The Centre plans to pursue only high-value cases—where banks’ claims are more than ₹100 crore—in the tribunals, according to two people aware of the development. Such cases will be aggressively pushed to get early order from the tribunals.
As for low-value cases, they will be closed or withdrawn, the first person cited above said. These are cases that have been pending for long, where the default amount is low, and where the transaction cost of pursuing them is higher than the recovery itself.
Some low-value cases may even be moved to Lok Adalats or other frameworks devised by banks with willing borrowers, the people cited above added on condition of anonymity.
To be sure, government data shows that more than 75% of pending cases in DRTs are low-value ones, which involve claim amounts between ₹20 lakh (the jurisdictional value for reference of cases to DRTs) and ₹1 crore. Withdrawal of such cases from the tribunal framework would significantly ease the load on DRTs.
As part of this plan, the Union finance ministry has asked state-run banks to prepare two lists of debtor entities to separate high-value cases from low-value ones, according to the first person cited above.
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Banks would also put in place a monitoring and oversight mechanism for efficient management of these high-value pending cases in DRTs while the tribunals itself have been asked to the process more effective and less time consuming, the first person added.
Queries sent to the finance ministry and department of financial services remained unanswered till press time.
Big-sized problem
More than 200,000 cases are awaiting judgement at different DRTs involving claim amounts of an aggregate value of ₹18 trillion, according to data from the finance ministry.
About 50,000-60,000 new cases involving claim amounts of around ₹4 trillion get added every year while DRTs on average have been able to close only about 30,000 cases per year for the past five years.
“A resolution-based approach and not being solely focused on maximising the recovery is required to be adopted for resolution of large cases,” said Divyanshu Pandey, partner at law firm JSA Advocates & Solicitors, adding that this requires assessing whose skin is in the game and whether efficient resources and strategy are being deployed by public sector banks to deal with such cases.
To be sure, government data shows that more than 75% of pending cases in DRTs are low-value ones, which involve claim amounts between ₹20 lakh (the jurisdictional value for reference of cases to DRTs) and ₹1 crore.
“This needs to be complemented by improving the infrastructure at DRTs, strengthening the DRT benches and the legal teams of the banks,” Pandey said.
Currently, there are 39 DRTs and five DRATs (debt recovery appellate tribunals) with each tribunal addressing around 900 cases annually for the past five years while more than 1,500 fresh cases were getting added to them every year.
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Government data shows that recovery through DRTs stood at ₹12,879 crore in FY22, ₹7,669 crore in FY23 and ₹11,117 crore in FY24.
Mukesh Chand, senior counsel at law firm Economic Laws Practice said that banks often file cases in DRTs where recovery is unlikely, especially in situations where there is no security or the security has been disposed of, leaving little to enforce through decrees. As a result, these cases remain unresolved, contributing to the backlog.
“Also, while the banks do prudential write-offs of cases, there is no actual write-off and these accounts also remain in the books (though not accounted). Unless the banks also have a clear policy of actual write-offs, such cases would keep pending in DRTs without recovery,” he added.
A prudential or technical write-off is the amount of non-performing assets (NPAs) or loans that are outstanding in the books of the branches, but have been written off at the head office level.
The NCLT-IBC angle
Another issue that is keeping DRTs occupied with cases that run endlessly in the tribunals is shift in focus of banks to NCLTs for cases involving larger companies and complex resolutions under the Insolvency and Bankruptcy Code (IBC). DRTs now mostly handle routine filings to protect limitation periods or cases that do not qualify for IBC. This lack of focus on cases with DRTs is often responsible for delays in getting orders on payment default.
In eight years since 2016, 31,394 corporate debtors involving a value of ₹13.9 trillion have been disposed of under IBC, as of March 2024. Comparatively, over the past five financial years, ₹72,708 crore has been recovered by scheduled commercial banks through DRTs from around 150,000 cases.
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“Reduction of cases pending in DRTs will have a direct impact on the balance sheets of banks,” said Abhishek Swaroop, Partner at Saraf and Partners, adding that banks will be able to improve recovery rates, liquidity and financial health, and lend more effectively.
“Importantly, quicker resolutions will also reduce the legal and administrative costs associated with prolonged litigation,” he added. “The de-clogging of the existing DRTs coupled with the establishment of additional DRT benches, as announced in the 2024 budget, will cumulatively lead to achieving optimum results.”