The Hindu Business Line : SBI opts for dual remedy to recover bad debts

STATE Bank of India has decided to pursue its bad debt recovery efforts simultaneously under the Securitisation Act and the Debt Recovery Tribunal (DRT) Act.

SBI's decision runs contrary to the Finance Ministry view that simultaneous proceedings are not permitted under the existing debt recovery laws.

SBI has told its branches that legal advice sought by it, coupled with the status of a pending litigation on the issue at the Delhi High Court, suggests that lenders can initiate simultaneous action both at DRTs and under the Securitisation Act.

The branches have been asked to "immediately arrange to initiate/pursue suitable action under the Sarfaesi Act (Securitisation Act) also where it was not initiated or was stalled due to DRAT (Delhi) order."

The instruction has been issued after the bank's in-house legal department clearly supported the move to pursue dual remedy for bad debt recovery.

The department has said that the bank should not give up its right under the Sarfaesi Act by giving an interpretation to the laws to suggest that only one remedy can be tried at a time.

SBI has been forced to issue the clarification to its branches in the wake of massive slowdown in the debt recovery efforts on account of the legal uncertainty.

"Branches have either stopped further action in the cases where notices had been issued under the (Securitisation) Act or held initiation of such action in abeyance where DRT suits are in progress," the circular said.

According to banking circles, the paralysis has not been limited to SBI but has afflicted the entire banking sector, which has been waiting for some clarity to emerge on the legal position.

The sudden limbo in the recovery action was sparked off by a December 2004 DRAT (Delhi) order that lenders would have to withdraw their original application filed with the DRT against a borrower if they decide to initiate action under the Securitisation Act.

However, the order was subsequently stayed by the Delhi High Court on a case filed by IndusInd Bank.

Hearing on the matter, that had came before the court July 7, has now been put off till August 5.

Incidentally, in February 2005 DRAT (Chennai) had passed an order that did not concur with the view of its Delhi counterpart.

The Chennai tribunal had held that there was no bar on the lender initiating simultaneous proceedings. The Finance Ministry had very recently said that its reading of the law suggests that simultaneous proceeding under DRT and Securitisation Act is not permitted.

"DRT is the court of adjudication between borrower and secured lenders for any action under the Sarfaesi Act. Hence, simultaneous proceedings under both the Acts cannot be allowed," it had said.

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