DRT Not Able To Focus On High-Value Cases: Raj HC Upholds Centre's Notification Raising Pecuniary Limit To Rs 20L [Read Judgment]

Observing that "small value cases" were not allowing the Debt Recovery Tribunals focus on "high-value cases" which would have otherwise led to significant recovery of public money, the Rajasthan High Court has upheld Centre's notification raising the threshold pecuniary limit for filing application for recovery of debts before the Debt Recovery Tribunal from Rs 10 Lakh to Rs 20 Lakh.

A bench of Justice Mohammad Rafiq and Justice Narendra Singh Dhaddha held that "despite significant rise in the disposal rate year by year, pendency is increasing in the Tribunals due to filing of small value cases. The Tribunals were not being able to focus on clearing the higher value cases, which would otherwise have led to a significant recovery of public money.

"…substantial energy and resources of the large number of Tribunals across the country is being consumed for the segment of the recovery cases having value between ten and twenty lakh rupees, which although account for 41% of the total pendency but on the present scale account only 5% of the total value of the recovery claims. The notification issued by the Central Government raising the limit of ten to twenty lakh rupees is therefore intended to achieve the object with which the Tribunals were set up as would be evident from the statement of objects and reasons as also preamble of the Act of 1993".

The court said so as it dismissed a plea challenging the notification dated September 6, 2018 by the Centre Ministry of Finance issued under Section 1 (4) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 thereby raising the threshold pecuniary limit for filing application for recovery of debts before the Debt Recovery Tribunal from Rs 10 Lakh to Rs 20 Lakh.

Following the notification, any claim below Rs 20 lakh would lay before the civil court.

The bench noted that the raise in the pecuniary limit cannot be termed excessive as it said, "Even otherwise, the worth of ten lakh rupees in the year 1993 when the Act was introduced, due to price inflation, was Rs.49.23 lakh in the year 2017, meaning thereby, the value of one rupee in 1993 stood reduced to approximately twenty paisa in 2017".

The petitioners contended that as per Section 1(4) of the Act, which said that the provisions of the Act are not applicable where the amount of debt due to the banks or financial institutions is less than Rs 10 lakh or any such amount being not less than Rs 1 lakh, as the Central government may by notification specify, the Central government can reduce the limit to Rs 1 lakh but has no authority to increase the limit beyond Rs 10 Lakh.

The petitioners further argued that raising the pecuniary limit goes against the intent of Parliament to provide seedy trial and would end up in throwing these cases in the arena of civil/ commercial courts guided by Criminal Procedure Code which is a long and tardy process.

On the other hand, Additional Solicitor General R D Rastogi opposed the petition saying challenge to the notification is devoid of merit.

He submitted that the words 'such other amount' used in Section 1 (4) clearly enables the Centre to make upward increase in the limit of ten lakh rupees by means of notification.

Referring to the statement of objects and reasons of the Act, the ASG argued that the Tribunal and the appellate tribunal were established to ensure expeditious adjudication and recovery of debts due to banks and financial institutions and thereby putting into proper utilization the public money for development of the country and it was, therefore, necessary to increase the pecuniary limit so as to meet the objects of the Act effectively.

ASG Rastogi also vehemently argued that the minimum limit of Rs 10 lakh for filing original applications before the Tribunal was justified in year 1993.

He brought before the court figures to justify the need for raising the pecuniary limit as he said that as per the inflation indicator, the worth of Rs 10 lakh in year 1993 comes to be Rs 49.23 lakh in year 2017.

He further informed the court that even the chairpersons of various debt recovery tribunals in an interactive session held in Department of Financial Services on July 17, 2018 pointed out the necessity of raising the minimum pecuniary limit and that large number of cases for recovery in the segment of Rs 10-20 lakh coming up before the Tribunal was hampering the progress of cases valued over Rs 20 lakh.

The bench held that a cursory reading might suggest that the Centre cannot fix the pecuniary limit beyond Rs 10 lakh but "on a deeper examination, we have concluded…that while the Central government is not competent to specify any amount which is less than Rs one lakh….but it can certainly enhance the threshold limit of Rs 10 lakh".

It also said that looking at various alternate recourse available to Non-Performing Assets (NPAs) cases between Rs 10-20 Lakhs, it could not be held that raising the pecuniary limit would burden the civil courts.

Data justifies notification

Looking at the data presented by the Centre, the Bench opined that raise in pecuniary limit was justified.

The bench held that, "Stand of the Central Government before this Court is that as per the data provided by the Tribunals across the country, 9128 new Original Applications have been filed by the banks in the segment of ten to twenty lakh rupees within a period of six months with effect from 01.01.2018 up to 30.06.2018, which is about 41% of the total of 22,360 Original Applications filed during this period. But in terms of the value, the Original Applications of ten to twenty lakh rupees account for only about 5% of the total value of the recovery claims in Original Applications filed for the period.

"Even when the constitutional validity of Section 1(4) of the Act of 1993 has not been challenged in the present writ petition, we find that sufficient guidelines are available in the Act of 1993 by way of its preamble, statement of objects and reasons, which provide ample justification for the decision of the Central Government for raising the threshold limit of ten lakh rupees to twenty lakh rupees," it concluded.

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