When the Bank Sues at the DRT: Borrower Defences Under the Recovery of Debts and Bankruptcy Act, 1993

When a bank or financial institution moves to recover a defaulted loan of Rs 20 lakh or more, it does not file an ordinary civil suit. It files an Original Application before a Debts Recovery Tribunal (DRT), the specialised forum created by the Recovery of Debts and Bankruptcy Act, 1993 (Act 51 of 1993), originally titled the Recovery of Debts Due to Banks and Financial Institutions Act. For most borrowers, the summons that lands weeks later is the first sign that a parallel, faster recovery machinery has been switched on, one that runs to a stricter timetable than a district court and ends not in a decree but in a recovery certificate.

This playbook sets out, section by section, what the DRT process actually is, the defences a borrower may still raise, and why the Supreme Court's 2010 ruling in United Bank of India v Satyawati Tondon effectively closed the door on bypassing the tribunal through a High Court writ. It also maps the overlap with the SARFAESI Act, 2002, because a borrower who has defaulted on a secured loan frequently faces a Section 13(2) demand notice and a DRT Original Application in the same financial year. Every figure below is drawn from the bare Act as published by India Code or from Reserve Bank of India norms; where the law is silent, this article says so rather than guess.

The Statutory Position

The RDDB Act, 1993 was enacted to take bank recovery out of the ordinary civil courts, where suits routinely took a decade or more. It confers jurisdiction on the Debts Recovery Tribunal over "debts due to banks and financial institutions" of Rs 20 lakh or more, the threshold fixed by the Central Government under Section 1(4) of the Act (raised from the earlier Rs 10 lakh figure). Below that ceiling, the bank must still go to a civil court; at or above it, the DRT has exclusive jurisdiction and a civil court is barred from entertaining the same recovery claim.

The recovery process is triggered by Section 19, under which a bank or financial institution files an Original Application (OA) before the DRT within whose territorial limits the cause of action arises. The borrower, cited as the defendant, is entitled to file a written statement and, importantly, to raise a set-off and a counter-claim against the bank within the same proceeding. This is a genuine adjudication, not a rubber stamp: the tribunal must decide the amount actually due before it can issue any certificate.

Once the DRT determines the debt, it issues a recovery certificate, which is executed not by the tribunal but by a Recovery Officer attached to it. The Recovery Officer wields powers modelled on tax-recovery law, including attachment and sale of the borrower's movable and immovable property, appointment of a receiver, and, in defined circumstances, arrest and detention of the defaulter. This split, adjudication by the presiding officer and execution by the Recovery Officer, is deliberate and is what gives the DRT system its speed.

Appeals run upward to the Debts Recovery Appellate Tribunal (DRAT). India currently operates 39 DRTs and 5 DRATs under the Ministry of Finance, so the borrower's appellate forum is fixed by which DRT heard the matter. The table below sets out the ladder and the money that must change hands to climb it.

The pre-deposit under Section 21 is the single hardest gate for an appellant. An appeal by a person from whom debt is due "shall not be entertained" unless that person deposits 75% of the amount of debt due as determined by the DRT. The tribunal may, for reasons recorded in writing, waive or reduce that amount, but the burden sits squarely on the borrower to justify the concession. This 75% figure is distinct from, and steeper than, the SARFAESI appeal scheme discussed below, and borrowers routinely confuse the two.

Procedure Step by Step

The sequence from a missed instalment to an auction is more predictable than most borrowers assume. Mapping it lets you identify the two or three points at which a defence is realistically available.

1. Default and NPA classification. Under RBI's income-recognition and asset-classification norms, a loan account is classified as a non-performing asset once principal or interest is overdue for more than 90 days. Classification as an NPA is the trigger that unlocks both SARFAESI enforcement and a DRT Original Application; before it, the bank has no cause of action.
2. The Original Application under Section 19. For a debt of Rs 20 lakh or more, the bank files the OA before the DRT with jurisdiction, paying a filing fee scaled to the claim. The application must set out the amount due, the security held, and the date of default, and it must be within limitation.
3. Service and the written statement. The DRT issues summons. The borrower must file a written statement within the time the tribunal directs, admitting or denying each item of the claim. This is the stage to plead limitation, wrong interest computation, or an accord and satisfaction.
4. Set-off and counter-claim. In the same reply, the borrower may raise a set-off for sums the bank owes and a counter-claim, for example for wrongful penal charges or mis-selling. The DRT adjudicates these alongside the bank's claim rather than forcing a separate suit.
5. Final order and recovery certificate. After hearing both sides, the presiding officer determines the sum due and issues a recovery certificate to the Recovery Officer, specifying the amount and the security to be realised.
6. Execution and appeal. The Recovery Officer attaches and sells assets to satisfy the certificate. A dissatisfied borrower may appeal to the DRAT under Section 20 within 45 days, subject to the 75% pre-deposit under Section 21.

Where the loan is secured, the bank will often run SARFAESI enforcement in parallel with, or instead of, a DRT application. Under the SARFAESI Act, 2002 the bank issues a demand notice under Section 13(2) giving the borrower 60 days to pay. If the borrower does not, the bank may take possession under Section 13(4), and may apply to the Chief Metropolitan Magistrate or District Magistrate under Section 14, which now carries a 30-day disposal mandate following the 2016 amendment. The borrower's remedy against a Section 13(4) measure is a Securitisation Application to the DRT under Section 17, filed within 45 days.

Borrower Defences Available

The most damaging myth in distressed-borrower circles is that the DRT is a formality. It is not. The defences below are the ones tribunals actually entertain, provided they are raised on time and backed by the account statements.

Limitation. The Limitation Act, 1963 applies to DRT proceedings. A money claim on a loan is generally time-barred three years after the cause of action arose, subject to fresh acknowledgements of debt in writing under Section 18 of that Act, which reset the clock. If the bank's OA rests on a default more than three years old with no valid acknowledgement, the debt may be unenforceable in whole or in part.

Quantum, interest and penal charges. The borrower can compel the bank to prove the exact figure claimed. Compounded penal interest, unexplained charges, and interest continuing to run after possession are all contestable through the set-off mechanism in Section 19. Because the DRT must determine the amount before issuing a certificate, a successful challenge to quantum directly shrinks the recovery certificate.

One-Time Settlement. A negotiated exit is often the borrower's strongest card. On 8 June 2023 the Reserve Bank of India issued its Framework for Compromise Settlements and Technical Write-offs, expressly permitting all regulated lenders, including banks and NBFCs, to enter compromise settlements even in respect of accounts classified as fraud or wilful default, subject to board-approved policy and a cooling period. A borrower can pursue an OTS at any stage, including after the OA is filed, and a recorded settlement can be presented to the DRT to close the proceeding.

The SARFAESI representation and Section 17 route. Where the bank has invoked SARFAESI, the borrower may make a representation or objection to the secured creditor, which the bank must consider and respond to before proceeding. The substantive challenge, however, lies before the DRT under Section 17, not in a writ court. The two appeal regimes differ sharply on cost, as the comparison below shows.

Procedural and conduct defences. Recovery must be lawful in its manner as well as its substance. RBI's rules on recovery-agent conduct bar odd-hour calls and require agents to carry authorisation, a subject we covered in our note on recovery-agent harassment and the RBI conduct rules. Separately, if the borrower is admitted into insolvency, the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 freezes DRT and SARFAESI action alike, as explained in our piece on the IBC Section 14 moratorium shield. Borrowers weighing prepayment or a foreclosure exit, a moratorium restructuring, or the affordability of a fresh home loan EMI can model the numbers before choosing a path.

Recent Tribunal/HC Position

The governing position for every DRT and High Court flows from a line of Supreme Court authority that borrowers and their counsel must reckon with before choosing a forum.

The foundational ruling is Allahabad Bank v Canara Bank, (2000) 4 SCC 406, in which the Supreme Court held that the RDDB Act, 1993 is a special enactment and that the DRT and its Recovery Officer enjoy exclusive jurisdiction over both adjudication and execution of a bank's recovery claim, overriding inconsistent general law to that extent. The practical effect is that a borrower cannot fracture the proceeding by dragging parts of it into other courts.

The decisive procedural authority is United Bank of India v Satyawati Tondon, (2010) 8 SCC 110. There the Supreme Court held that where the RDDB Act and SARFAESI provide a complete code with an appeal to the DRT and then the DRAT, High Courts should be extremely reluctant to entertain a writ petition under Article 226 that bypasses those remedies. After 2010, a borrower who ignores the Section 17 or Section 20 route and rushes to the High Court will usually be sent back, having lost time and often the limitation window.

On limitation and the interface with insolvency, the Supreme Court in Kotak Mahindra Bank Ltd v A. Balakrishnan, (2022) 9 SCC 186 held that a recovery certificate issued by a DRT is itself a fresh cause of action, so a certificate holder may initiate proceedings under the IBC, 2016 within three years of the certificate. For borrowers this is a warning: a recovery certificate does not quietly expire, and a bank can pivot from DRT execution to insolvency. Read together, these three judgements tell a borrower to fight inside the tribunal system, on the merits and on time, rather than search for an exit around it.

FAQ

What is the minimum loan amount for a bank to approach the DRT?

Under Section 1(4) of the RDDB Act, 1993 the DRT's jurisdiction begins at a debt of Rs 20 lakh, the threshold notified by the Central Government (up from the original Rs 10 lakh). For defaults below Rs 20 lakh, the bank must sue in an ordinary civil court, not the DRT.

How much must I deposit to appeal a DRT order to the DRAT?

Section 21 of the RDDB Act requires an appellant from whom debt is due to deposit 75% of the amount determined by the DRT before the DRAT will entertain the appeal, filed within 45 days under Section 20. The DRAT may waive or reduce that deposit for reasons recorded in writing, so a documented inability to pay should always be pleaded.

Is the SARFAESI appeal deposit the same 75%?

No. Under Section 18 of the SARFAESI Act, 2002 the pre-deposit for a DRAT appeal is 50% of the debt claimed or determined, whichever is less, reducible to not less than 25% for reasons recorded. The RDDB Act's 75% figure is separate and steeper, which is why the two must never be conflated.

Can I still settle after the bank files an Original Application?

Yes. RBI's Framework for Compromise Settlements and Technical Write-offs dated 8 June 2023 permits regulated lenders to enter compromise settlements at any stage, subject to board-approved policy. A One-Time Settlement recorded in writing can be placed before the DRT to close the OA.

What is my remedy if the bank takes possession under SARFAESI?

File a Securitisation Application before the DRT under Section 17 of the SARFAESI Act, 2002 within 45 days of the Section 13(4) measure. Following Satyawati Tondon (2010), a High Court writ is not a substitute and will generally be declined while this statutory remedy exists.

How long do I have before a loan becomes an NPA?

Under RBI's asset-classification norms, an account is classified as a non-performing asset when principal or interest remains overdue for more than 90 days. NPA classification is the trigger that unlocks both SARFAESI enforcement and a DRT Original Application.

Does an insolvency filing stop DRT recovery?

Yes. Once a corporate debtor is admitted into insolvency, the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 stays DRT proceedings, SARFAESI measures and execution alike for the duration of the resolution process.