DRT Solutions Weekly Mail – 360^th Issue dated 3^rd April ’15

All Weekly mails right from 1^st Issue to latest, click links on top of this page 

(1) Most Important Aspect to Win Against Banks – Discovery of Documents 

In order to win a case against banks, past several years we have been emphasizing in our several weekly mails the following:-

(a)   All bank litigations in DRTs are primarily based on documents, most of which are in power and possession of the banks.

(b)   Success of the said bank litigations depend as to how the borrowers obtain the said documents.

(c)   In legal parlance the method by which all the essential and material documents can be obtained is known as ‘Discovery of Documents’

(d)   The litigant borrower must study the Order-11 of CPC along with a good digest. After such study only, the application should be made to the DRT for inspection and production of documents.

(e)   Each and every document which is required must be analyzed as to its need and the same should be mentioned in the said application in detail. Despite our repeated telling in several weekly mails past several years, this is not being done. As a result the DRTs are rejecting such applications.

(f)    Had complete need of each and every document is mentioned in detail and if the DRT rejects such application, there are fair chances of getting success in Review and Appeal otherwise not.

(g)   The above matter just can not be left to the advocates. The borrowers will have to take special pains to prepare the said application and then sit with their advocates to understand all the details of the need of the said document. The borrower must be present in the DRT and help their advocate during the arguments. If required when the Review and Appeal are prepared the same process has to be repeated by the borrowers.

(h)   If adequate pains are taken by the borrowers and their advocates in securing discovery of the documents, no bank can win the litigation in DRT. However it is presumed that proper counter-claim has been pleaded and contested.

(2)       Impact of Tightened Sale of Bad Loans to ARCs 

RBI tightens sale of bad loans to asset reconstruction cos

http://www.moneycontrol.com/news/cnbc-tv18-comments/rbi-tightens-salebad-loans-to-asset-reconstruction-cos_1149185.html

The RBI has asked the ARCs to be 15 percent upfront, many ARC’s did not want to make any money out of those assets but just wanted the consulting fees which was a percentage of the value of the security receipts. 


 

The Reserve Bank of India (RBI) tightened non-performing assets (NPA) sale norms for the public sector banks in an attempt to tackle the bad loans situation. RBI says asset reconstruction companies (ARCs) will now have to invest and hold minimum 15 percent security receipts as against 5 percent held earlier. The move, however, may not particularly affect only the PSU banks, but all banks. Sale to assets reconstruction companies has been happening for the past ten years. Last year, the RBI forced banks to use more ARCs because there was a pile of assets and not everything was being used. The debt recovery tribunal (DRT), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) were among those that were being used, but the ARC’s were not being used enough and so, upon being forced a large number of sales, some Rs 3,700 crore got sold in one year and the assets under management (AUM’s) increased. Now there were worries in banking circles that some of these sales could be a little artificial just to park some of the bad loans with the ARC’s, but that fear cannot be proved because three years are not over and not enough time elapsed for the market to find out whether those assets could be revamped But now, one can actually get to know within a year because one has to value the assets and pay the management consulting fees. Until now the ARC is paid 5 percent of what it valued those assets, the remaining 95 percent was paid only as security receipts more in the form of interest only (IO) user bonds paper. At the end of one year, if it is unable to recover loans, it was put back to the banks or to the extent that it was recovered. The RBI has asked the ARCs to be 15 percent upfront, many ARC’s did not want to make any money out of those assets, but just wanted the consulting fees which was a percentage of the value of the security receipts. There was always a desire not to value the assets lower. If an asset turned bad, if it was Rs 100 crore the only thing one got from it was the land, the scrap value of the plant and other stuff, which would be normally 70-75 percent or maybe much less.

If one values it at Rs 100 then the management fees increased and at the end of the year one has to push it back because he/she is unable to sell it off.

 

DRT Solutions Weekly Mail – 359^th Issue dated 27^th March ’15

All Weekly mails right from 1^st Issue to latest, click links on top of this page 

(1) Latest & Useful SC Judgment which Validates Our Approach to Counter-claim by Borrowers 

In a recent SC Judgment published in the latest issue of DRTC Vol 15 No 1 February 2015(2) vide citation [2015(1) DRTC 164(SC)], Bank of Rajasthan vs VCK Shares, Civil Appeal No 8972 & 8973 of 2014 decided on 17.09.14, the following decisions totally validated our line of thinking past several years on the matter of counter-claim by th borrowers:-

(a)   The Bank filed an OA for Rs 8.62 crores before the DRT Kolkata. The Respondent entered appearance before the said DRT.

(b)   The Respondents also filed a civil suit before the Calcutta High Court for ‘No Debt Due’ as well as claiming Rs 8.95 crores in default.

(c)   The Bank resisted the said civil suit and accordingly the same was transferred to DRT. The DRT decided ‘No Debt Due’ and also awarded counter-claim of Rs 6.88 lacs.

(d)   The Bank challenged the DRT Order in the High Court. It was dismissed in default.

(e)   The Respondent also appealed against the order of the single judge to transfer the suit to DRT. The division bench allowed the Appeal filed by the Respondents.

(f)    The said judgment of the High Court has been questioned in this SC Judgment. The SC has analyzed various existing its judgments and finally came to conclusion to  refer the questions to a larger Bench:-

(i)            Whether an independent suit filed by a borrower is liable to be transferred to DRT and tried along with the OA by the DRT?

(ii)           If the answer is in affirmative, can such transfer be ordered by a Court only with the consent of the borrower?

(iii)         Is the jurisdiction of the Civil Court ousted by virtue of the DRT Act?

Our Contentions 

For past several years, we have been emphasizing the importance of counter-claim and ‘No Debt Due’ This has happened in this case. Further our view is that DRT is the only trial court to decide the counter-claim. Let us now await the decision of the larger Bench.

(2) SC Order Striking Down Sec 66A of IT Act 

The following news item is self explanatory:-

Supreme Court order striking down Section 66A of IT Act, which allowed arrests for objectionable content online, gets a thumbs up

TNN | Mar 25, 2015, 12.00 AM IST

In what can be termed as a huge victory for free speech and civil liberty, the Supreme Court of India yesterday struck down the IT Act Section 66A that made posting 'offensive' comments online a crime punishable by jail, terming it 'unconstitutional'.The section of the Act, regarded as draconian, was seen by many as infringing on an individual's right to freedom of speech. The apex court ruled that the section falls outside Article 19 (2), which relates to Freedom of Speech, and has to be struck down in its entirety ."Section 66A is unconstitutional and we have no hesitation in striking it down," said Justice R F Nariman, reading out the judgement. The news came after a long campaign by defenders of free speech. Here are some celeb reactions to the verdict:

The following celebrities felt satisfaction over the above SC Order:-

SHABANA AZMI, ACTRESS

RAHUL DACUNHA, THEATRE PERSONALITY

RICHA CHADHA, ACTRESS

PUNIT MALHOTRA, DIRECTOR

SUHEL SETH, SOCIAL COMMENTATOR

GUL PANAG, ACTRESS

MRUNALINI DESHMUKH, LAWYER

ADITI MITTAL, STAND-UP COMEDIAN


HOW IT STARTED

The first PIL was filed in 2012 after two girls in Thane were arrested for commenting against the shutdown in Mumbai, following a party leader's death. In 2013, the f apex court had come out with an advisory under which a person cannot be arrested without the police receiving permission from senior officers.

