DRT Solutions Weekly Mail – 206^th Issue dated 20^th April ’12

(1) Interactions with an Ex-PO DRT

We happen to interact with an Ex-PO DRT. His observations and views were as under:-

(a)                The advocates of the borrowers are not having proper knowledge of the subject, factual as well as legal.

(b)                In many cases, the declaration of the NPA by the bank is not in accordance with the RBI Guidelines.

(c)                The attitude of the bank officials requires change as many cases can be settled amicably instead of long drawn legal battle.

(d)                He appreciated our web site as well as the DVDs of the conference held by us.

Our Views

(a)    We also held analogous views, rather it is validation of our approach to bank litigations in DRTs.

(b)    In fact the Tiwari Committee (on whose recommendation the DRTs were formed) in 1984 recommended that the DRTs should be manned by persons (Advocates and the POs) should have specialized knowledge in the functioning of banks, financial institutions and industry. This has not yet been done. On the other hand, when the DRTs were established, mostly fresh advoctes started their practice there. Many of the POs were from the legal stream i.e. from the civil court. As a result, proper trials were not conducted, procedures with shortcuts were introduced and hence the ultimate purpose of ‘Justice’ was nowhere visible leave alone achieved.

(c)    In view of above, we stepped in to introduce most appropriate pleadings based on proper knowledge of banking, industry, fiance, law of torts, law of damages, procedural law etc.

(d)    On one hand the banks have multiple securities by way of CRR, mortgage, collateral, personal guarantee, support by the government etc. On the other, the borrower is compelled to surrender all his rights and assets fully in favour of the lender. As a result, during the sickness of his business (that is when there is no surplus generation), survival of his own, his family and his employees becomes extremely difficult. At such juncture, the bank initiates legal action, the borrower does not have even adequate financial resources to fight the legal battle. It is most unequal fight, a fight with the Mightiest with the Weakest.   

(e)    Keeping all the above aspects in view, we selected few clients with capabilites to fight, prepared proper pleadings with counter-claim and damges due to wrong doings of the lenders, guided those clients on every date. The judgments coming out of such approach started becoming leading judgments helping those who could not afford the legal fight on their own.

(f)      During the DRT conferences held by us at Indore in May 2008 and January 2011, our clients and their advocates had brain storming interactions. With effect from 17^th May  2008 we introduced our ‘Weekly Mail’ which have become quite popular. Our DVDs and the Weekly Mails provide quite good resource for practical knowledge to borrowers and gurantors facing DRT litigation.

(g)    Despite above, right from the inception, we held the view that the best recovery is out of wealth generated by running the unit. Surplus generation is the best and rather the only security. But if the lender instead of recognising the same is bent upon legal fight, the borrower does not have any other option but to fight on the above pattern devised by us.

(2) Running off the Unit during Litigation

(a)    The DRT is first and the last last court to determine the material facts judicially.

(b)    The bank litigations are based on documents which are in power and possession of the banks.

(c)    The material facts relating to appraisal of the project and  sanction and flow of bank finance for a business and industrial project are quite complex. Hence the pleadings are required to be prepard by persons having mastery of facts and mastery of law concering the said complex facts. It is reiterated that the pleadings must include the counter-claim and or damages which are almost in all the cases much more than the claim of the lender resulting into ‘No Debt Due’ situation.

(d)    Full fledged trial to establish the said facts will take massive amount of time spread over few years. If there is any attempt to expedite or cut short the process, it will result in much more time due to intervening Reviews and Appeals.

(e)    Thus on account of litigation period spread over years,  we advise our clients to find out ways and means to run their unit and create sufficient reserve and surplus. Strength and experience thus gained will open up several options for the borrower including settlement at most favorable terms.

(f)      The above approach will also provide valuable feedback to the banks so that they don’t run to legal recovery instead of solving the problem of the borrower. The leading judgments thus generated will also improve the legal process in DRTs.

