Claims exceeding ₹20 lakhs by Scheduled Banks and notified financial institutions must be filed before the Debts Recovery Tribunal (DRT) rather than a civil court, pursuant to Section 1(4) read with Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 (“RDB Act”). Anecdotally, and speaking strictly of the experience in Ernakulam, a straightforward money recovery suit before a civil court is often disposed of faster than an Original Application (OA) before the DRT — largely on account of the sheer pendency of matters and the frequency of adjournments before the Tribunal.
Despite this longer runway, a defendant who is casual about the proceedings does so at their own peril. Upon receipt of summons in an OA, there are specific and time-bound steps a borrower must take to ensure that every available defence is properly and formally placed on record — failing which the Tribunal may proceed to pass a final ex parte order in the defendant’s absence, with little scope for correction thereafter.
The Usual Procedure Before the DRT
Before addressing the substantive defences available, it is useful to understand the procedural journey an OA typically follows:
- The Bank files the OA. The Tribunal orders issuance of summons to the defendants and, if any interlocutory application accompanies the OA, notice in that application as well.
- The matter is usually first posted before the Registrar’s court for appearance of the defendants, either in person or through counsel.
- The defendants have 30 days from the date of receipt of summons to file their Written Statement.
- Failure to file the Written Statement within time enables the Tribunal to set the defendant ex parte and proceed with the OA in their absence.
- Upon filing of the Written Statement, the matter is placed — at the discretion of the Registrar — either before the Presiding Officer’s court or before the Registrar for filing of the Bank’s Proof Affidavit.
- The Proof Affidavit is the affidavit filed by the Bank, through its authorised Manager, in lieu of chief examination, formally proving the original documents filed along with the OA paper-book.
- Upon filing of the Proof Affidavit and marking of the original documents (OD), the Tribunal affords the defendants an opportunity to file their Counter Proof Affidavit.
- Once pleadings and documents on both sides are complete and marked, the Tribunal posts the matter for final hearing and arguments.
Filing of the Written Statement Is a Mandatory, Non-Negotiable Step
If nothing else, ensure that the Written Statement is filed at the earliest possible opportunity before the Tribunal, and that it is entirely defect-free. It is the single most consequential document in determining the outcome of the case.
Every contention — factual, technical, or statutory — available against the Bank’s claim must be reduced to writing at this stage. It bears emphasis that failure to specifically plead a defence will ordinarily preclude a defendant from raising it later, including at the stage of arguments or in appeal before the DRAT. The Written Statement must therefore be air-tight, addressing each paragraph of the OA in granular detail rather than issuing a bare or general denial.
A vague or evasive Written Statement is frequently treated by Tribunals as tantamount to an admission of the averments in the OA. Traverse each paragraph specifically — admit what is true, deny what is false, and plead affirmatively wherever a positive case (such as limitation, discharge, or excess claim) is being set up.
Points to Examine in Every OA Filed by a Bank
1. Limitation
Section 3(1) of the Limitation Act, 1963 entitles a defendant to seek dismissal of a time-barred claim even in the absence of a specific plea of limitation — the Tribunal is bound to dismiss any claim instituted beyond the prescribed period, regardless of whether the defence has been raised. Nonetheless, it is prudent to plead limitation specifically and not rely on this provision alone.
As a general rule, a claim secured by a mortgage over immovable property is maintainable for 12 years, whereas a claim founded on an unsecured credit facility is maintainable for only 3 years. Verify the date of filing of the OA against the date of default or the date the cause of action arose.
Particular scrutiny should be applied where the Bank seeks to enlarge limitation by relying on part payments credited to the loan account. Where such reliance is placed, the defendant should take the defence available under Section 19 of the Limitation Act, 1963:
19. Effect of payment on account of debt or of interest on legacy.— Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made: Provided that, save in the case of payment of interest made before the 1st day of January, 1928, an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment. — Section 19, Limitation Act, 1963
The Explanation to this Section further clarifies that where mortgaged land is in the possession of the mortgagee, receipt of rent or produce of such land is deemed to be a payment; and that “debt” does not include money payable under a decree or order of a court.
Unless a part payment into the loan account is acknowledged in the handwriting of, or in a writing signed by, the person making it, the Bank cannot rely upon that payment to enlarge the limitation period. A mere ledger entry recording a payment, without a corresponding signed acknowledgment from the borrower, does not satisfy the proviso to Section 19 and should be specifically challenged.
