law on the point is unclear.
This dispute has important implications for the role of the DRT in Indian law and commerce, and the ability of the borrowers to have legitimate disputes adjudicated by the civil court. Equally important, however, is ensuring that the objective of setting up the DRT – expeditious disposal of banking cases – is not hampered by allowing borrowers to frustrate its jurisdiction.