This blog talks about what happens when you are served with a DRT notice, what exactly is a DRT case, legal steps you should take within 30 days after receiving DRT notice.
What is a DRT Notice?
A DRT Notice is a formal legal notice issued under the provisions of the Recovery of Debts and Bankruptcy Act, 1993(formerly known as the Recovery of Debts Due to Banks and Financial Institutions Act). It is generally issued by banks or financial institutions to a borrower who has defaulted on repayment of a loan.
Purpose of a DRT Notice
The primary objective of a DRT Notice is to:
- Initiate recovery proceedings against the borrower.
- Inform the borrower that the creditor (usually a bank) has approached the Debt Recovery Tribunal (DRT) to recover the dues.
- Give the borrower an opportunity to respond or settle the debt before further legal action is pursued.
When is a DRT Case filed & what is the process for the same ?
A DRT case is filed when loan amount is more than Rupees 20 lakhs & the borrower has defaulted on it and the bank or Financial institution wants to recover the due amount legally.
Process of a DRT Case involves at the initial stage that bank sends reminders and notices when borrower defaults, if still no payment made then bank files a DRT case, the relevant DRT hears the case in quick manner and decides whether the borrower must repay and the mode of repayment and if the DRT ruling is in favour of bank then bank can sell the borrower’s asset or use the help of Recover Officer to collect the money.
What is a DRT Jurisdiction Notification and why is it issued?
A DRT Jurisdiction Notification is an official announcement or order issued by the Central Government under the Recovery of Debts And Bankruptcy Act, 1993 ,which tells you which DRT will handle your case based on your location or the location of the debtor/bank. And its issued so that smooth and clear allocation of cases takes place or to establish or reassign jurisdiction due to administrative convenience or in order to create new DRTs or change existing ones as per demand
What do you mean by Auction notice?
Auction notice is the one of the steps involved in DRT auction process & involves bank or financial institution issuing a public notice of the auction, including time, date & venue of the auction.
Step-by-Step Legal Guide: What to Do If you are served with a DRT notice?
If you’re wondering what to do if you are served a DRT Notice, follow these legal steps carefully:
1. Understand the Nature of the DRT Notice
The first and most essential step upon receiving a DRT notice is to understand its legal foundation and implications. Determine whether the action has been taken under the RDB Act or SARFAESI Act. A notice under Section 13(2) of SARFAESI is a demand notice giving 60 days to discharge the dues, while a summons under the RDB Act may require filing a Written Statement in response to a bank’s recovery application.
2. Gather All Loan & Property Documents
Once the notice has been analysed, you should immediately gather all the documentation related to the loan and property. This includes the loan sanction letters, account statements, repayment records, property deeds, mortgage documents, and correspondence with the bank. It is also important to confirm whether the NPA classification was justified and whether there are any procedural lapses or calculation errors.
3. Consult a DRT Lawyer Immediately
Legal consultation should not be delayed. A seasoned DRT or SARFAESI lawyer can assess the merits of your case and guide you on whether to file objections, opt for a settlement, or challenge the action in DRT. The lawyer will also help draft effective representations and applications and ensure you comply with procedural and statutory requirements. Delaying legal advice may result in loss of opportunity to obtain interim relief or file timely applications.
4. Respond to the Notice with Representations/Objections (if SARFAESI)
If the notice is under Section 13(2) of the SARFAESI Act, you are allowed to make a representation or raise objections in writing within 60 days. This objection should address issues like incorrect outstanding amounts, irregular procedures, wrongful NPA classification, or improper service of notice.
5. File a Case in DRT (Securitisation Application or Written Statement)
If the bank takes steps such as symbolic or actual possession, attachment of property, or auction, you must file a Securitisation Application (S.A.) under Section 17 of SARFAESI Act before the DRT within 45 days.
6. Explore Compromise/OTS (One-Time Settlement) (Parallel Step)
Even while you are preparing your defense, you can explore the possibility of One-Time Settlement (OTS) or compromise with the bank.
