What is difference between DRT and NCLT?

Dec 13 2023

When navigating financial disputes in India, it’s essential to understand the roles of two key institutions: the Debt Recovery Tribunal (DRT) and the National Company Law Tribunal (NCLT). Both entities serve specific purposes and cater to different types of cases within the financial and corporate sectors. This article delves into their distinctions, the impact of the Insolvency and Bankruptcy Code (IBC), and practical considerations for those seeking legal recourse.

What is DRT?

The Debt Recovery Tribunal (DRT) was established under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Its primary objective is to facilitate the quick recovery of debts owed to banks and financial institutions, primarily dealing with cases involving individuals and partnership firms (excluding Limited Liability Partnerships).

Key functions of DRT include:

Hearing cases related to the recovery of loans and advances by banks and financial institutions.
Issuing recovery orders, which can include the attachment of assets.
Resolving disputes between banks and borrowers.

What is NCLT?

In contrast, the National Company Law Tribunal (NCLT) was established under the Companies Act, 2013. NCLT focuses on corporate law matters, including the insolvency and liquidation of companies, as well as disputes between company shareholders and management.

Key functions of NCLT include:

Adjudicating matters concerning the winding up of companies.
Overseeing insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016.
Addressing corporate disputes and governance issues.

The Impact of the Insolvency and Bankruptcy Code (IBC)

The Insolvency and Bankruptcy Code (IBC), introduced by the Central government in 2016, aimed to address issues related to insolvent companies and combat the challenges posed by bad loans in the banking system. The IBC has reshaped the dynamics between debtors and creditors and has largely succeeded in preventing corporate defaults.

As the adjudicating authority for matters under the IBC, the NCLT plays a crucial role in facilitating the reorganization and resolution of corporate insolvency cases, while the DRT handles debt recovery for banks against individual borrowers and non-corporate entities.

DRT vs NCLT: Key Differences

When comparing DRT and NCLT, consider their jurisdiction and the types of cases they handle. Here are the primary differences:

Scope of Jurisdiction:
- DRT primarily deals with debt recovery cases involving individuals and partnership firms.
- NCLT addresses corporate matters, including insolvency, mergers, and shareholder disputes.
Nature of Cases:
- DRT handles cases related to the recovery of non-performing assets (NPAs) and debt-related issues.
- NCLT adjudicates matters related to corporate disputes, insolvency proceedings, and business restructuring.
Entities Involved:
- DRT involves individuals, borrowers, and partnership firms in debt recovery cases.
- NCLT engages with corporate entities and companies in matters related to insolvency and corporate governance.
Legal Framework:
- DRT operates under the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
- NCLT functions under the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016.
Recent Rulings:
- A recent ruling by the High Court established that parallel cases for the same company cannot be pursued in both tribunals, emphasizing the need for clarity in choosing the appropriate forum for legal recourse.

Conclusion

Understanding the differences between DRT and NCLT is crucial for individuals and businesses facing financial disputes in India. While DRT focuses on debt recovery from individuals and partnership firms, NCLT handles corporate insolvency and related matters.