DRT Application for claim below Rs. 10 lakh - Validity

In Indian Overseas Bank v. Registrar, Debt Recovery Tribunal and another [2005] 127 Comp Cas 873 (Kerala HC) (Judgment delivered on February 21, 2005), the important question arises as to whether subsequent application by another bank against same defendant before DRT would require, necessarily for the debt over Rs. 10 Lakh

Facts :- The Petitioner is a nationalized bank to which an amount of Rs. 6.94 lakhs is due from the eighth respondent in O.A. No. 66 of 2004 filed by the second respondent before the Debt Recovery Tribunal, Ernakulam. The application filed by it u/s 19(2) of DRT Act was returned by the Registrar of DRT on the ground that application was not maintainable by virtue of section 1(4) of the Act as the claim amount was less than Rs. 10 Lakhs. Another objection raised for declining the application was that the petitioner was already impleaded in O.A. No. 66 of 2004 filed by the second respondent as additional ninth respondent. Even though appeal against rejection of application by the Registrar of DRT was maintainable before DRT under Rule 5 of the Debt Recovery Tribunal (Procedure) Rules, 1993, the petitioner approached the High court to avoid delay and to have an authoritative pronouncement on an issue arising in several cases concerning banks. Having regard to the recurring nature and importance of the issue raised and as an authoritative pronouncement was called for therefore, the High Court entertained the writ, overlooking the alternate statutory remedy available by way of appeal to the DRT.

Held :- The Hon’ble Kerala High Court held that that all that is required for maintaining a second application before the DRT u/s 19(2) of the DRT Act by a bank or financial institution is the pendency of an application filed by a bank or financial institution u/s 19(1) of the DRT Act, where the claim should be for the minimum amount covered by section 1(4) of the Act. A second application against the same defendant by another bank or financial institution is maintainable before the DRT irrespective of the amount of claim and the minimum amount required u/s 1(4) of the Act has no application in such cases. An applicant making a second application u/s 19(2) is in the same position as the first applicant u/s 19(1), though priority in disbursement of amount would depend upon which bank or financial institution has first charge over the property. A defendant impleaded in the original application is entitled to make a counter claim, remit court fees and ask for a decree against the plaintiff, but it is not permissible for a defendant to get a decree against another defendant in a counter claim. Section 19(3) requires the application u/s 19(2) to be filed in the prescribed form accompanied by documents and other evidence in support of the claim and along with court fee. Therefore, the inclusion of the second bank as additional defendant in the original application does not fit in the scheme of section 19(2) and (3) of the act. The second applicant has to be on the claimant’s side.

The Court further held that section 19(2) does not make it a condition that the security furnished to the second or subsequent applicant-bank or financial institution which files an application u/s 19(2) of the act should be the same as furnished to the bank or financial institution which has filed the application under section 19(1) of the Act because a decree can be against the property mortgaged or against the debtor personally in which case the decree can be executed against other assets as well. Therefore, the purpose of consolidation of applications filed by banks or financial institutions u/s 19(2) with the first application by another bank or financial institution is to ensure passing of a common decree by the DRT against the same defendant covering preferential claims of all the applicant-banks and financial institutions. Therefore, in order to file an application u/s 19(2) there is no requirement that the security offered for the claim amount should be the same as the security given for the claim covered in the application pending u/s 19(1) of the Act.

Implications and views :- This is an important judgment which would be relevant to such Banks/ FIs who have their claim less than Rs. 10 lakh against the Borrower against whom proceedings before DRT are already pending for recovery of Rs. 10 lakh or more.