Recovery Of Debts Due To Banks And Financial Institutions Act, 1993: An Overview:

Introduction :

In the financial landscape of India, ensuring timely recovery of loans is vital for the stability of banks and financial institutions. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), now subsumed under the RDB Act, was enacted to provide an efficient legal framework for the expeditious recovery of debts due to banks and financial institutions.

Origin :

Before 1993, debt recovery was a lengthy and inefficient process through civil courts, often taking years. Recognizing the growing non-performing assets (NPAs) and the need for a speedy adjudication mechanism, the RDDBFI Act was enacted based on the recommendations of the Tiwari Committee.

Purpose of the Act :

• Establishment of Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs)

• Facilitating faster adjudication of disputes related to recovery of debts

• Enabling banks, financial institutions, and later ARCs to enforce security interests and recover dues

  
  

Key Features of the RDDBFI Act :

1. Establishment of DRTs and DRATs

The Act provides for the setting up of specialized tribunals:
- DRT has jurisdiction to entertain and decide applications from banks and financial institutions to recover debts exceeding ₹20 lakhs.
- DRAT hears appeals against orders passed by DRTs.

2. Exclusive Jurisdiction

Civil courts do not have jurisdiction in matters assigned to DRTs, ensuring that recovery cases are not delayed by procedural civil litigation.

3. Summary Proceedings

The DRTs follow summary procedures for adjudication, thereby ensuring quicker resolution. Proceedings are handled by Presiding Officers who have powers similar to civil courts.

4. Powers of DRT

DRT has the authority to:
- Issue recovery certificates
- Appoint receivers
- Order the sale of secured assets

Importance of the RDDBFI Act for Asset Reconstruction Companies :

ARCs play a pivotal role in managing and recovering distressed financial assets. They acquire NPAs from banks under the SARFAESI Act, and in many cases, utilize the RDDBFI Act for judicial enforcement.

Here's how the Act supports ARCs:

• Legal Route for Enforcement: When voluntary settlements fail, ARCs can file recovery applications before DRTs.

• Recovery Certificates: Orders passed under this Act are enforceable like a decree of a civil court, streamlining the recovery process.

• Jurisdiction Clarity: The Act ensures that only DRTs handle recovery matters, avoiding conflicting claims in civil courts.

• Support for Restructuring: Legal backing enables ARCs to enforce restructuring agreements and settlements.

RDDBFI vs. SARFAESI: A Comparative View:

Recent Developments and Repeal Status :

    As of 2021, the RDDBFI Act has been renamed as the Recovery of Debts and Bankruptcy Act, aligning it with the Insolvency and Bankruptcy Code (IBC). The Act continues to operate, though many high-value cases are now directed to NCLT under IBC.

Conclusion :

    The RDDBFI Act, 1993 remains a critical legislative instrument for debt enforcement in India. For Asset Reconstruction Companies, it offers a structured, tribunal-driven process to realize dues, enforce securities, and mitigate financial risks. When used in combination with the SARFAESI Act and IBC, it forms a comprehensive legal toolkit to tackle bad debts and restore financial health.