2. Due Execution of All Documents
Verify that every document produced by the Bank — the loan agreement, guarantee deed, mortgage deed, hypothecation agreement, and any renewal or restructuring documents — is duly signed by all concerned parties. Absence of a signature by even one co-borrower or guarantor on a document sought to be relied upon can be a material defect going to the root of enforceability against that party.
3. Proper Stamp Duty
Examine whether every agreement and document produced by the Bank has been duly stamped in accordance with the Kerala Stamp Act and the Indian Stamp Act, as applicable. An insufficiently stamped document is, subject to the specific statutory provisions governing impounding and admission of such documents, liable to objection at the threshold and may affect the evidentiary value the Bank seeks to place upon it.
4. Authority to Execute — Board Resolutions and Partnership Authorisations
Where the OA is filed against a company, verify whether a board resolution authorising execution of the loan documents by the signing director or officer has been placed on record. Where the OA is filed against a partnership firm, verify whether a partnership deed or a specific authority letter empowering the executing partner to bind the firm has been produced. Absence of proper authorisation can be a significant defence, particularly where the loan was availed on behalf of an entity rather than in an individual capacity.
5. Accuracy and Computation of the Claim Amount
Scrutinise the Bank’s statement of account line by line rather than accepting the claimed figure at face value. In particular, verify:
- Whether interest has been charged at the rate stipulated in the loan agreement, and not at a higher or arbitrarily revised rate without notice to the borrower.
- Whether penal interest, if levied, is in accordance with the terms of the agreement and RBI guidelines on fair lending practices, and is not being compounded in a manner that amounts to interest on penal interest.
- Whether the Bank has given credit for all payments made by the borrower, including any amounts recovered through invocation of guarantees, sale of pledged shares or securities, or insurance proceeds.
- Whether the account has been correctly classified as a Non-Performing Asset (NPA) in accordance with the RBI’s Income Recognition and Asset Classification (IRAC) norms, since incorrect or premature NPA classification can affect both the claim and the borrower’s entitlement to restructuring benefits, including under the RBI’s MSME revival framework where applicable.
Do not accept the Bank’s final claim figure without independently reconstructing the account. Banks frequently produce a fresh consolidated statement at the time of filing the OA; insist on the complete statement of account from the date of disbursement, and have it independently verified. Errors in interest computation, whether inadvertent or otherwise, are common and can meaningfully reduce the decretal amount.
6. Jurisdiction — Pecuniary and Territorial
Confirm that the claimed amount genuinely exceeds the pecuniary threshold prescribed under Section 1(4) of the RDB Act for the matter to lie before the DRT at all, and that the Tribunal before which the OA is filed has territorial jurisdiction — ordinarily linked to the branch where the loan was sanctioned, disbursed, or where the cause of action substantially arose. A defect in either respect is a threshold objection that can be fatal to the Bank’s claim if timeously and properly raised.
7. Set-Off and Counterclaim
Where the borrower has an independent, ascertainable claim against the Bank — for instance, wrongful debit of charges, unauthorised deduction of insurance premium, or deficiency of service resulting in quantifiable loss — consider whether a plea of set-off or a counterclaim under the applicable DRT procedural rules may be available. Even where a full counterclaim is not maintainable before the Tribunal, such facts strengthen the equities in the defendant’s favour at the stage of any interim or conditional order.
8. The Proof Affidavit and Cross-Examination
The Bank’s Proof Affidavit and the original documents produced thereunder are not to be treated as a formality. Once the Proof Affidavit is filed, the defendant should carefully examine whether the deponent — usually a Bank Manager — has personal knowledge of the transaction, particularly where there has been a change of branch managers over the years. The defendant is entitled to seek cross-examination of the deponent, and a well-prepared cross-examination on the points of limitation, computation, and NPA classification identified above can often be more decisive than the pleadings themselves.
The steps above are not exhaustive, but they represent the recurring points on which OAs before the DRT are most frequently — and most successfully — contested. A defence built methodically at the Written Statement stage, and pursued consistently through the Proof Affidavit and cross-examination, gives a borrower a genuine opportunity to test the Bank’s claim on its merits, rather than being reduced to a passive participant in proceedings that culminate in an unopposed decree.
This article is for informational purposes only and does not constitute legal advice. For specific legal issues, consult a qualified advocate.