Debt Recovery in India - At a Glance
By Team Legistify / 2016-05-16
When borrowers cannot pay promised interest or principal on time, creditors can initiate steps to recover the debt. Debt recovery laws determine the process by which recovery proceeds. the Debts Recovery Tribunals (DRTs) were set up under the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993 to help banks and financial institutions recover their dues speedily without being subject to the lengthy procedures of usual civil courts. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002 went a step further by enabling banks and some financial institutions to enforce their security interest and recover dues even without approaching the DRTs.

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India’s Sick Industrial Companies Act, 1985 ("SICA") put in place a debtor friendly regime in which defaulting borrowers could delay resolution for long periods of time and strip assets of value. This created a huge problem for the economy at a macro level as the Non-Performing Assets of the banks with respect to the debts due kept perennially increasing. The debt recovery tribunals (DRTs created under the RDDBFI Act) in the 1990s attempted to create a more creditor friendly regime but their effectiveness is limited by restrictions on their scope. The SARFAESI Act, enacted in 2002, supplemented the DRTs in regulating an efficient recovery process. SARFAESI permits seizure of secured assets and has been the most effective means of recovery out of all the legislations.

The Recovery of Debts due to Banks and Financial Institutions Act, 1993 ( RDDBFI Act ), extends to the whole of India except Jammu and Kashmir. This act came into force on 24th June 1993.The provision of the act shall not apply to any bank or financial institutions where the amount of debt due is less than Rs 10 Lakh. The "Debt Recovery Appellate Tribunal" (DRAT) was established under sub section(1) of section 8. The Central Government of India has the power to notify the establishment of one or more tribunals in a state, which are known as Debts Recovery Tribunal, to work under the broad jurisdiction, powers and authority prescribed under this act.

Legislation Relating to Debt Recovery in India

When borrowers cannot pay promised interest or principal on time, creditors can initiate steps to recover the debt. Debt recovery laws determine the process by which recovery proceeds. the Debts Recovery Tribunals (DRTs) were set up under the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993 to help banks and financial institutions recover their dues speedily without being subject to the lengthy procedures of usual civil courts. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002 went a step further by enabling banks and some financial institutions to enforce their security interest and recover dues even without approaching the DRTs.

Therefore there are 2 crucial legislations which deal with the debt recovery by banks and financial institutions from borrowers or people who have taken loans from these institutions and fail to pay back the principal amount with interest or falter with the instalments-

When borrowers cannot pay promised interest or principal on time, creditors can initiate steps to recover the debt. Debt recovery laws determine the process by which recovery proceeds. the Debts Recovery Tribunals (DRTs) were set up under the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993 to help banks and financial institutions recover their dues speedily without being subject to the lengthy procedures of usual civil courts. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002 went a step further by enabling banks and some financial institutions to enforce their security interest and recover dues even without approaching the DRTs.

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