DRT Solutions Weekly Mail – 205^th Issue dated 13^th April ’12

(1) Public Notice for Sale – during the Adjudication of SA – Arbitrary and Illegal Action

Having constituted the DRTs and having enacted the special acts like the DRT Act and the Securitisation Act, the banks thought that they will have quick recovery of their alleged dues. This was a wishful thinking. The DRTs are trial courts and have to function in accordance with the law and procedure of law. The impatience of the bank officials results in violation of the said law and procedure of law. As a result the recovery gets inordinately delayed. We have observed that even in the very initial stage of the SA, the banks are going for making public sale notices of the secured assets. This is highly illegal and arbitrary. Our views are as under:-

(a)    As per the law declared by the Supreme Court of India in the matter of Mardia Chemicals, the SA is in lieu of a suit on account of bar of civil court due to Sec 34 of the Act. Hence all the wrong doings of the bank must be pleaded in the SA including the loss and damages due to the said wrong doings. In almost all the cases, the said loss and damages are much more than the alleged claim of the bank and hence prima facie, there is ‘No Debt Due’, Under such circumstances, no recovery action can be initiated by the bank till the SA is fully adjudicated.

(b)    In view of above, any paper publication for sale of the secured assets before final adjudication of the SA is arbitrary and illegal.

(2) Asking for Deposit under ‘No Debt Due’ situation for Staying Disposal Action is Arbitrary and Illegal

Under the ‘No Debt Due’ situation described vide item no (1) above, asking for any Deposit for staying disposal action is arbitrary and illegal. Our comments are as under:-

(a)    As per the law declared by the Supreme Court of India in the matter of Mardia Chemicals, the SA is in lieu of a suit. Accordingly the prescribed court fee is paid on the SA.

(b)    Having paid the court fee and under the ‘No Debt Due; situation, if bank initiates any recovery action, the same should be stayed (without any deposit) till said SA is fully decided.

DRT Solutions Weekly Mail – 204^th Issue dated 6^th April ’12

(1) Important Judgments favouring Borrowers

Now with the constant fight by the Borrowers and Guarantors, few Judgments have been arrived at to be favouring them. Some of them are as under:-

(a) [2012 (1) DRTC 407 (P & H)], Sushil Kumar vs State Bank of Patiala – Securtisation Act 2002, Sec 13(4) – Security Interest -  Notice to take over possession – Bank not issued any notice u/s 13(2) – Action of the Bank in giving notice to take over possession can not be sustained – Said noitce set aside.

(b) [2012 (1) DRTC 398 (Mad)], Central Bank of India vs DRT Coimbatore – Compromise entered between bank and borrower – Settlement in Lok Adalat referred to DRT – DRT made  unnecessary and unwarranted comments about authority of the bank in arriving at settlement – It is duty of the court to encourage same – When bank accepted certain amount for settlement, it is not for DRT to question same either regarding quntum of interest or quantum of waiver – DRT has not chosen to appreciate latest concepts which has developed in the country – impugned order of DRT set aside – DRT directed to record award passed by Lok Adalalt and give its formal order.

(c) [2012 (1) DRTC 392 (Knt)], N.B. Gurudeva vs State Bank of Mysore – Securitisation Act Sec 13 – Contract Act Sec 133 to 135 – Security Interest – Enforcement of – Notice u/s 13(2) issued to guarantor – Guarantor filing writ petition – Parties entering into compromise to exclusion of guarantor – Novation of contract – Liability of guarantor ceased to exist – Bank initiiating proceeding for recovery of dues pursuant to compromise arrived at between bank and principal debtor, as if said amount is due under original loan transaction – Notice issued to guarantor held without basis and quashed – property of guarantor can not be attached.

 (1) M.J. Antony in Business Standard issue dated 5^th April – ‘Improved Allocations for Court Infrastructures are only a Small Step’

http://business-standard.com/india/news/m-j-antony-scratchthe-surface/469971/

The good news from the Union Budget is its grudging recognition that more funds are urgently required to improve the infrastructure of the legal system. The allocation for computerisation of district and subordinate courts has been doubled from Rs 105 crore in 2011-12 to Rs 213.66 crore in 2012-13. Allocations for infrastructural facilities have been increased by Rs 4.57 crore to Rs 510 crore for the next fiscal from Rs 505.43 crore in 2011-12. The National Mission for Justice Delivery and Legal Reforms gets Rs 37.50 crore.

