Unified Chambers and Associates, a specialist debt recovery law firm appearing across all 39 Debt Recovery Tribunals and 5 Debt Recovery Appellate Tribunals in India, has published this guide to help borrowers, MSMEs, and guarantors understand what happens at DRT — and what they can do about it.
When a bank or NBFC files an Original Application (OA) against a borrower under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), the DRT issues a notice to the borrower requiring a response.
Ignoring a DRT notice is the single costliest mistake a borrower can make. If no written statement is filed within the time permitted, the DRT may proceed ex parte — deciding the matter based solely on the bank’s version. An ex parte Recovery Certificate can be issued, authorising the Recovery Officer to attach and sell the borrower’s property, arrest the borrower, and take all steps permissible under the Code of Civil Procedure to recover the debt.
A borrower who has received a DRT notice has 30 days from service to file a written statement. This deadline can be extended by the Presiding Officer on sufficient cause.
Your First Line of Defence: The Written Statement
The written statement is the borrower’s formal response to the bank’s Original Application. It is not merely a denial — it is the document that places every available legal defence on record before the DRT.
Key defences that borrowers and MSMEs commonly raise include:
Limitation: The RDDBFI Act read with the Limitation Act, 1963 requires banks to file their OA within three years of the debt becoming due. If the bank has delayed filing, a limitation defence can result in the OA being rejected entirely.
Wrong debt quantification: Banks frequently include penal interest, service charges, or insurance premiums that are not legally recoverable under the loan agreement. The written statement can challenge each head of the claimed amount.
Improper NPA classification: Reserve Bank of India Master Directions specify precise criteria for classifying a loan account as a Non-Performing Asset. A premature or procedurally defective NPA classification is a valid ground of challenge.
Defective notice under SARFAESI: If the DRT proceedings are linked to a SARFAESI enforcement, procedural defects in the Section 13(2) demand notice — incorrect outstanding amount, wrong borrower name, improper service — can be raised.
If the Bank Is Taking Possession: Section 17 of SARFAESI
When a secured creditor (bank or NBFC) takes action to seize mortgaged property under Section 13(4) of the SARFAESI Act — by issuing a possession notice or taking symbolic or physical possession — the borrower has a specific remedy before the DRT.
Under Section 17 of the SARFAESI Act, any person aggrieved by a secured creditor’s enforcement action may approach the DRT within 45 days of the date the enforcement measure was taken. This is a strict deadline. Missing it bars the borrower from challenging the SARFAESI action before the DRT.
The Section 17 application can seek:
- Stay on the bank’s possession and sale proceedings
- Restoration of possession if the property has already been taken
- Compensation for wrongful SARFAESI action
- Reduction in the reserve price set for the auction
Critically, banks cannot forcibly take physical possession of property without a court order. Under Section 14 of the SARFAESI Act, physical possession requires an order from the Chief Metropolitan Magistrate (CMM) or District Magistrate (DM). A borrower whose property is being forcibly seized without a CMM/DM order has grounds for an urgent Section 17 application.
The Borrower’s Counter-Claim
Section 19(8) of the RDDBFI Act permits a defendant borrower to file a counter-claim against the bank within the same DRT proceedings. Counter-claims have been successfully raised in cases involving:
- Excess interest charged in violation of the loan agreement
- Wrongful invocation of a guarantee
- The bank’s failure to release the security after repayment
- Losses caused by wrongful SARFAESI action
A well-drafted counter-claim creates negotiating leverage — and can, in appropriate cases, reduce the net amount the borrower owes.
Personal and Promoter Guarantors: Know Your Exposure
Guarantors — whether family members who co-signed a home loan or promoters who gave personal guarantees for company borrowings — are equally liable at DRT. The bank can file the OA against both the principal borrower and guarantors simultaneously.
Guarantors have specific defences under the Indian Contract Act, 1872. Section 133 provides that a guarantor is discharged if the creditor varies the terms of the principal contract without the guarantor’s consent. If the bank restructured the loan, changed interest rates, or granted additional facilities after the guarantee was given — without obtaining fresh consent from the guarantor — the guarantee may be void.
Promoter-guarantors facing insolvency of their company under the Insolvency and Bankruptcy Code face additional complexity, as the Supreme Court has clarified that personal guarantee proceedings are separate from the corporate insolvency resolution process.
Settlement During DRT Proceedings
DRT proceedings do not prevent settlement. An One-Time Settlement (OTS) — governed by the RBI’s June 2023 Master Framework on Compromise Settlements — can be negotiated at any stage of DRT proceedings, including after a Recovery Certificate is issued. A settlement deed executed between the bank and borrower can be placed before the DRT, which will dispose of the OA on those terms.
Experienced debt recovery counsel can identify the bank’s settlement appetite from the procedural posture of the case — and negotiate terms that would not be available without legal representation.
Appeal to DRAT: Last Resort With a Heavy Condition
A borrower aggrieved by a DRT order may appeal to the Debt Recovery Appellate Tribunal under Section 20 of the RDDBFI Act within 30 days of the order. However, under Section 21(1), the DRAT will not entertain the appeal unless the borrower deposits 75% of the debt amount determined by the DRT. This pre-deposit requirement makes DRAT appeal a measure of last resort — underscoring the importance of building a strong defence at the DRT stage itself.
About Unified Chambers and Associates
Unified Chambers and Associates is India’s specialist debt recovery law firm with dedicated practices in DRT defence, SARFAESI Section 17 challenges, promoter-guarantor representation, and OTS negotiations. The firm appears at all 39 DRTs across India and is recognised among the leading debt recovery law firms in India for both institutional creditors and borrowers facing recovery action. Offices at Delhi High Court Complex, Mumbai, and Dubai.
Website: www.unifiedchambers.com
WhatsApp: +91 84008 60008
Email: legal@unifiedchambers.com
This article is for informational purposes only and does not constitute legal advice.