DRT Solutions Weekly Mail – 358^th Issue dated 20^th March ’15

All Weekly mails right from 1^st Issue to latest, click links below:-

(1) PSBs Add Twice Bad Loans Than Pvt Banks 

The following news item is self explanatory:-

PSBs Add Twice Bad Loans Than Pvt Banks

Published: 18th March 2015 06:10 AM

Last Updated: 18th March 2015 06:10 AM

http://www.newindianexpress.com/business/news/PSBs-Add-Twice-Bad-Loans-Than-Pvt-Banks/2015/03/18/article2719024.ece

HYDERABAD: Notwithstanding rigorous processes for lending capital, public sector banks have surpassed private banks in adding bad loans, especially after recession.

While NPAs or bad loans of PSBs grew in healthy double digits after the 2008-global economic recession, private banks’ gross NPAs grew in lean single digits.

For instance, if the country’s largest bank SBI & Associates’ gross NPAs grew 25, 32 and a whooping 59 per cent in 2010, 2011 and 2012 respectively, private banks registered 3, 5 and 3 per cent growth during the same period. Similarly, 21 other nationalised banks saw their NPAs grow at 37, 22 and 56 per cent. Bad loans of foreign banks’ too grew, but nationalised banks’ overseas subsidiaries significantly contributed to the growth.

 Every time a bank lends money, it is required to set aside a part of that amount as provision in order to secure itself from a potential default. Unfortunately, industry experts say, the amount of provisioning made by PSBs is inadequate.

Worse, the percentage of bad loans of state-run banks, which account for over 70 per cent of the banking industry, is growing at an alarming pace. As on March 2014, all scheduled commercial banks, including private and foreign banks, together had Rs 2,64,194 crore worth bad loans. Of this, PSBs accounted for Rs  2,28,073 crore. In the following nine months, this rose to Rs 2,60,531 crore reflecting the pace at which nationalised banks’ bad loans are piling up.

Though NPAs are on the rise, the amount recovered by all the 84 banks operating in India through debt-recovery tribunal, lok adalats and Sarfaesi Act, is slipping. While they recovered 21.9 per cent of the total 8.4 lakh cases referred for recovery involving Rs 1 lakh crore in 2013, it fell to 18 per cent in 2014, even as the number of cases referred for recovery doubled to 16.36 lakh crore..

(2) Admissibility of Secondary Evidence 

The following news item is self explanatory:-

Admissibility of Secondary E-evidence under Indian Laws

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GroundReport | Author: nirajdp1571 
Filed Under: Law, News | Posted: 03/12/2015 at 12:51PM
0 Comments | Region: India

Due to the boom in the industry of e-commerce and tremendous increase in e-crimes, electronic evidence gained its importance and it has involved into a fundamental pillar of communication, processing and documentation. The various forms of evidence are increasingly being used in both Civil & Criminal Litigations. During trials, Judges are often asked to determine the admissibility of electronic evidence and it substantially impacts the outcome of civil law suit or conviction/acquittal of the accused in a criminal case. The Court continue to grapple with this new electronic frontier as the unique nature of e-evidence, as well as the ease with which it can be manipulated or falsified, creates hurdle to admissibility not faced with the other evidence. The various categories of electronic evidence including website data, social network communication, e-mail, SMS/MMS and computer generated documents poses unique problems and challenges for proper authentication.

The Indian Evidence Act has been amended by virtue of Section 92 of Information Technology Act, 2000 (Before amendment). Section 3 of the Act was amended and the phrase “All documents produced for the inspection of the Court” were substituted by “All documents including electronic records produced for the inspection of the Court”. Regarding the documentary evidence, in Section 59, for the words “Content of documents” the words “Content of documents or electronic records” have been substituted and Section 65A & 65B were inserted to incorporate the admissibility of electronic evidence.

In Section 61 to 65, the word “Document or content of documents” have not been replaced by the word “Electronic documents or content of electronic documents”. Thus, the intention of the legislature is explicitly clear i.e. not to extend the applicability of section 61 to 65 to the electronic record. It is the cardinal principle of interpretation that if the legislature has omitted to use any word, the presumption is that the omission is intentional. It is well settled that the Legislature does not use any word unnecessarily.

On the other hand, in Section 61 to 65 Indian Evidence Act, the word “Document or content of documents” have not been replaced by the word “Electronic documents or content of electronic documents”. Thus, the omission of the word, “Electronic Records” in the scheme of Section 61 to 65 signifies the clear and explicit legislative intention, i.e. not to extend the applicability of Section 61 to 65 to the electronic record in view of overriding provision of Section 65-B Indian Evidence Act dealing exclusively with the admissibility of the electronic record which in view of the compelling technological reasons can be admitted only in the manner specified under Section 65-B Indian Evidence Act.

The main objective to introduce the specific provision has its origin to the technical nature of the evidence particularly as the evidence in the electronic form may not be produce in the court of law owing to the size of computer/server, residing in the machine language and thus, requiring the interpreter to read the same. The Section 65B of the Evidence Act makes thesecondary copy in the form of computer output comprising of printout or the data copied on electronic/magnetic media.

In the matter of Anvar P.V. versus , P.K. Basheer And Ors. [MANU/SC/0834/2014] is significant judgment, the Supreme Court has settled the controversies arising from the various conflicting judgments as well as the practices being followed in the various High Courts and Trial Courts as to the admissibility of the Electronic Evidences. The Court has interpreted the Section 22A, 45A, 59, 65A & 65B of the Evidence Act and held that data in CD/DVD/Pen Drive are not admissible without a certificate U/s 65 B(4) of Evidence Act. It has been elucidated that electronic evidence without certificate U/s 65B cannot be proved by oral evidence and also the opinion of the expert U/s 45A Evidence Act cannot be resorted to make such electronic evidence admissible.

The judgment would have serious implications in all the cases where the prosecution relies on the electronic data and particularly in the cases of anticorruption where the reliance is being placed on the audio-video recordings which are being forwarded in the form of CD/DVD to the Court. In all such cases, where the CD/DVD are being forwarded without a certificate U/s 65B Evidence Act, such CD/DVD are not admissible in evidence and further expert opinion as to their genuineness cannot be looked into by the Court as evident from the Supreme Court Judgment. Electronic records being more susceptible to tampering, alteration, transposition, excision, etc. without such safeguards, the whole trial based on proof of electronic records can lead to travesty of justice.

