Our Case Study

DRT Recovery for ₹2 Cr Loan

In today’s challenging financial landscape, non-performing loans (NPLs) can cause significant distress to both lenders and borrowers. One of the most effective legal channels for recovery of defaulted loans, especially for large sums like ₹2 crore, is through the Debt Recovery Tribunal (DRT). DRTs were set up by the Indian government under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), to expedite the resolution of cases where banks or financial institutions face difficulty in recovering loans from defaulters.

What is the Debt Recovery Tribunal (DRT)?

The Debt Recovery Tribunal (DRT) is a specialized tribunal established to resolve disputes between borrowers and banks or financial institutions. It provides a platform for quick and efficient recovery of debts, particularly for loans above ₹10 lakh, which are typically the jurisdiction of DRTs. The primary objective of DRTs is to reduce the burden on regular courts and ensure that recovery of loans is done in a timely manner.

Why is DRT Used for Recovery of ₹2 Cr Loan?

For loans such as ₹2 crore, banks and financial institutions may choose to approach the DRT for recovery because:

• Speedy Recovery: DRTs have a focused mandate to handle recovery cases expeditiously, ensuring that creditors do not have to wait for long periods as they might in regular courts.
• Specialized Jurisdiction: The DRT is specifically designed to address financial disputes, and its expertise in handling such cases can often lead to faster resolutions.
• Lower Litigation Costs: The costs involved in pursuing a loan recovery case in a DRT are usually lower than those of conventional court cases.
• Asset Attachment and Sale: In cases of non-payment, DRTs have the authority to order the attachment of the borrower’s assets, which can then be sold to recover the loan amount.

The Process of Recovering ₹2 Cr Loan through DRT

When a borrower defaults on a loan of ₹2 crore, banks or financial institutions typically initiate the recovery process through the following steps:

1. Filing a Recovery Application: The bank or financial institution files an application with the DRT for the recovery of the outstanding loan amount. This application includes details such as the loan agreement, repayment history, and evidence of the borrower’s default.
2. Issuance of Notice: Upon receipt of the application, the DRT issues a notice to the borrower, informing them about the case and giving them an opportunity to settle the debt within a specified time frame.
3. Hearing and Settlement: Both parties (the bank and the borrower) are given the chance to present their arguments. If the borrower agrees to settle, a compromise can be reached. The DRT may also order mediation to facilitate an amicable settlement.
4. Attachment of Assets: If the borrower refuses to pay or settle, the DRT can order the attachment of the borrower’s assets, including property or vehicles, to recover the loan amount.
5. Sale of Attached Assets: In the case of asset attachment, the DRT may also order the sale of these assets through public auctions or private sale to recover the outstanding debt.
6. Recovery Certificate: Once the tribunal passes a decree in favor of the lender, a recovery certificate is issued, which allows the lender to initiate further actions like attachment or seizure of property, if necessary.

Challenges in DRT Recovery for ₹2 Cr Loan

While DRTs can provide a more efficient and faster process for loan recovery, there are still some challenges involved:

• Borrower’s Resistance: The borrower may resist the recovery process by delaying proceedings, filing appeals, or hiding assets. This can slow down the recovery process.
• Asset Valuation Issues: The assets attached may not always be sufficient or may not fetch the anticipated amount during the sale, especially if the borrower’s assets are undervalued or are encumbered with other liabilities.
• Legal Delays: Despite the quick mandate of DRTs, legal delays can still occur, especially if the borrower contests the recovery process or challenges the DRT’s decisions in higher courts.
• Financial Viability of Recovery: In some cases, the borrower’s assets may be inadequate to fully cover the loan amount, making it challenging for banks to recover the full ₹2 crore loan.

Benefits of Using DRT for ₹2 Cr Loan Recovery

• Time-Efficient Process: Unlike civil courts, DRTs are designed for faster resolution of financial disputes. This allows creditors to recover dues more quickly and efficiently.
• Focused Expertise: DRTs deal exclusively with financial matters, meaning they have the expertise needed to handle complex loan recovery cases and to resolve them effectively.
• Streamlined Enforcement: The DRT’s powers include the ability to attach and sell the borrower’s assets, making it easier to enforce recovery orders and recover the loan amount in case of default.
• Cost-Effective for Lenders: The litigation costs in DRT proceedings are typically lower than in regular courts, which benefits banks and financial institutions seeking to recover large amounts without incurring excessive expenses.

Conclusion

The recovery of a ₹2 crore loan through the Debt Recovery Tribunal (DRT) is a viable and effective solution for banks and financial institutions facing defaults. While the process may present some challenges, the specialized nature of DRTs ensures that disputes are resolved more swiftly than in conventional courts. By leveraging the DRT’s power to attach and sell assets, lenders can recover their dues and minimize financial loss. If you’re facing a default on a large loan, exploring the DRT route may be the best option for resolving your financial dispute efficiently.