State governments will get Rs 109 crore to assist the establishment of Gram Nyayalayas, taking justice to the door steps. Last year, the allocation was Rs 25 crore. The Plan expenditure has been raised from Rs 772 crore to Rs 1,050 crore. Under the non-Plan expenditure, the increase is Rs 53.32 crore from Rs 432.32 crore in 2011-12 to Rs 485.62 crore. Legal aid and expenses on the department of legal affairs have been allocated Rs 71.93 crore.

One could go on quoting more figures like the Budget analysts love to do. Those ordinary people who are not well-versed in fiscal jugglery judge things by what is going on at the grass roots. That is the bad news.

It has been the enduring gripe of legal professionals that their province gets less than two per cent of the Budget and the states are equally tight-fisted. The men in black robes have reason to be jealous of the men in uniform, who take the bulk of the funds and reveal only during skirmishes with the civilian authorities that the equipment they bought were night-blind or the missile ejector and its timer were both defective. A generation has passed without knowing the agony of a full-scale war. In contrast, litigation three generations old does not surprise anyone.

Occasionally, the plight of the courts makes headlines. Last month, it was reported that the National Green Tribunal was operating from a guest house in the capital. Until recently, the Employees Provident Fund Appellate Tribunal was functioning from an Ambassador car. Some tribunals seem to be housed in what appear to be former princes’ dancing halls or stables around India Gate. The Chief Justice of India has lamented that the conditions in the mofussils are abominable — no stationery or plumbing, much like primary schools there.

The Supreme Court itself has a few cases like the All India Judicial Officers Association vs Union of India that highlight the plight of the subordinate judiciary carrying the load of some 20 million cases. A few petitions on this, like that of the Salem Advocates’ Association, have been on dockets for years and the progress has been moderate. The court normally calls for data, more data and meta data. Sometimes it appoints a committee of judges and jurists to study certain aspects. The reports are received, filed and one copy is ordered to be sent to the law ministry, where again it is stacked high up. But these reports discuss serious issues and before the judicial system crashes, the rulers can take cues from it. In the fiscal context, one of the suggestions made by a Supreme Court committee is the need for a judicial impact assessment before a Bill is introduced in Parliament. The law makers are adding more legislation to an already over-legislated nation, often without even bothering to discuss the details of the provisions and their financial impact.

The Bills are normally accompanied by a financial memorandum indicating the expenditure on implementing the law concerned. But they do not detail the additional burden on the judicial system. Therefore, the expenditure required for adjudication of cases from the new law should be estimated and adequate budgetary provision must be made for it.

Though the concurrent list of the Constitution makes it obligatory for the Centre to bear the financial burden owing to the new legislation, in reality, the states are saddled with it since the subordinate courts are maintained by them. According to the recommendations, this problem must be remedied by the Planning Commission and the Finance Commission through equitable distribution of funds.

Apart from such recommendations made by expert panels and the Law Commission gathering dust, one other handicap in treating the problem is the secrecy that is ingrained in the judiciary. Until recently, courts were reluctant to disclose the number and nature of the cases pending before them at all levels. Sketchy and outdated figures were disclosed during question hour in Parliament.

After the Right to Information Act, the courts have been forced to let in more light into the registry. Even then, the Supreme Court’s quarterly journal, Court News, is running three quarters late. Judges seem to fear disclosure of information, like some patients suffering from white-coat hypertension and concealing symptoms. As a result, there is no discussion about budgetary allocations in the media or at ubiquitous seminars. Even as lobbyists of every kind descend on the capital in the Budget season, there is no one to speak up for the judiciary or the despondent litigants. That’s the rub.

DRT Solutions Weekly Mail – 203^rd Issue dated 30^th March ’12

1) Pending DRT cases spike by 70% in 2011 to Rs. 1.57 lac crores amid slowdown, inefficiency

Published in ‘Legally India’ and Written by Kian Ganz & Remya Nair (Mint)  | Wednesday, 28 March 2012 12:32

http://www.legallyindia.com/201203282685/Bar-Bench-Litigation/exclusive-pending-drt-cases-spike-by-70-in-2011-to-rs-157-trn-amid-slowdown-inefficiency

The number of pending cases at India’s debt recovery tribunals (DRT) has increased by almost 70% in about a year, with the economic slowdown affecting the repaying capacity of borrowers and thus worsening the asset quality of banks.

