The Debt Recovery Tribunals (DRT) play a critical role in the legal framework of debt recovery in India. These tribunals were established under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), which facilitates the process of debt recovery for banks and financial institutions. However, when it comes to secured loans and enforcement of security interests, the SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) provides a separate mechanism to recover dues without requiring court intervention. Here's an updated and enhanced breakdown of the minimum and maximum limits related to debt recovery under both the SARFAESI Act and the RDDBFI Act.
Minimum Debt Limit: The SARFAESI Act enables banks and financial institutions to initiate action for the recovery of secured loans without the intervention of the court. To invoke the provisions of the SARFAESI Act, the minimum debt amount that qualifies for action is ₹1 crore (₹1,00,00,000). This threshold was set to address large debts, typically involving corporate or institutional borrowers.
Maximum Debt Limit: There is no upper limit specified under the SARFAESI Act for the recovery of secured loans. Financial institutions can utilize the SARFAESI Act regardless of the total amount of debt as long as it involves the enforcement of a secured interest.
Minimum Debt Limit: As per the Recovery of Debts and Bankruptcy Act, 1993, which governs the Debt Recovery Tribunals (DRT), the minimum debt limit for approaching a DRT is ₹20 lakh (₹20,00,000). This threshold ensures that smaller claims are handled through other means, such as civil courts, and that the DRT focuses on relatively larger debts.
Maximum Debt Limit: There is no maximum debt limit specified for approaching a DRT under the RDDBFI Act. Debtors can approach the DRT for the recovery of any amount as long as the claim meets the minimum threshold of ₹20 lakh.
If the debt amount is less than ₹20 lakh (in the case of the DRT), the case cannot be filed with the Debt Recovery Tribunal. Instead, the claimant must file the case in the appropriate Civil Court based on the jurisdiction where the debtor resides or where the contract was executed.
For debts falling below ₹1 crore, the SARFAESI Act will not apply, and creditors must rely on other legal mechanisms to recover dues, such as civil court proceedings or the DRT process if it meets the minimum threshold.
The Debt Recovery Tribunals (DRTs) are established in every state in India, and they serve the purpose of expediting debt recovery procedures. The DRT is governed by the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act).
Geographical Scope: The DRT has jurisdiction throughout India, excluding Jammu and Kashmir, due to the special legal status of the region before the changes made by the abrogation of Article 370 in 2019.
Who Can Approach the DRT? Only banks and financial institutions can file applications for the recovery of debts in the DRT. The DRT is specifically designed for financial institutions and is not a general forum for individuals or entities outside the banking sector.
| Act | Minimum Debt Limit | Maximum Debt Limit | Additional Notes |
|---|---|---|---|
| SARFAESI Act | ₹1 crore | No upper limit | Applies to secured loans; no court intervention needed. |
| RDDBFI Act (DRT) | ₹20 lakh | No upper limit | Only banks and financial institutions can file; geographical scope excludes Jammu and Kashmir. |
| Civil Court | Less than ₹20 lakh | N/A | If the debt is below ₹20 lakh, the case must be filed in a civil court. |
Both the SARFAESI Act and RDDBFI Act have been designed to streamline the recovery of debts due to banks and financial institutions in India. The minimum debt thresholds ensure that these legal tools are used for more substantial financial matters, with the SARFAESI Act focusing on secured assets and the DRT serving as a specialized forum for larger debts above ₹20 lakh. However, any debt below the prescribed limits must be pursued through civil courts, highlighting the importance of understanding which legal channel is appropriate for specific financial situations