In the anticorruption cases launched by the CBI and anticorruption/Vigilance agencies of the State, even the original recording which are recorded either in Digital Voice Recorders/mobile phones are not been preserved and thus, once the original recording is destroyed, there cannot be any question of issuing the certificate under Section 65B(4) of the Evidence Act. Therefore in such cases, neither CD/DVD containing such recordings are admissible and cannot be exhibited into evidence nor the oral testimony or expert opinion is admissible and as such, the recording/data in the CD/DVD’s cannot become a sole basis for the conviction.

In the aforesaid Judgment, the Court has held that Section 65B of the Evidence Act being a ‘non obstante clause’ would override the general law on secondary evidence under Section 63 and 65 of the Evidence Act. The Section 63 and Section 65 of the Evidence Act have no application to the secondary evidence of the electronic evidence and same shall be wholly governed by the Section 65A and 65B of the Evidence Act. The Constitution Bench of the Supreme Court overruled the judgment laid down in the State (NCT of Delhi) v. Navjot Sandhu alias Afsan Guru[(2005) 11 SCC 600 by the two judge Bench of the Supreme Court. The court specifically observed that the Judgment of Navjot Sandhu supra, to the extent, the statement of the law on admissibility of electronic evidence pertaining to electronic record of this Court, does not lay down correct position and required to be overruled.

In the recent matter of Jagdeo Singh Vs. The State and Ors.[MANU/DE/0376/2015] pronounced by Hon’ble High Court of Delhi, while dealing with the admissibility of intercepted telephone call in a CD and CDR which were without a certificate u/s 65B Evidence Act, the court observed that the secondary electronic evidence without certificate u/s 65B Evidence Act is inadmissible and cannot be looked into by the court for any purpose whatsoever

The admissibility of the 

secondary electronic evidence has to be adjudged within theparameters of Section 65B of Evidence Act and the proposition of the law settled in the recent judgment of the Apex Court and various other High Courts as discussed above. The proposition is clear and explicit that if the secondary electronic evidence is without a certificate u/s 65B of Evidence Act, it is not admissible and any opinion of the forensic expert and the deposition of the witness in the court of law cannot be looked into by the court. However, there are few gaps which are still unresolved as what would be the fate of thesecondary electronic evidence seized from the accused wherein, the certificate u/s 65B of Evidence Act cannot be taken and the accused cannot be made witness against himself as it would be violative of the Article 19 of the Constitution of India.

DRT Solutions Weekly Mail – 357^th Issue dated 13th March ’15

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) New RBI Rule forcing Banks to apply their Mind while Restructuring  

Mr Himanshu Mehta, one of our clients from Mumbai has referred to the following news item which is self explanatory:- 

Will the new RBI rules on bank loans prove to be a lender bender?

By Sangita Mehta, ET Bureau | 11 Mar, 2015, 06.44AM IST

http://economictimes.indiatimes.com/industry/banking/finance/banking/will-the-new-rbi-rules-on-bank-loans-prove-to-be-a-lender-bender/articleshow/46522968.cms?curpg=2

Like many things that happen only in India, for years Indian banks have been following a practice that lenders in other countries don't. They rejig loans of troubled borrowers — charging them lower interest, allowing them a longer repayment time — to save the loan from turning bad and protect the bank bottomline.

The beauty of the arrangement is that banks have to provide very little — meaning, they have to set aside a smaller amount — for such "restructured loans" as compared to the much higher provisioning specified for bad loans, better known as non-performing assets, or NPAs.

After April, banks can no longer resort to this comfortable book-keeping. Since there will be no difference between NPAs and restructured assets, banks will have to set aside 15% of restructured loans as provisions as against 5% they do now.

The annoyance among bankers, who have been under the spotlight for mounting bad loans, is understandable: higher provisioning means lower earnings; and, the quality of their loan book will look worse than what appears now. The fear is that if growth fails to take off, there won't be too many other earning avenues to make up for the loss.

THE GENESIS

The new rule owes its origin to reforms that followed Manmohan Singh's first budget. On April 27, 1992, the Reserve Bank of India (RBI) asked banks to treat all restructured loans as problem loans, thus attracting higher provisions. The idea, back then, was to be in line with international best practices.

A decade later, when large financial institutions like ICICI and IDBI were planning to become banks, these lenders lobbied for a change. They argued that many projects were stuck due to external factors like delays in clearance from various state and central authorities and even promoters who were willing to service loans were unable to pay as cash generation had been delayed by time and cost overruns.

Around the same time, environmental issues in special economic zones had cropped up and land acquisition for several projects hit a roadblock. Faced with these ground realities, RBI agreed to change the norm. According to the revised rule, restructured norms were no longer classified as problem loans. In one shot, provisions on such loans fell to 2% from 10% (that applied to NPAs then). RBI coined a new basket for such loans: "restructured standard assets".

POSTPONING THE PROBLEM

The rule relaxation, however, came with some guidance. "Banks," the new rules said, "can undertake restructuring if in their opinion the bottleneck in achieving regular commercial production was of temporary nature, not indicative of any long-term impairment of the unit's economic viability and if the unit was likely to achieve cash break-even if some time was allowed."

Soon many banks, desperate to show improved balance sheets, began to ignore the advice. Between March 2002 and 2013, banks' loan book grew by 779% to Rs 59,89,182 crore while the portfolio of restructured loans grew by 3,087% to Rs 3,13,003 crore.

Analysts say a predominant number of loans were restructured without looking into merit. Due diligence was slack and often project viability was not scrutinised. Indeed, RBI, in its annual inspection of banks, observed "banks lacked clarity" while restructuring advances. The regulator feared 25-30% of the restructuring would fail to turn around. Questions were raised in RBI on whether banks had the cushion to absorb the shock if some of loans sank.

When the share of restructured loans overtook that of problem loans, RBI stepped in. Addressing the media, RBI governor Raghuram Rajan recently said, "It's important we clean up bank balance sheets and show what they actually contain. That will enhance confidence in bank balance sheets and enable banks to raise the much needed fresh capital. In order to build confidence in bank balance sheets, we have to come to an end of forbearance... It is to call a spade a spade."

It was an open secret that many loans were restructured simply to postpone the problem. Troubled promoters with high leverage and ambitious projects were given a long rope. By chipping in as little as 2% of restructured debt as extra equity from promoters, these borrowers bagged concessions on interest rates and one to two years of repayment holiday.

In 2013, RBI brought back the old rule of the '90s. It spelt out that the moment a loan was restructured it should be treated as a problem loan with higher provisioning. Banks were given two years' time to migrate to a stricter loan classification and accounting rule, though the rule was not applied uniformly for all loans.