Our Comments

With the slow down, weak government, poor legal management in public sector banks and not having trained lawyers and judges in DRTs, the pendency is bound to go up year by year as happened in civil courts where the pendency is now more than 3 crore cases and it is said that it will take 320 years to clear the pendency.

Also, slow clearances of cases in the tribunals is adding to the pendency, say lawyers and analysts.

Our Comments

The disposal of the cases in DRTs will progressively take more and more time as the borrowers are getting aware about their rights vis a vis the wrong doings committed by the banks. As a result there are now several judgments of DRTs and DRATs which are going against the banks.

In response to a question in the Lok Sabha on 23 March 2012, the finance ministry said 63,669 cases were pending in the tribunals as of 31 January 2012. On 31 December 2010, 37,616 cases were pending, according to a Right to Information (RTI) request filed by Prashant Reddy, an intellectual property (IP) lawyer who also blogs on industry blog Spicy IP.

There are 33 DRTs in India, with three each in Chennai, Delhi, Kolkata and Mumbai—the last three having the maximum number of pending cases. The amount locked in as a result was Rs1.57 trillion as on 31 January, against Rs1.13 trillion as on 31 December 2010.Latest Legal Jobs
 

DRTs are semi-judicial authorities that help banks by speeding up the recovery process through steps such as issuance of attachment orders.

An official with the Indian Banks’ Association, who did not want to be identified, cited two reasons for the sharp increase in the number of pending cases at the debt tribunals.

“First is that more banks are approaching the DRTs to recover their bad debts,” this official said. “The second reason is that borrowers are also going to DRTs to challenge actions taken by banks under the Sarfaesi Act.”

Our Comments

There is no option for the borrowers otherwise, the wrong doings committed by the bankers will never come to light. In fact the loss and damages suffered by the borrowers are much more than the claim of the bank and hence there is ‘No Debt Due’ Accordingly, no recovery can be indulged till the said ‘No Debt Due’ is finally decided by the court.

The Sarfaesi Act, or Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, allows banks to auction properties of borrowers who fail to repay their loans, or recover their loans through securitization and asset reconstruction.

Of the 63,669 pending cases, 37,654 have been pending for more than a year. The finance ministry said a committee headed by a chairperson of the debt recovery appellate tribunal is examining the “legal, structural, administrative, monitoring and supervisory systems” of DRTs and will recommend measures to make these tribunals more effective and efficient.

“It is often challenging for DRTs to get all the interested parties together at one time. Hence, it becomes a long-drawn process. Banks facing large downside risks (dilution of market value of loan assets) try to settle NPAs (non-performing assets or bad loans) through one-time settlements or corporate debt restructuring,” said Robin Roy, associate director (financial services), at PricewaterhouseCoopers Pvt. Ltd. “Banks do a cost-benefit analysis before taking cases to DRTs as there could be substantial costs attached (long waiting periods) to going to DRTs.”

Banks have three legal options for resolving NPAs—the Sarfaesi Act, DRTs, and Lok Adalats, which are non formal alternative court, he said, adding that while loans above Rs10 lakh go to DRTs there is no sector-specific condition for approaching the tribunals.

Dushyant Kumar Mahant, a lawyer who has represented borrowers in the DRTs several times, said the case load has risen dramatically particularly because of the steep increase in property prices, which has resulted in many borrowers taking loans that they end up not being able to service.

The low disposal rate at the DRTs was caused by infrastructure problems, inadequate staffing also at senior levels, and non-cooperation by borrowers’ lawyers, said Navneet Gupta, Delhi-based partner at law firm SNG & Partners and who often represents banks.

Our Comments

In fact, the banks and their advocates are not permitting the adjudication of the wrong doings committed by the banks, further they are putting lot of hurdles against the loss and damages. On account of these factors, the entire adjudication gets unduly delayed.

