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What Is Debt Recovery Act Of India

  • Writer: lead India
    lead India
  • Sep 9, 2023
  • 3 min read

Ensuring financial stability and maintaining the efficient operation of enterprises and the financial system as a whole depends on debt recovery. The Debt Recovery Act largely governs the legal framework of debt recovery in India.


The Indian government passed the Debt Recovery Act, also known as the Recovery of Debts and Bankruptcy Act, in 1993 to provide a well-organized and effective framework for the collection of outstanding debts owed by banks and financial organizations. It is essential for tackling the problem of non-performing assets (NPAs) and advancing ethical lending methods.


Purposes of the Debt Recovery Act

  • One of the key purposes is to make it easier for outstanding debts to be recovered on time so that banks and other financial institutions can continue to lend and promote economic growth.

  • The Act establishes special tribunals and appellate tribunals with the authority to decide cases and enforce debt recovery in an effort to hasten the resolution of issues involving debt.

  • The Act aims to lessen the burden of NPAs on financial institutions and banks in order to promote a stronger financial sector. It does this by offering an effective legal framework for debt recovery.

Prerequisites of the Debt Recovery Act

  • The Act calls for the creation of Debt Recovery Tribunals (DRTs), specialized tribunals in charge of deciding debt recovery matters. These tribunals are qualified to handle disputes involving the collection of debts owed to banks and other financial organizations.

  • Cases where the total amount of the debt outstanding is not less than one lakh rupees are subject to DRT jurisdiction. With DRTs concentrating on larger and more difficult issues, this makes sure that smaller debts are addressed by other forums.

  • The Debt Recovery Appellate Tribunals (DRATs) offer an appellate procedure for evaluating DRT verdicts and will hear appeals from parties who are unhappy with the decisions of the DRTs.

  • Both DRTs and DRATs have the authority to question witnesses, demand the handing over of documents, and compel compliance with court orders by seizing and liquidating the defaulting debtor's assets.

  • The Act places a strong emphasis on the necessity of time-limited hearings to guarantee the swift conclusion of debt recovery cases. DRTs and DRATs are obligated to use every effort to bring proceedings to a close within a certain amount of time.

  • An order for the recovery of debt issued by a DRT or DRAT is enforceable by a variety of methods, involving the attachment and sale of property, and has the same force as a judgment issued by a civil court.

  • The SARFAESI Act, which enables banking and financial institutions to seize and sell, secured assets without a court's intervention in the event of loan default, works in tandem with the Debt Recovery Act.

Effects of Debt Recovery Act on Financial Sectors

  • Banks and other financial organizations can now recover debt more quickly and effectively due to the development of DRTs and DRATs.

  • Due to the Act's provision of a legal framework for the prompt recovery of debts, lenders now feel more secure. As a result, ethical lending practices have been promoted and financial institutions' credibility has grown.

  • The Act has helped to decrease NPAs, which is essential for preserving the stability of the banking industry because it has sped up the settlement of debt-related issues and provided enforcement procedures.

  • The Act, which offers a formal framework for agreements between lenders and debtors, has increased the adoption of debt resolution techniques such as one-time settlements and debt restructuring.

Criticisms and Restrictions

  • There has been a backlog of cases for DRTs and DRATs throughout the years, which has slowed down debt collection. Both the borrower and the lender have had serious concerns about this.

  • Since the Act concentrates mainly on secured loans, it is difficult for lenders to efficiently recover unsecured debts.

  • According to detractors, the Act might unfairly benefit lenders over borrowers, which could put the latter in a difficult financial situation.

  • The debt recovery structure in India needs to be updated and improved continuously in order to meet these issues, ensuring that it continues to be efficient and equitable for all stakeholders.

The necessity for continual reform and advancement of the debt recovery process, however, to strike the equilibrium between the interests of borrowers and lenders while ensuring financial stability, is highlighted by the fact that problems and objections still exist.


You will need the help of lawyers for your debt recovery. A debt recovery lawyer is an expert in helping creditors with the legal processes required to recover unpaid debts from people or entities while adhering to all applicable rules and laws.


One can talk to lawyer at Lead India for legal assistance. Free legal advice online can be obtainable at Lead India. Along with obtaining free legal advice online, one can also ask questions to the experts online free from Lead India.


Call Us: +91–8800788535

Email: Care@Leadindia.Law


 
 
 

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