The Recovery Application and the Rest of the RDB Act

In one line

The bank files an application, the Tribunal decides it summarily and issues a recovery certificate, and a Recovery Officer then executes it with the powers of a tax collector.

In the wording a student can write in an exam: by section 19 of the Recovery of Debts and Bankruptcy Act, 1993 a bank having to recover a debt makes an application to the Tribunal within whose jurisdiction the branch is situated or the defendant resides or the cause of action arises; the defendant may set off and may make a counter-claim; the Tribunal, after hearing, passes an order determining the amount and issues a certificate of recovery to a Recovery Officer; and sections 25 to 30 empower the Recovery Officer to recover by attachment and sale, arrest and detention, and the appointment of a receiver.

The application: section 19

Section 19(1): where it is filed. Where a bank or financial institution has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction the branch or any other office of the bank is maintaining an account in which the debt claimed is outstanding; or the defendant actually and voluntarily resides, or carries on business, or personally works for gain; or, where there are several defendants, any of them so resides; or the cause of action wholly or in part arises.

The first limb is the one that matters commercially, because it lets the bank apply where its own branch is, which is where its records and its officers are.

Section 19(2): joinder. Where a bank is a member of a consortium, the banks may jointly make a single application, which prevents several tribunals deciding the same debt.

Sections 19(3) to (5): the pleadings. The application is in the prescribed form with the prescribed fee, and the Tribunal issues summons to the defendant requiring him to show cause within thirty days why relief should not be granted.

Section 19(5) to (11): the defence, the set-off and the counter-claim. The defendant must, at or before the first hearing, present a written statement. He may claim a set-off against the bank's demand for any ascertained sum of money legally recoverable by him, and the Tribunal decides the original claim and the set-off in the same proceeding. He may also, by his written statement, set up a counter-claim against the bank in respect of a cause of action accruing to him, and the counter-claim has the effect of a cross-application so that the Tribunal may pronounce a final judgment both on the original application and on the counter-claim.

The counter-claim is the provision that saves the scheme's fairness, and chapter 540 explained why: in Union of India v. Delhi High Court Bar Association, (2002) 4 SCC 275, the Supreme Court held that the Tribunal could try the borrower's counter-claim, which answered the objection that section 18's bar left the borrower with no forum.