Another lawyer who did not want to be identified blamed the bodies overseeing the DRTs and other tribunals. “The main problem is the appointments. It takes them 6 or 7 months to appoint the presiding officer and then the presiding officer has only a term of five years under the recovery of bad debt Act (Recovery of Debt due to Banks and Financial Institutions Act, 1993,) and they will start looking for a new guy after the old guy retires,” this lawyer said.

Our Comments

The bank lobby is not permitting transfer of the DRTs from the administrative control of the Ministry of Finance to Ministry of Law despite clearcut verdict of the Supreme Court. Consequently the judges in DRTs are biased towards the bankers.

“It’s very lacklustre,” said one DRT lawyer about the presiding officers at many DRTs. “You go over there and even if (you) ask to present an argument over there, the matter is adjourned for one reason or another—(the officers) don’t have the bent of mind for disposal rate. It is very difficult for pendency to go down (this way).”

Our Final Comments

(a)      The Tiwari Committee on whose recommendations, the DRTs were constituted recommended in 1984  that the advocates and judges in DRTs should have knowledge of banking , industry and finance. It has not yet been done. There should be at least 6 months courses for them with 15 days refresher course every year. Then only quality and efficiency of adjudication in DRTs will improve.

(b)      As per Supreme Court, the application u/s 17 of the Securitisation Act is in lieu of a civil suit. Hence its thorough adjudication will take several years. Any attempt to adopt any shortcut (as at present) will ultimately cause huge delay on account of multiple reviews and appeals.

(c)      Bank litigations are primarily based on documents. All the documents are in power and possession of banks. The banks avoid to produce all the documents otherwise, the banks will lose most of the cases. In absence of all the documents, the trial is never complete. Such incomplete trials result in huge delay and pendency.

(d)      The banks are required to follow government policies and RBI Guidelines. Hence the relations between the bank and borrower in India are tortious in nature as against the mostly prevalent mistaken view of contractual. Most of the Indian advocates are not versed in Law of Torts and hence the pleadings based on contract are defective right from inception and hence trial does not result in determination of actual controversies. Further the damages based on such defective concepts of contract are very much limited and difficult to prove. Until and unless the DRT Advocate and Judges understand the law of torts and damages based on torts, the result of such bank litigation will be misleadings and inconclusive.

(e)      As emphsized by such since last 12 years on our website that perfect pleadings must be drawn by such persons who have mastery of law (i.e. torts, evidance, damages, CPC etc.) and mastery of facts (i.e. banking, industry and finance etc) and case perfectly contested on every date in DRTs by such persons, then only satisfactory trial can be achieved. With such approach only some of our clients have achieved either victory over the banks or settled as low as 5%.

(f)        Till such time, all the above requirements are fulfilled, the DRTs will continue to grope in dark, the litigants will continue to be dissatisfied and pendency will continue to grow as in civil courts.

DRT Solutions Weekly Mail – 202^nd Issue dated 21^st March ’12 – Special Issue

All Weekly mails right from 1^st Issue to latest, click links given at the top

(1) Illegal auctioning of assets - CMD of Financial Institution, its AGM (Law) and Recovery Officer of DRT-1 Delhi get One Month Jail by High Court Delhi for Contempt – Officers of the Financial Institutions are also fined Rs 3.5 lac and Rs. 1.5 lac to be paid from their pocket –

(a)                Three news items are reproduced below and are self explanatory.

(b)                This weekly mail must be spread to all borrowers, guarantors and their advocates as well as the Industrial Associations.

(c)                This will create a fear among the public servants indulging into illegal disposal of assets by the banks and DRTs.

(d)                This has proved our contentions past several years that in all cases, the Chairman of the bank must be impleaded as a necessary party.

(e)                It is reiterated that our pleadings must be thorough and perfect and we must contest perfectly on all dates.

(f)                  We must always file damages and or counter-claims in all cases for the wrongdoings committed by the banks and Fis.

http://www.dnaindia.com/india/report_ifci-ceo-gets-one-months-imprisonment-for-contempt-of-court_1665157