A special dispensation was thrown in for new promoters, infrastructure and certain non-infrastructure projects (excluding services and real estate); if the projects were not completed within the timeframe envisaged in the agreement, the restructured loans for entities within these categories could be treated as a performing asset for six months, two years and one year respectively.

THE WAY OUT

With the rules of the game changing, banks should add a few things in their rule book to minimise the number of loans that would have to be restructured. Besides sanctioning loans on time and ensuring that promoters commit adequate equity capital, lenders should strengthen credit monitoring and examine possible external factors that could affect the project.

They should factor in the worst case scenario such as long delay in gas supply, hurdles in land acquisition and environmental clearance while appraising a loan proposal and ask the promoter to prepare a contingency plan. Also, the MD and CEO of a bank should be as accountable for a loan turning bad as the mid-level officers who sanctioned the loan and failed to monitor the account.

STOP KID-GLOVE TREATMENT

The special forbearance on classification of restructured loans for select segments such as infrastructure, new promoters etc, distorts the market. RBI should do away with this. The world over, corporates try to make the best of regulatory arbitrage. Giving dispensation to a select category of borrowers will not only defeat the purpose of showcasing a clean balance sheet to the international community but also encourage banks to restructure loans that do not merit concessions.

A special dispensation could end up favouring those who have the wherewithal to undertake large infrastructure projects like power and ports; it could also benefit 'new promoters' (having links with old business families) looking at acquiring manufacturing units. Any dispensation to one category of borrowers is discrimination to others. Such dispensation could also encourage inefficiencies of government departments.

A dispensation is given when corporates are unable to obtain timely clearances on access to coal, gas and environmental clearances from state and central authorities. By giving the dispensation, the regulator may be unwittingly tolerating government agencies' indiscipline and inability to take timely decisions. In a democracy, inefficiencies at the Centre can be better addressed if the affluent who can lobby feel the pinch.

RBI can, alternatively, choose an easy option. A loan to a project not completed within the given date is treated as substandard even if there is no default in servicing the loan. This can be changed to treat a loan as standard assets, irrespective of when the project is completed, as long as the borrower pays on time.

Former deputy governor KC Chakrabarty had once said: "Flexibility in regulatory prescription is sometimes coveted, arbitrariness in regulation would lead to the build up of 'fault lines' in the system. A uniform approach — either principle or rule-based regulation — needs to be adopted and consistently followed so as to bring the necessary stability in credit risk management practices across banks and eliminate ad hoc implementation processes."

(2) SARFAESI to boost NBFCs Recovery 

The following news item is self explanatory:-

SARFAESI coverage to boost NBFCs recovery of loans: Moody’s

K. R. SRIVATS

HTTP://WWW.THEHINDUBUSINESSLINE.COM/INDUSTRY-AND-ECONOMY/BANKING/SARFAESI-COVERAGE-TO-BOOST-NBFCS-RECOVERY-OF-LOANS-MOODYS/ARTICLE6975108.ECE

NEW DELHI, MARCH 9:  

The budget announcement to expand the coverage of SARFAESI law to certain NBFCs would be “credit positive” for lenders of loans against property (LAP), global rating agency Moody’s has said.

Designating non banking finance companies (NBFCs) with assets of more than ₹ 500 crore as “financial institutions” under the SARFAESI law would speed up lenders’ repossession of LAP, according to Moody’s Credit Outlook.

This is because such NBFCs would have the ability to demand repayment of any defaulted loan within 60 days after the lender classifies such loans as non-performing assets (NPAs).

LAP is a loan made against residential or commercial property already owned by the borrower

Residential mortgage backed securities (RMBS) backed by LAPs originated by these NBFCs would also benefit from speedier loan recovery, Moody’s has said.

LAPs are often taken out by small business proprietors who repay the loan using cash flow from the business housed in that property.

Among the NBFCs that are active in LAPs and that would benefit from the budget proposal are Cholamandalam Investment & Finance (unrated), Indiabulls Financial Services (unrated), Magma Fincorp (unrated), Reliance Capital (unrated), Religare Finvest (unrated) and Fullerton India Credit Company (unrated).

All these NBFCs have been active in securitization, Moody’s has said.

If the defaulted borrower refuses to repay the outstanding loan in full within 60-days of notice, lenders would be allowed to seek repossession through the chief metropolitan magistrate or district magistrates in the jurisdictions in which the properties are located.

Under the current practice, NBFCs must resort to civil court proceedings to recover their loans and take repossession of a property whose recovery time is difficult to determine.

Repossession through the chief metropolitan magistrates and the district magistrates, which normally takes 18-24 months, should offer a speedier recovery.

Besides more standardized protocols around loan recovery, inclusion under the SARFAESI Act would allow lenders to take over the management of a borrower’s business if the defaulted borrower does not discharge his liability in full.

Based on fiscal 2013 data from the Reserve Bank of India, NPA recovery through the SARFAESI Act (as opposed to debt recovery tribunals and other recovery means) accounted for about 80% of the total amount of the banking sector’s NPAs recoveries at ₹ 23,200 crore, and the collection rate was 27.1%.

DRT Solutions Weekly Mail – 355^th Issue dated 27^th February ’15

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) Judiciary: Biggest Economic Bottleneck 

The following news item is self explanatory:-

Judiciary: the biggest economic bottleneck

NITIN POTDAR

http://www.thehindubusinessline.com/opinion/judiciary-the-biggest-economic-bottleneck/article6913387.ece

The best way to deal with case backlog is to create a collaborative environment, as demonstrated in income tax matters

The country’s legal and judicial systems play a crucial role in deciding the pace and quality of its economic performance. The World Bank Report on Doing Business has identified streamlined court processes and faster contract enforcements as the paramount factor shaping efficient and effective business environments worldwide. In fact, the backlog of more than three crore court cases is by far the biggest impediment to the Prime Minister’s call to ‘Make in India’ as also his aspiration to improve India’s Ease of Doing Business ranking.

The discussion has assumed importance again with the latest directive, by the current Chief Justice of India HL Dattu, asking high court judges to file verdict details that also reflect qualitative assessments.

Efforts to speed up

Many governments have, in the past, attempted to speed up the judiciary. The previous law minister, Veerappa Moily, had outlined an ambitious road map to reduce litigation life from 15 years to 3 years, the inception of as many as 5,000 supplementary courts to be serviced by more than 15,000 retired judges, and setting up separate commercial courts for high value disputes.

Likewise, the former CJI AM Ahmadi had called for head-wise classification of cases and their ensuing allotment to specific benches for specific terms to ensure quick clearance. We have, from time to time, heard about the acute need for robust computerisation and intelligent case management. Although these are logical recommendations, they are long-term measures involving substantial lead times and cost.

We should welcome the income tax department’s momentous recent decision of not filing an appeal against the Bombay High Court decision in the case of Vodafone. The unconditional acceptance of the attorney general’s opinion is a step of far-reaching positive consequences.

