Forget grounding defaulters, DRTs ill-equipped for recovery

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MUMBAI: Banks have claimed that liquor baron Vijay Mallya got away despite their plea to the Debt Recovery Tribunal (DRT) to attach the defaulter’s passport. But experts say that these tribunals, which were set up to expedite loan recovery, are proving inadequate to deal with default volumes and grounding defaulters has become a challenge.

According to Mumbai solicitors M V Kini and Nishith Dhruva, orders directing debtors not to travel abroad till the case is disposed of are rare. “Inadequate infrastructure coupled with insufficient number of DRTs have paralysed the recovery process in India,” said Kini.

A 2002 law – the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act – empowering banks to attach assets of defaulters was supposed to put an end to the problem of bad debts. But the ground reality is that 33 DRTs across the country have 24,500 securitisation cases pending and the three tribunals in Mumbai, which have a large share of cases, managed to clear only 32 securitisation applications in January 2016. In addition to the securitisation pleas, there were over 68,500 original applications at the end of January 2016.

Delaying tactics by defaulters include using technicalities to question the debt amount claimed by banks and approaching the DRT at the fag end of a 60-day notice which lenders are required to provide before attaching assets. The proceedings before the tribunal may drag on for several years, with banks having no option but to bide their time.

Forget grounding defaulters, DRTs ill-equipped for recovery

After failing to get relief from the DRTs on grounding Mallya, banks approached the Supreme Court only to find that he had flown the coop. But getting an order to impound a passport is difficult in the light of the Supreme Court order in the 1978 Maneka Gandhi case. In 1977, Gandhi had challenged a government order to impound her passport without reasons. The SC in its order laid down that a person’s right to life and liberty included her right to travel abroad and that impounding cannot be done without a hearing by the passport authority.

The Sarfaesi Act requires the DRT to complete proceedings and issue recovery certificate within six months and allow another four months to appeal. “While collective debts of banks ballooned to over Rs 31 lakh crore, cases too piled up and were not disposed of for even up to five years,” said Kini.

Agrees advocate Karl Shroff, whose case of a Rs 40-crore recovery by Bank of Baroda against an Ahmedabad-based tube company hasn’t moved forward except for getting an adjournment date in the last two years before the DRT II. “Debtors, in the meantime, continue to enjoy assets secured by a mortgage to lenders, often public sector banks. Usually, the proceedings to recover the dues by sale of assets is stalled on technical objections such as non-registration of a mortgage or of mortgage documents not being stamped.”

In one case in January 2015, after the DRT restrained directors of Varun Industries from leaving the country till disposal of the case, the firm’s then solicitor Sajid Mohamed moved the high court, saying the tribunal had no power to pass such an order. The HC stayed the DRT order and matter remains pending. Mohammed, who has represented several borrowers, said: “The process is painstakingly long for both sides.”