The NPA Recovery Process in India: DRT Section 17, OTS Guidelines & Borrower Rights

1. The 90-Day NPA Classification Norms (RBI IRAC)

The recovery machinery does not trigger automatically upon missed payments. The Reserve Bank of India has established the Income Recognition, Asset Classification and Provisioning (IRAC) norms, which require that an asset be treated as non-performing only when it ceases to generate income for the bank:

• Term Loans: Interest and/or installment of principal remains overdue for more than 90 days.
• Cash Credit / Overdraft: The account remains "out of order" for more than 90 days (i.e. the outstanding balance remains continuously in excess of the sanctioned limit/drawing power, or credits are insufficient to cover interest debited during the preceding 90 days).
• Agricultural Loans: Overdue for two crop seasons for short duration crops, or one crop season for long duration crops.

Legal Consequence: The date of NPA classification is a jurisdictional fact. Under Section 13(2), the notice must specify that the debt is classified as NPA. If an account is classified prematurely, before the 90th day, the entire subsequent SARFAESI proceeding is vulnerable to being set aside by the DRT.

2. The Debt Recovery Tribunal (DRT) Mechanism

The Recovery of Debts and Bankruptcy Act, 1993 (formerly RDDBFI Act) established Debt Recovery Tribunals (DRT) and Debt Recovery Appellate Tribunals (DRAT) across India (such as DRT-1, DRT-2, DRT-3 at Chandigarh). The DRT operates under two primary streams of jurisdiction:

1. Original Applications (O.A.): Filed by banks under Section 19 of the RDDB Act for debts of ₹20 Lakh and above to obtain a Recovery Certificate against the borrower and guarantors.
2. Securitisation Applications (S.A.): Filed by aggrieved borrowers or third parties under Section 17 of the SARFAESI Act challenging the measures taken by the secured creditor under Section 13(4).

3. Filing a Securitisation Application (S.A.) under Section 17

Section 17 provides the primary statutory shield for borrowers and mortgagors. It is often misunderstood as an "appeal," but legally it is an original application where the DRT sits in judicial review over the bank's enforcement actions.

Statutory Rules for Filing:

• Limitation Period: The application must be filed within 45 days from the date on which the bank takes a measure under Section 13(4) (e.g. date of possession notice or date of receipt of notice). The Supreme Court has strictly enforced this timeline.
• No Pre-Deposit: Following Mardia Chemicals (2004), no pre-deposit of the disputed debt is required to file or maintain a Section 17 application before the DRT.
• Jurisdiction: Must be filed before the DRT within whose territorial jurisdiction the secured asset is located or where the branch is situated.

4. The Transcore Judgment: Simultaneous Proceedings Allowed

5. High Court Writ Jurisdiction: Satyawati Tondon Caution

Many borrowers immediately rush to the High Court under Article 226 of the Constitution seeking a writ of certiorari or mandamus to stay bank proceedings. However, the Supreme Court in United Bank of India v. Satyawati Tondon (2010) 8 SCC 110 issued a stern caution:

"Both the Tribunal and the Appellate Tribunal are empowered to pass interim orders... High Courts must be extremely circumspect in entertaining writ petitions when statutory alternative remedies are available under the SARFAESI Act."

Consequently, High Courts (including Punjab & Haryana High Court) will typically dismiss writ petitions and direct the petitioner to the DRT, unless there is a complete absence of jurisdiction, an unconstitutional act, or a gross violation of natural justice.

6. Structuring an Effective One-Time Settlement (OTS)

Litigation in DRT creates friction and delays, but both lenders and borrowers frequently find the most commercially viable exit through a One-Time Settlement (OTS).

In June 2023, the Reserve Bank of India issued its comprehensive Framework on Compromise Settlements and Technical Write-offs. Under this framework:

• Banks must have Board-approved policies for compromise settlements.
• Settlement amounts are determined primarily by the Net Present Value (NPV) of the realisable securities compared to the offered cash settlement.
• Waivers follow a strict hierarchical scrutiny: penal interest is typically waived first, followed by unapplied contractual interest, whereas the principal balance is heavily protected unless asset values have severely eroded.

Strategic Advice for Borrowers: An OTS proposal must be grounded in realistic financial statements, verified valuation reports of collateral, and a transparent payment timeline (usually with an upfront 10% to 15% earnest deposit).

About the Author · First-Hand Institutional & Legal Authority

Adv. Shakti Kumar Jain

B.Com. (Hons.) · CAIIB · LL.B. (Gold Medallist) · Member, Bar Council of Punjab & Haryana

35+ years of core institutional banking experience inside the State Bank of India's Stressed Assets Management Branch (SAMB), managing large-ticket corporate NPA recoveries. Now actively practicing as Advocate before the Punjab & Haryana High Court at Chandigarh and Debt Recovery Tribunals (DRT) across India.

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