Today, the number of cases filed by or against the revenue department total more one crore. These disputes can be categorised subject-wise and then deliberated internally amongthe tribunal heads under a team of retired Supreme Court judges aided by the attorney general and the finance minister, if required.

This in itself would substantially reduce the courtroom burden. It would also revive the reputation of the tax department.

Practical solutions

Similarly, the labour minister can demand categorisation of disputes under provident fund, gratuity or industrial laws before passing them through the funnel of resolution. Thousands of cases and appeals are pending under various State and municipal laws. There’s a lot to be achieved by consensual collaboration.

Each ministry can form a small team and request a retired Supreme Court judge to opine on pending disputed issues and direct the departments to effect a fast resolution. This may well script a revolution in the Indian judicial system. Law colleges, public institutions and industry chambers must come forward to initiate and support these initiatives.

Bulk disposition by consensus is the only way out of the humungous backlog of civil litigation. Compounding is another process to clear backlog in bulk.

Setting up Supreme Court benches in Mumbai, Chennai and Kolkata would help thousands of litigants who otherwise end up travelling all the way to Delhi. The Bombay Lawyers’ Association has already proposed the idea of an apex court bench in Mumbai while the Law Commission of India has been consistently recommending that Supreme Court benches be set up in Chennai, Hyderabad, Kolkata and Mumbai.

We can gainfully follow the Chinese model where law students are encouraged to appear for the national judicial examination to ensure a steady pipeline of quality judges at least in the lower judiciary. We can emulate the Singapore model of massive computerisation for case management and technological framework. Like Malaysia, we can fix disposal targets for older cases and like Italy, we can foster pre-judicial negotiations for amicable resolution.

Clearing the mounting backlog in our judicial backyard is certainly doable with strong political will.

The writer is the M&A partner at J Sagar Associates. The views expressed are personal

(This article was published on February 19, 2015)

(2) Debt Recast Failing, NAPs may Cross Rs 30,000 Crores  

The following news item is self explanatory:-

Debt recast scheme failing, NPAs may cross R30K crore

Written by George Mathew | Mumbai | February 24, 2015 2:46 am

http://indianexpress.com/article/business/business-others/debt-recast-scheme-failing-npas-may-cross-r30k-crore/

After non-performing assets, it is now the turn of restructured debt packages that have got banks worried.

Debt restructuring packages of 121 companies with loans of over Rs 30,000 crore have failed during the last four years, and banks fear that number is set for a sharp rise in the coming months.

Figures available with the Corporate Debt Restructuring (CDR) cell of banks — considered as the “intensive care unit” for financially troubled corporates — show that CDR packages of 86 companies with loans of Rs 14,000 crore failed in 2013-14. In 2012-13, 12 CDR cases for Rs 4,300 crore and in 2011-12, 9 cases for Rs 3,000 crore failed.

These CDR packages failed — from virtually zero to Rs 30,000 crore in four years — even after banks doled out interest rate cuts, moratorium on repayment and in some cases even a haircut by the lenders. After taking into account the stressed loan cases withdrawn from the CDR mechanism, the total amount involved in unsuccessful restructuring comes to Rs 50,104 crore, says the CDR Cell of banks, created under the RBI’s regulatory framework.

RK Bansal, chairman of the Cell said, “One worry is that in cases which we have restructured failure rates might go up. We have noticed that failure rates had gone up during the last year. This is partly because these cases were restructured during 2011-12 and 2012-13.”

“They were based on some projections that the economy will do well and demand will rise etc. In some cases it was not possible to comply with or achieve that,” Bansal said.

Banks had gone overboard in estimating demand and the promoters’ capability in bringing money.

There are two options when a company’s CDR package fails to click. “One is the company perhaps needs another package if it is viable. But as per the RBI guidelines, if it is a second restructuring then it becomes an NPA. The second option before the bank is legal action,” Bansal said.

Some of the top corporates whose CDR packages failed include Bharati Shipyard (Rs 3,500 crore), Hotel Leela (Rs 3,000 crore), Electrotherm, Jayabharat Textiles and Surya Pharma.

While announcing the Q3 results, ICICI Bank MD & CEO Chanda Kochhar said the bank’s fresh slippages stood at Rs 2,279 crore during quarter, with almost Rs 776 crore, coming from advances restructured in the past.

The trend of restructured assets slipping into NPAs is expected to continue for another 2-3 quarters.

“The government needs to amend the Sarfaesi Act and tighten rules governing debt recovery tribunals to speed up recoveries,” said the chairman of a nationalised bank.

Rs 65,295 crore proposals rejected, Winsome, Shree Ganesh lead list

MUMBAI: The CDR cell of banks has rejected / closed before approval as many as 121 proposals for debt restructuring worth around Rs 65,295 crore.

“Many of these cases are wilful defaults and fund diversion. “We need a tough law to tackle such wilful defaulters,” he said.

Two such cases are that of Winsome Diamonds and Shree Ganesh Jewellery where banks conducted a forensic audit and found evidence of fund diversion. The application was rejected.

“We need a tough law to tackle such wilful defaulters,” a senior banker said.

DRT Solutions Weekly Mail – 354^th Issue dated 20^th February ’15

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) Over 2.5 Crore Cases Pending in Indian Courts 

The following news item is self explanatory:-

Over 2.5 crore cases pending in Indian courts: LS speaker

Ankur Tewari,TNN | Feb 14, 2015, 11.26 PM IST
http://timesofindia.indiatimes.com/india/Over-2-5-crore-cases-pending-in-Indian-courts-LS-speaker/articleshow/46247632.cms

AHMEDABAD: More than 2.5 crore cases are pending in courts across the country and this "unacceptable level" is due to lack of efficient lawyers, judges and courts, Lok Sabha speaker Sumitra Mahajan said on Saturday. 

Addressing the sixth convocation ceremony of Gujarat National Law University (GNLU), Mahajan said: "It's saddening that 63,800 cases are pending in Supreme Court, followed by 4.4 million in high courts and 20 million in district courts across the country. Justice delayed is justice denied. The majority of litigants in rural areas are struggling due to lack of courts, judges, efficient lawyers, infrastructure and lack of access to the justice delivery system." 

The speaker said: "To ensure cost-effective justice, the government must strengthen the setting up of legal aid and advise boards on mechanisms of alternative dispute resolutions like lok adalats, fast track courts and consumer forums." A total of 188 undergraduate and postgraduate students were awarded their degrees at the ceremony. 

16 DTH channels for distance learning 

Gujarat chief minister Anandiben Patel on Saturday announced that her government will soon start 16 DTH channels in schools and colleges for distance learning. 

"We want to promote distance learning in schools and colleges. So we've decided to launch 16 DTH channels soon," Patel said, addressing the convocation as the guest of honour.

