Tuesday, August 4, 2009

Landmark Judgment on the Role of the Debt Recovery Tribunal

The role of the Debt Recovery Tribunal has been the subject of a great deal of controversy. Some aspects of this issue have been discussed on this blog. The main question has been whether an independent suit filed by a borrower against a bank in a civil court could be transferred to the DRT as a “counterclaim” against his wishes. The law on the point was uncertain, with several conflicting judgments. Last week, the Supreme Court put the controversy to rest with a comprehensive and well-reasoned judgment. A copy of the decision, Nahar Industrial Enterprises Ltd. v. HSBC, is available here.


The case concerned several appeals that had been filed against decisions of various High Courts on this question. Some had held that an independent suit was not barred, while others had held that it was, and transferred it to the appropriate DRT. To briefly recapitulate the context, s. 17 of the 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”. S. 18 ousts the jurisdiction of all courts except on writ jurisdiction to hear matters that form the subject of s. 17. Originally, the RDB Act did not contain any provision that allowed the borrower to raise a counter claim or set off. S. 19 of the Act was amended, and the law as it stands today allows a borrower to raise those issues as well. Consequently, some courts began holding that an independent suit may constitute a “counterclaim” for the purposes of s. 19 and is consequently liable to be transferred.


The two main, and conflicting decisions on the point prior to Nahar were Indian Bank v. ABS Marine Products, (2006) 5 SCC 72 and SBI v. Ranjan Chemicals Ltd., (2007) 1 SCC 97. ABS Marine had held that an independent suit cannot be transferred without the consent of the borrower even if it inextricably connected with the bank’s suit and is in the nature of a counter claim. Ranjan Chemicals had held that the consent of the parties is not a limitation on the power of the court to order a transfer.


In Nahar, the Supreme Court held that Ranjan Chemicals could not have departed from the law laid down in ABS Marine, as it was a decision of a coordinate Bench. The Court also seems to have accepted the argument that s. 31 of the DRT Act is exhaustive of the powers of transfer under the Act. Substantively, the Court agreed with the reasoning that a DRT is incapable of adjudicating complex issues of law and fact. It noted that a Tribunal that has the “trappings” of a court is not necessarily a court, and approved decisions that had held that the DRT is not a court. Moreover, the DRT cannot issue a decree, but only a recovery certificate. Although a DRT is empowered to take evidence in a detailed manner, the Court observed that its function is intended to make this the exception and not the rule. Thus, the position is that the DRT is not a civil court for the purposes of ss. 23, 24 and 25 of the CPC. Nor is it subordinate to the High Court. The following observations are apposite:


Concededly in the proceeding before the Debt Recovery Tribunal detailed examination; cross-examinations, provisions of the Evidence Act as also application of other provisions of the Code of Civil Procedure like interrogatories, discoveries of documents and admission need not be gone into. Taking recourse to such proceedings would be an exception. Entire focus of the proceedings before the Debt Recovery Tribunal centers round the legally recoverable dues of the bank… Under the Act, as it originally stood, did not even have any power to entertain a claim of set off or counter-claim. No independent proceedings can be initiated before it by a debtor. A debtor under the common law of contract as also in terms of the loan agreement may have an independent right. No forum has been created for endorsement of that right. Jurisdiction of a civil court as noticed hereinbefore is barred only in respect of the matters which strictly come within the purview of Section 17 thereof and not beyond the same. The Civil Court, therefore, will continue to have jurisdiction” [emphasis supplied].


The Court evolved two other important propositions. The first is the well-settled principle that a bar on the jurisdiction of the civil court is not to be readily inferred. The second, and more important, was the Court’s finding that since the right to appeal is a vested, statutory right by virtue of s. 96 of the CPC, the line of reasoning employed in Ranjan Chemicals would not only deprive the borrower of his right to sue, but also of his right to appeal.


In sum, the Court has not only reached the correct conclusion, but also finally clarified the law on DRTs with a well-reasoned and authoritative judgment. Worries remain, however, that the judgment may be used by borrowers as a tool to stall the efficacy of DRTs.

2 comments:

shubhang said...

There is a clear jurisdictional tussle between the Civil Court and the DRT in terms of powers conferred and powers exercisable. What does judgment does is nothing but demarcate the preferred court of option for the borrower which is the civil court and that for the Banks remains the DRT. But, the counterclaim option for the borrower over the DRT's decision through an independent suit exist whereas the same does not exist for banks. The basis for this appears to be the powers given to the Civil Court vis a vis the DRT but yet this gives more scope of misuse since the borrower has a better option at a more powerful authority.

Karthik Seshadri said...

I have written an article that is published in (2009) 6 MLJ 83 ( Journal) "Nahar vs. HSBC - A Retrograde Step". It gives another point of view.