Bad loans: SC concerned over lack of infrastructure at Debt Recovery Tribunals

The Supreme Court on Wednesday expressed concern over lack of infrastructure, manpower and other facilities at Debt Recovery Tribunals and their appellate bodies and said lakhs of crores of rupees are non-performing assets as the recovery mechanism is not up to the mark.

The bench headed by Chief Justice TS Thakur also said that it may ask the National Law School and IIM at Bangalore to jointly conduct a study as to what "ails" these quasi- judicial bodies -- DRTs and Debt Recovery Appellate Tribunals (DRATs), meant for recovering bad loans of financial institutions. "We will tell the vice chanceller of the National Law School of Bangalore and IIM, Bangalore to assign the task to their senior faculty members and tell us about the problems being faced by DRTs and the Debt Recovery Appellate Tribunals," the bench, also comprising Justices A M Khanwilkar and D Y Chandrachud, said. "There are lakhs of crores of rupees as NPAs and one of the reasons for their non-recovery is that the mechanism for recovery is not up to the mark," it said.

There are problems of "infrastructure and manpower and proper training" in recovery tribunals, it said. The observations came when Solicitor General Ranjit Kumar, appearing for the Centre, said the steps, including amending the law governing the DRTs and the DRATs, have been taken to strengthen the loan recovery system. The court reserved its order on one of the issues, raised in the PIL, relating to lack of infrastructure, manpower and other facilities at DRTs and DRATs which deal with banks and FIIs' loan recovery petitions.

It was hearing the PIL, filed in 2003 by the Centre for Public Interest Litigation (CPIL), which had originally raised the issue of loans advanced to some companies by state-owned Housing and Urban Development Corporation (HUDCO). The plea had said that about Rs 40,000 crore of corporate debt was written off in 2015. The bench clarified that the issue of loan defaults would be dealt by it later.

During the hearing, lawyer Prashant Bhushan, appearing for the NGO, said the problem is that banks do not take personal gurantee from promoters of the companies to whom loans are being advanced.He also said that NPAs rise as the assets, offered as security by debtors to lending banks, are over-valued and mortgaged to more than one financial institutions leading to non-recovery of loans. The court, however, said that it would deal with the issue of NPAs at later stage after the report of a committee, appointed by RBI to deal the issue, comes.

Referring to the legal provision, the bench asked the Centre as to how DRATs would decide appeals in just two dates as prescribed under the Act. "How is it humanly possible for the DRATs to finish a case in two hearings," it said. It also raised the issue of vacancies in various quasi- judicial forums and tribunals like Armed Forces Tribunal, SC/ST Commissions, Lokpal, DRTs and DRATs and said that it has been asking the authorities to fill them up the moment such issues come before it.

Earlier, the apex court had said that disclosure of names of debtors, who owe Rs 500 crore and more to banks, will not lead "anywhere" as the important issue is to address "root cause" of accumulation of non-performing assets (NPAs).It had asked the Centre and RBI to file an affidavit detailing steps taken to overhaul debt recovery system and laws dealing with quasi-judicial bodies like DRTs and DRATs. Prior to this, the court was informed that only 57 borrowers have defaulted on bank loans amounting to a whopping Rs 85,000 crore.

It had also expressed concern over the growing amount of loans not being returned and said, "People are taking thousands of crore and running away by declaring their firms insolvent, but poor farmers who take small amounts of Rs 20,000 or Rs 15,000 suffer." On April 12, the court had suggested making public the total outstanding amount without disclosing defaulters' names, but RBI had resisted the proposal citing confidentiality clause. 

The Supreme Court had then directed RBI to provide a list of companies which had defaulted bank loans of over Rs 500 crore while expressing serious concern over the growth in bad loans. It had also asked RBI to provide a list of companies loans of which have been restructured under corporate debt restructuring schemes.

The bench had expressed surprise that no concrete steps had been taken for recovery of loans from the defaulters. While passing the order, the court had taken note of a report in a national daily about bad loans or non-performing assets and the inability of the banks to recover them.