(2) Supreme Court asks – Is Your Case in 93% or the Remaining 7%  

The following news item is self explanatory:-

Is your case in the 93% or the remaining 7%?

http://indianexpress.com/article/india/india-others/is-your-case-in-the-93-or-the-remaining-7/

Written by Utkarsh Anand | New Delhi | Posted: February 17, 2015 3:33 am

Of late, Justice Ranjan Gogoi has been starting court proceedings with a question that leaves many lawyers in the Supreme Court befuddled: “Does this case fall in the 93 per cent or in the remaining 7 per cent?”

While most lawyers don’t know how to respond, a few lucky ones get help from their colleagues who have been asked the same question by Justice Gogoi in the past.

During one such proceeding, senior advocate Kapil Sibal was left flummoxed when Justice Gogoi asked him, “Where does your case lie, Mr Sibal? We think it falls in the 93 per cent. You should withdraw it and go to the high court first.” Sensing Sibal’s confusion, senior advocate Shekhar Nephrade said he would help his friend understand what the judge was talking about.

Behind Justice Gogoi’s question is a research by a group of lawyers, who analysed 884 judgments delivered by the Supreme Court in 2014. As per the findings, only 7 per cent of these judgments involved substantial issues of laws and the Constitution, while the remaining 93 per cent of the cases related to appeals from miscellaneous orders of the high courts.

Supreme Court advocate K V Dhananjay and about one dozen lawyers in Delhi and Bangalore analysed the judgements, uploaded on the official website of the Supreme Court between January 1 and December 31, 2014. The purpose was to find out how many of these judgments involved interpretation of the Constitution or involved substantial challenge to any statute, regulation, law or executive action for being inconsistent or repugnant to a constitutional provision.

“The findings were mind-boggling since a meagre 64 cases, or 7 per cent of the total cases, involved any substantive constitutional issues. All other cases adjudicated upon by the Supreme Court were routine appeals from high courts,” Dhananjay told The Indian Express.

Explaining that the cases were segregated on the basis of whether they involved an inherent constitutional controversy or not, he said that the team tried its best to keep an objective view of the legal issues while examining whether a matter engaged the top court’s attention and time in deciding a major point of law or a simple question of fact.

Out of the 64 judgements dealing with significant legal and constitutional issues, exactly half were written by a two-judge bench, 18 were penned by a three-judge bench, and 14 were delivered by a five-judge Constitution bench. The analysis indicates that there has been a steady decline in the number of matters involving a substantial question of law decided by constitution benches comprising five or more judges.

According to the research, Justice A K Sikri was the sitting judge with the highest number of such judgments — seven. Former Chief Justices P Sathasivam and R M Lodha had each written nine judgments during 2014 before their retirements. A relatively young member of the bench who assumed the judicial office only in July last year, Justice Rohinton Nariman, wrote three such judgments in 2014.

Buoyed by the response the research has received from Justice Gogoi, Dhananjay said that he was planning to officially share this report with all Supreme Court judges who are the most burdened of any class of judges anywhere in the world. “They are increasingly carrying a tremendous burden with them and we must all be collectively grateful to them for their contribution to the cause of justice,” he added.

Recently, Justice T S Thakur, the most senior Supreme Court judge, said at a function that he had a job satisfaction of only 5 per cent. “If you ask me what is your job satisfaction after five years in SC, I will have to say only 5 per cent. I am unhappy 95 per cent of the time. Why? Because many cases reach the court, like Rs 4,000  cheque bounce cases and anticipatory bail matters, that shouldn’t reach this court. So many important matters that need attention remain unattended. Where do we have the time?” he said.

DRT Solutions Weekly Mail – 353^rd Issue dated 13^th February ’15

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) Rs 2-lac-crore Cases Pending with DRTs in 2014  

The following news item is self explanatory:-

Rs 2-lakh-cr cases pending with DRTs in FY14

http://www.financialexpress.com/article/industry/companies/rs-2-lakh-cr-cases-pending-with-drts-in-fy14/22159/

Even as bankers rely on debt recovery tribunals (DRTs) as a legal alternative to recover bad loans, they feel the process is too long and not very effective, reports fe Bureau from Mumbai. According to RBI data, cases of loans of over Rs 2 lakh crore were pending at 33 tribunals till FY14 end, up from Rs 1.43 lakh crore in FY13.

IDBI Bank executive director RK Bansal says DRTs are burdened with cases and, thus, their effectiveness is lower than expected. He said even if a case is resolved, the DRT issues recovery certificates which takes nearly a year to locate the borrower’s assets and find a borrower. “It takes a year from the date of resolution for the bank to recover the dues,” Bansal added.

                                                                                          FY 13         FY  14

Value of cases pending at DRTs (Rs crore) –   1,43,000      2,06,010

Loans sold to ARCs (Rs crore)                    -               360         15,470

Gross NPA ration (%)                                                       3.4               4.1

Net NPA ratio (%)                                                              1.7              2.2

Restructured advances to gross advances(%)         5.8              5.9

(Source – RBI, finance ministry)

RBI governor Raghuram Rajan had recently said the amount recovered from cases decided in 2013-14 was Rs 30,590 crore, while the value of loans to be recovered was Rs 2.36 lakh crore. Thus, only 13% of the outstanding NPAs in the tribunals were recovered in FY14. According to Rajan, even though the law says that cases before the DRT should be disposed off within 6 months, only about a-fourth of the cases pending at the start of the year are disposed off during the year — suggesting a four-year wait even if the tribunals focus only on old cases.

Bankers also say that the tribunals have also been giving too much leeway to borrowers who seek regular adjournments. SBI deputy managing director (stressed assets management) PK Malhotra told FE last month that apart from the DRTs being saddled with too many cases, borrowers start playing the judicial system by seeking more and more dates. “So DRTs have not delivered to the extent that the financial system had expected them to deliver,” Malhotra had said.

(2) India aims to Amend Arbitration Law to Lure Foreign Investors  

The following news item is self explanatory:-

India aims to amend arbitration law to lure foreign investors

BY MANOJ KUMAR

NEW DELHI Tue Feb 10, 2015 4:01pm IST

http://in.reuters.com/article/2015/02/10/india-arbitration-idINKBN0LE0YQ20150210

(Reuters) - India plans to amend its arbitration law, setting time limits for courts and easing judicial rules to decide corporate disputes, as it seeks to attract more foreign investment, Law Minister Sadananda Gowda said on Tuesday.

Many domestic and foreign companies, such as British telecoms major Vodafone (VOD.L), prefer Singapore, Hong Kong and London as arbitration venues, since winning final settlements from Indian courts can take years.

The World Bank rates India 186th out of 189 countries for its enforcement of contracts. Prime Minister Narendra Modi has promised judicial reforms and other steps to lift India up the World Bank's Doing Business Index.

"Billions of dollars are blocked in legal disputes in India," Gowda told an industry event. "There is a need to establish a speedy, cost-effective and efficient disputes resolution mechanism."