7. Apply for Interim Relief/Stay from DRT
When approaching the DRT, it is essential to seek interim relief along with your Securitisation Application or Written Statement.
Jurisdiction of DRT as per legal provision and landmark case laws
Under Section 17 of the SARFAESI Act, 2002, DRT has the power of appellate jurisdiction, even for debts of less than INR 10 lakhs, thereby giving the parties aggrieved by the actions of secured creditors, the right to appeal, pursuant to this Act, without regard to the amount of a debt.
The jurisdiction of civil courts is expressly barred, if DRT has the power to act. In SBI v. Allwyn Alloys (P) Ltd., (2018) 8 SCC 120, the SC held that Section 34 of the SARFAESI Act barred civil court suits and injunctions in respect of acts exercised under powers granted by, or in pursuance of, the Act. A similar conclusion was arrived at in Robust Hotels (P) Ltd. v. EIH Ltd., (2017) 2 SCC 622, which found that the bar on the jurisdiction of the civil court always arises when: (a) The matter the suit was concerned with fell within the powers of DRT to act under the SARFAESI Act or RDDBFI Act, or (b) Any action was taken or is going to be taken pursuant to powers granted in terms of said Acts.
In terms of challenging recovery actions, if a person is aggrieved by steps taken under Section 13(4) or by an order under Section 14 of the SARFAESI Act (e.g., taking possession of secured assets), then such a person must seek remedy before the DRT through an application under Section 17, as held in Kotak Mahindra Bank Ltd. v. Girnar Corrugators (P) Ltd., (2023) 3 SCC 210. This indicates that DRT's jurisdiction extends not only to the actions taken under Section 13(4) but also to post-13(4) developments, as clarified in Indian Overseas Bank v. Ashok Saw Mill, (2009) 8 SCC 366.
Additionally, persons other than the borrower may invoke DRT jurisdiction under Section 17. In Harshad Govardhan Sondagar v. IARC Ltd., (2014) 2 SCC 1, the Court held that a lessee of a borrower in possession of a secured asset can invoke DRT jurisdiction if the lease was created either prior to the mortgage or after the mortgage but before the issuance of the notice under Section 13(2). However, such a lessee cannot seek restoration of possession under Section 17(3), which is confined to the borrower; instead, their remedy lies under Articles 226 and 227 of the Constitution by filing a writ petition.
Conclusion
Receiving a DRT notice can be intimidating, particularly because these cases often can have significant financial and legal consequences. Once you receive a DRT notice, it is imperative that you take timely and informed action within the first 30 days to protect your rights and interests. In all cases (acts), whether you received a DRT notice under the RDDBFI Act or the SARFAESI Act, the borrower must immediately determine what the legal basis is for the notice, obtain essential documents, connect with an experienced DRT lawyer, develop a strategy and take legal action including objections, Written Statements, or Securitisation Applications. Consider if settlements are an option, or if you should request interim relief from the DRT or other protections while the matter proceeds.
Importantly, civil courts have limited involvement in these matters, and all remedies are largely found in the DRT, as consistently held by the SC. So not only is it advisable to navigate your case through the DRT and use any previous decisions and precedent to support your procedure, it is required for an effective response to a DRT notice so to ensure effective rights protection strategies within the DRT mechanism.
FAQs
What is a DRT Notice?
A DRT Notice is a legal intimation issued by banks or financial institutions to recover defaulted loans through the Debts Recovery Tribunal.
What is the time limit to respond to a DRT Notice?
You must file a reply or appeal within 30 days from the date of receiving the notice.
What happens if I ignore the DRT Notice?
Ignoring the notice may lead to ex parte proceedings and attachment or sale of your property.
Can I challenge the DRT Notice?
Yes, you can challenge it by filing an application under Section 17 of the SARFAESI Act before the DRAT.
Do I need a lawyer to respond to a DRT Notice?
While not mandatory, having a lawyer is strongly advisable to navigate complex procedural and legal issues.
Can I seek a stay on property auction mentioned in the notice?
Yes, you can seek a stay by approaching DRT with valid grounds and documentary evidence.
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