Parliament was expected to approve amendments to the arbitration law in the coming session, he added, which would help attract more investment and settle disputes.

The next parliament session begins on Feb. 23, with Finance Minister Arun Jaitley due to present his budget for the fiscal year ending in March 2016.

The government also plans to set up separate commercial courts to speed the resolution of corporate disputes, a move that could unlock billions of dollars in investments, Gowda said.

A government panel has suggested limiting courts' authority to overrule arbitration awards and fixing time limits and fees to settle legal cases.

The government earlier deferred plans to issue an executive order to amend the law, as it wanted parliamentary approval, Gowda said.

Sums ranging in the billions of dollars are leaving India every year in arbitration costs headed overseas, industry chamber ASSOCHAM said in a report, with Singapore the most popular site for arbitration cases filed by Indians.

Scores of projects worth more than 4 trillion rupees ($64 billion) are under litigation in different courts and tribunals, the report said.

"Delay in the timely disposal of high-value cases is leading to a drop in GDP," said D.S. Rawat, secretary general of ASSOCHAM. "If it could be tackled, it would expand economic activity and provide more avenues for jobs."

($1=62.0500 rupees)

(Reporting by Manoj Kumar; Editing by Clarence Fernandez)

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DRT Solutions Weekly Mail – 352^nd Issue dated 6^th February ’15

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) CMM (Chief Metropolitan Magistrate, Esplanade) Mumbai Rejected Application of Bank u/s 14 of SARFASI Act  

Mr Haresh Gandhi, one of our clients from Mumbai has sent copy of the order dated 12.01.15 from the said Magistrate in case no 354/SA/2014 rejecting the application of the Bank u/s 14 of the SARFAESI Act for taking physical possession. The said Magistrate has held that the Citi Financial Consumer Finance India Ltd the assignor of the Bank is not registered as Financial Company.

(2) Arbitration Agreement vis-à-vis Jurisdiction of Specialized Tribunals 

The following article is self explanatory:- 

India: Effect Of Arbitration Agreement Vis A Vis The Jurisdiction Of Specialised Tribunals

http://www.mondaq.com/india/x/368918/Arbitration+Dispute+Resolution/Effect+Of+Arbitration+Agreement+Vis+A+Vis+The+Jurisdiction+Of+Specialised+Tribunals

The question of jurisdiction of specialized tribunals over the disputes arising out of the agreement where the parties thereto have agreed for arbitration as their dispute resolution mechanism has been in much debate and interpreted by various courts on various occasions. To understand the arbitration and the intent of the legislature for such enactment, one can refer to the preamble of the Act. The preamble of the Arbitration Act, 1996 reads as follows:

"An Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.

WHEREAS the United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985:

AND WHEREAS the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice;

AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980;

AND WHEREAS the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek an amicable settlement of that dispute by recourse to conciliation;

AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations;

AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules;"

Arbitration is an alternate dispute resolution mechanism incorporated to have a speedy and out of court fair and efficient settlement of disputes arising in international commercial relations where the parties to the transaction seek an amicable settlement of that dispute by recourse to conciliation.

The preamble itself suggests that Arbitration is a right in personam which binds two parties agreeing to opt for such mechanism for dispute resolution. According to Black's Law Dictionary, Arbitration is a method of dispute resolution involving one or more neutral third parties.

Alternatively, for certain disputes arising between the parties covered and governed by special enactments, there are special courts/tribunals constituted under such enactments where the parties can approach in case of disputes arisen between them. The examples of the same would be Debt Recovery Tribunal constituted under the provisions of The Recovery of Debts Due to banks and Financial institutions Act, 1993, Central Administrative Tribunal and State Administrative Tribunals constituted under the Administrative Tribunals Act, 1985 to deal with the Service matters of the civil servants and employees of public bodies/ authorities, Armed Forces Tribunal constituted under the Armed Forces Tribunal Act, 2007 to decide the disputes of defence personnel etc. It would be pertinent to mention here that such enactments generally have the exclusion jurisdiction set out with a notwithstanding clause mentioned in such acts. Such enactments set out the exclusivity of the disputes governed by such acts to be dela6 with the specialized forums constituted to decide on such disputes.

In the present article we deal with the arbitrability of disputes arisen amongst the banks and the borrowers in the light of the Judgments of the Full Bench of the Hon'ble Delhi High Court in HDFC Bank v. Satpal Singh Bakshi, as to whether the remedy of arbitration stands excluded in cases where specific tribunals are set up to decide the disputes between the same parties, more particularly in view of the exclusion of jurisdiction clauses set out in such acts. Or in other words; which of the two enactments, i.e. Arbitration Act and The Recovery of Debts Due to Banks and Financial Institutions Act (hereinafter referred to as the 'Debt Recovery Act') is to prevail over the other.

The Full Bench of the Hon'ble Delhi High Court in HDFC Bank v. Satpal Singh Bakshi while inter alia deciding the issue stated above set out a distinction between what is arbitrable and what is not arbitrable in the light of Right in rem and right in personam. Right in rem means a right, often negative, exercisable against the world at large¹. Whereas, Right in personam; means an interest protected solely against specific individuals².

During the course of hearing of the said Judgment, the counsel representing bank inter alia referred to a judgment of Division Bench of Hon'ble Delhi High Court in Kohinoor Creations and Ors. Vs. Syndicate Bank 2005 (2) ARBLR 324 Delhi; wherein it has been inter alia held that in view of the provisions of section 34 of the Debt Recovery Act, the provisions of the Arbitration Act stand excluded. In coming to this conclusion, specific emphasis was laid on sub-section (2) of Section 34 of the RDB Act. Section 34 of the RDB Act reads as under:-

"34. Act to have over-riding effect-

(1) Save as otherwise provided in sub-section(2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

(2) The provisions of this Act or the rules made there under shall be in addition to, and not in derogation of the IndustrialFinance Corporation Act, 1948, the State Financial Corporation Act, 1951, the Unit Trust of India Act, 1963, the Industrial Reconstruction Bank of India Ltd., 1984, the Sick Industrial Companies (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989."

The counsel representing bank further contended that Section 17 of the Recovery of Debts Due to banks and Financial institutions Act, 1993 (the Act) makes it clear that the Debt Recovery Tribunal (DRT) alone is to decide the applications of the Banks and Financial Institutions for recovery of debts due to them. Also, Section 18 of the Act clearly bars the jurisdiction of any other court, except High Court and Supreme Court, from entertaining matters specified in Section 17. Furthermore, Section 31 of the Act transfers all such cases pending before any Court to the DRT. It is therefore evident from the scheme of the RDB that an exclusive jurisdiction has been given to the DRT. He argued that the law on this point has already been conclusively settled by the Supreme Court in the matter of Allahabad Bank v. Canara Bank, (2000) 4 SCC 406, where the issue was with regard to jurisdiction of DRT and Recovery Officers under the DRT Act vis-a- vis Company Court (when a winding up petition is pending, or a winding up order has been passed). It was held that the adjudication of liability and execution of the certificate in respect of debt payable to banks and financial institutions is within the exclusive jurisdiction of the DRT and the concerned Recovery Officer, and in such a case the jurisdiction of the Company Court under Section 442, 537 and 446 of the Companies Act, 1956 stands ousted. He stated that on the other hand, the Arbitration Act is a substitute for a civil Court within the meaning of Section 9 to adjudicate civil disputes, subject to the additional limitation where it is a right in rem, which is to be adjudicated. Taking sustenance from the judgment of Supreme Court in the matter of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Ors., (2011) 5 SCC 532, he pointed out that the Supreme Court while dealing with the issue of "arbitrability" of dispute held that Arbitral Tribunals are "private for a" chosen by the parties in place of Courts or Tribunals which are "public for a" constituted under the laws of the country. All disputes relating to "right in personam" are considered to be amenable to arbitration and all disputes relating to "right in rem" are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. He attempted to apply the ratio of the aforesaid judgment to the given case arguing that when the legislature has expressly made a particular kind of dispute to be decided by a public forum, then the same has been by implication excluded from the purview of arbitrability and therefore cannot be decided by a private forum like arbitration.

The Counsel representing the Bank also tried to draw support from Section 34 of the Act which provides a non-obstante clause. Section 34(2) stipulates that the Act is "in addition to and not in derogation" to any law or force. On the contrary, the Arbitration Act does not have any non- obstante clause except a limited extent insofar as judicial intervention is concerned as provided in Section 5 of the Arbitration Act. He thus submitted that where there are two Acts, the one having a nonobstante clause will prevail over the other and for this reason also, the Act should prevail over Arbitration Act. He also submitted that a finer reading of the provisions of the Act, particularly Section 34 thereof, would reveal that application of Arbitration Act had been expressly as well as impliedly excluded. He also submitted that even if the Arbitration Act is a latter Act, the concept of arbitration was well known to Parliament right from Arbitration Act, 1891 through to the Arbitration Act, 1940. Apart from Section 34, even Section 18 of the Act ousts jurisdiction of all other courts in relation to matters specified in Section 17. Since arbitration is an alternative to the jurisdiction of civil courts and its jurisdiction would be confined and in alternative to cases where civil courts have jurisdiction, therefore, when the jurisdiction of civil courts are ousted, it would impliedly oust the jurisdiction of the arbitral tribunal also. It is Section 18 which is somewhat in pari materia with Section 5 of the Arbitration Act. The Ld. Counsel concluded his submissions by referring to the judgment of the Supreme Court in Nahar Industrial Enterprise Ltd. v. Hong Kong and Shanghai Banking Corporation, (2009) 8 SCC 646 and submitted that the issue at hand stands settled by the aforesaid judgment. In that case, the issue was whether the High Court or Supreme Court has the power to transfer a suit pending in a Civil Court to DRT. The Court enunciated the law as under:

"117. The Act, although, was enacted for a specific purpose but having regard to the exclusion of jurisdiction expressly provided for in Sections 17 and 18 of the Act, it is difficult to hold that a civil court's jurisdiction is completely ousted. Indisputably the banks and the financial institutions for the purpose of enforcement of their claim for a sum below Rs. 10 lakhs would have to file civil suits before the civil courts. It is only for the claims of the banks and the financial institutions above the aforementioned sum that they have to approach the Debt Recovery Tribunal. It is also without any cavil that the banks and the financial institutions, keeping in view the provisions of Sections 17 and 18 of the Act, are necessarily required to file their claim petitions before the Tribunal. The converse is not true. Debtors can file their claims of set off or counter-claims only when a claim application is filed and not otherwise. Even in a given situation the banks and/or the financial institutions can ask the Tribunal to pass an appropriate order for getting the claims of setoff or the counter claims, determined by a civil court. The Tribunal is not a high powered tribunal. It is a one man Tribunal. Unlike some Special Acts, as for example Andhra Pradesh Land Grabbing (Prohibition) Act, 1982 it does not contain a deeming provision that the Tribunal would be deemed to be a civil court."

Upon submission of the counsel of the bank the Full bench of the Hon'ble Delkhi High Court observed as under:

There is no doubt that those matters which are covered by the Act and are to be adjudicated upon by the Debt Recovery Tribunal/ Debt Recovery Appellate Tribunal, jurisdiction of civil courts is barred. Up to this point, we are in agreement with the learned counsel. However, the answer to the question posed before us does not depend upon the aforesaid principle. That principle only ousts the jurisdiction of civil courts. Focus of the issue, however, has to be somewhat different viz. even when a special Tribunal is created to decide the claims of banks and financial institutions of amounts more than `10 Lakhs, can the parties by mutual agreement still agree that instead of the Tribunal constituted under the Act, these disputes shall be decided by the Arbitral Tribunal. If answer to this question is in the negative, then those submissions made by the counsels shall prevail. On the other hand, if we find that it is permissible for the parties, by agreement, to agree for domestic forum of their own choice, namely, Arbitral Tribunal under the Arbitration Act to deal with such claims, then the edifice of the apparent forceful submissions of the Ld. Counsel would collapse like house of cards as all those submissions would be relegated to the pale of insignificance.

No doubt, for determination of disputes the State provides the mechanism in the form of judicial fora, i.e. administration of justice through the means of judicial system established in this country as per the Constitution and the laws. However, it is also recognized that that is not the only means for determination of suit or resolution of conflicts between the parties. Still the parties are given freedom to choose a forum, alternate to and in place of the regular courts or judicial system for the decision of their inter se disputes. There has been a recognition of the concept that notwithstanding the judicial system, parties are free to chose their own forum in the form of arbitration. This was first recognized by enacting Arbitration Act, 1891.

Introduction of Section 89 in the Code of Civil Procedure by amendment to the said Code in the year 2002 takes this concept further by introducing various other forums, known as Alternate Dispute Resolution. Thus, even when the matter is pending in the Court, parties to the dispute are given freedom to resort to Lok Adalat, conciliation, mediation and also the arbitration.

All civil societies demand a proper, effective and independent judicial system to resolve the disputes that may arise. Resolution of disputes by Municipal Courts is, therefore, prevalent in all countries and independence of judiciary is endeavoured in democratic set ups. While courts are State machinery discharging sovereign function of judicial decision making, various alternate methods for resolving the disputes have also been evolved over a period of time. One of the oldest among these is the arbitration. This is a forum for dispute resolution in place of municipal court. Important feature of arbitration is that parties to the dispute voluntarily agree to get the disputes decided by one or more persons, rather than the Court. Though the Indian Arbitration and Conciliation Act, 1996 does not contain a definition of "arbitration", Statement of Objects and Reasons contained therein gives an indication of the general principles on which arbitration is founded. These are: