Introduction

The practice of money lending and borrowing has dated back to historical times. People exchange, borrow, and lend to carry out trade relations and to keep economy working. With the advent of globalisation, commercialization and liberalization, every person from shopkeeper to business companies, is taking loans it becomes crucial to regulate it. The conduct of money in form of loans show credit creation boosting economy, however default leads to de scale the economic development. It becomes need of the hour to have legal recourses for the creditors to recover their debt. An economy with high debts can be detrimental to nations GDP and growth.

Prior to various enabling legislation for debt recovery, the sole recourse was to file a civil suit under which was decided as per civil procedure code 1908. The lawsuit may be filed under Order IV of the CPC or  Order 37, which is a summary suit that allows for a quick resolution. This sole procedure led to overburdening of the courts and justice delivering process became tedious and inefficient, due to which Debt Recovery Tribunals (DRT) and  Debts Recovery Appellate Tribunals (DRAT) were formed under the Recovery of Debts Due to Banks and Financial Institutions Act,1993 (RDDBFI Act).

However, the article’s primary focus is on “Ease of Recovery of Debt by Creditors (Individual / Proprietor / Partnership Firm / LLP / Company etc.) from the companies to which Creditor has supplied goods, provided services, and given loans etc.” and how the common person, small businesses, real estate buyers, suppliers of goods & services, banks, NBFCs, society, etc. can get benefit. In this article, we shall look forward to legal recourses for debt recovery under various acts that can aid for speedy disposal of the debt.

Recourses under different laws-

1. Insolvency and Bankruptcy Code, 2016
2. The word “default” is defined under section- 2(11) Insolvency and Bankruptcy Code, 2016 as “means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt”.
3. The framework includes-

• Insolvency professionals.
• The regulator (Insolvency and Bankruptcy Board of India).
• Information utilities.
• Adjudicatory mechanisms ( National Company Law Tribunal- NCLT & National Company Law Appellate Tribunal – NCLAT).

2016. Recovery proceedings can be started against the debtor or corporate debtor which can only be company under IBC, 2016.
2017. Persons that can initiate Recovery process-

• “A person to whom a financial debt (Loan) is owed is known as financial creditor.”[1]
• “An Operational Creditor can be defined as a person to whom an operational debt is owed. “Operational Debt” includes- Goods or Services, employment, or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government, or any local authority.”[2]

It’s a general norm among the creditors that IBC code can be used to recover debt, however recently NCLAT ruled that IBC proceeding cannot become a debt recovery process, it is to bring the company back on its feet.[3] This has also been said in Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors.[4]. It is also said in State Bank of India vs. M/s LML Limited and others[5] that “Insolvency proceedings are meant to avert the problems associated with individual creditors separately rushing to recover their debts and the concomitant waste caused by such actions against an already distressed debtor. High Court of Allahabad, has recently barred parallel proceedings in the National Company Law Tribunal (NCLT) and the Debt Recovery Tribunal (DRT).”[6]

1. Provision of NCLT- A petition can be filled by the creditor to a corporate debtor that has defaulted and used the services provided by the creditor. A demand notice will be issued to debtor and if creditor does not receive the payment within 10 days, then an application can be filled initiating recovery process. NCLT within 14 days of application either accepts or rejects the application.
2. Debt recovery under Micro, Small and Medium Enterprise Development (MSMED) Act, 2006-

The MSMED Act, 2016 provides a legal framework for regulation and speedy dispute resolution between MSME and buyer. Section 15 of MSMED act, 2006 places onus on the buyer to complete all payments to MSE supplier in the stipulated time and if there is no agreement then payment to be made within 45 days. The striking feature is section 18 which states that jurisdiction will be conferred upon Micro and Small Enterprises Facilitation Council (MSEFC) in whose jurisdiction the “supplier” i.e., MSME is registered, diverging from the general rule in which suit is instituted in the place of defendant.

In this, if the buyer did not pay the amount in 45 days from the date of delivery, MSME can report the matter to MSEFC which can seek resolution upon the matter. However, if it is unable to, both the parties can resort to Arbitration. Government has launched the MSME Samadhaan portal to aid the small business in filing application and checking the status.

3. Recovery of Debts due to Bank and Financial Institutions (RDBFI Act), 1993

The RDDBFI Act of 1993 and the Debts Recovery Tribunal (Procedure) Rules of 1993 set forth the rules that apply to DRTs. The state’s relevant High Court has supervisory jurisdiction over the DRTs, which are run by the Ministry of Finance. When a bank or other financial institution needs to recover any debt from a person, it can submit an application to the Debts Recovery Tribunal for recovery against that individual. But over time, the Debts Recovery Tribunal has come to deal with two distinct Acts, namely the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act of 2002 and the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act of 1993. In contrast to the SARFAESI Act of 2002, which gives borrowers, guarantors, and anyone else who has been wronged by a bank or financial institution the right to contact the DRT, the RDDBFI Act of 1993 only allows banks and financial institutions to do so.

4. Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest (SARFAESI) Act, 2002

This legislation makes the claim that it will establish a single source of assets for the creation of security interests. The SARFAESI designated several creditors to oversee the collateral properties with help from the district’s pertinent authorities. Security interests created in favour of secured creditors must adhere to the SARFAESI Act’s regulations.

Within 45 days of the date the Section 13(4) Notice is published, applications made according to Section 17 of the SARFAESI Act must be submitted to the DRT. Such Section 17 applications must be decided upon by the DRT in accordance with the DRT Act’s stated process. Any person who is dissatisfied with the decision made by the DRT may appeal to the DRAT.

5. The Arbitration and Conciliation Act, 1996

This strategy is typically used to collect debts that have accumulated as a result of commercial agreements. The existence of an arbitration clause in the original agreement from which the dispute originates is the main criteria that determines whether the issue can be settled. The legal viability of the precise idea of arbitration for debt collection is the key concern in relation to the arbitrability of disputes. In contrast to conflicts emerging out of a right in rem, issues developing out of a right in personam are arbitrable, according to the Supreme Court’s ruling in the case of Booz Allen vs. SBI Home Finance Limited[7]. Additionally, it was emphasised that the doctrine of necessity serves as a safeguard for this understanding and that public policy will also be considered. The Vidya Drolia v. Durga Trading Corporation[8] decision, in which the four-fold test was established and it was determined that a dispute was not arbitrable if-

• It relates to actions in rem that do not pertain to a subordinate right in personam.
• It affects third-party rights.
• It involves an inalienable sovereign function, or as applicable, it is non-arbitrable.

Conclusion

From the above analysis, there are various laws that provide mechanism to recover the debt, however a strict regularization of tribunals is need of the hour. Creditors must have a proper knowledge of the recourses available to incorporate for the recovery. There are reports and data that shows that despite all the recovery laws, a large chunk of creditors are unable to use mechanisms and aid themselves. This calls for better implication, execution and speedy disposal of matters by courts and tribunals. 

Footnotes

[1] Section 5(7) of the Insolvency and Bankruptcy Code,2016.

[2] Section 5(20) of the Insolvency and Bankruptcy Code, 2016.

[3]https://www.business-standard.com/article/companies/ibc-provisions-cannot-be-turned-into-debt-recovery-proceeding-nclat-123031300927_1.html .

[4] AIR (2019) 4 SCC 17.

[5] Writ Petition (Civil) No. – 30285 Of 2017.

[6] Ibid.

[7] (2011) 5 SCC 532.

[8] Civil Appeal No. 2402 Of 2019.

Backdrop of RERA Act:

Real Estate (Regulation and Development) Act, 2016 popularly known as RERA Act came into force on May 1, 2016. RERA was launched with the intention to regularise the real state sector. The issue of regularisation was prominent in real estate which created a havoc and feeling of despair among the home buyers. Establishment of an authoritative body was the need of the hours to have a quicker and efficient remedy against all the malpractices of the builder. With the establishment, the redressal process became efficient and regularisation. Prior to RERA 2016, the matters of real estate was handled under Indian Contract Act, 1872; the Consumer Protection Act, 1986. In this excerpt, we will divulge into the process of getting RERA certificate executed and redressal one has in cases of non-compliance.

When the amount will be returned by the promoter?

Under Section 18 of the RERA Act, provides redressal when promoter is unable to complete or give possession of apartment plot or building-

1. with respect to the terms of the agreement for sale or duly completed by the date specified therein; or
2. due to discontinuance of his business as a developer on account of suspension

or revocation of the registration under this Act or for any other reason,

• Whether or not the allotees decides to withdraw from the project, promoter will still be liable. When the allottee decides to leave the project, the promoter must pay the sum he was paid for that flat, along with interest calculated at the statutory rate and compensate in accordance with this Act’s provisions. In circumstances of non-withdrawal, the promoter is required to pay interest at the specified rate for each calendar month of delay up until the transfer of possession. In accordance with Section 31 of the Act, the RERA Authority grants relief.
• Compensation- Promoter will make up for any losses incurred by allottees as a result of faulty land titles, etc. If the promoter does not fulfil any further requirements outlined in the act or the terms and conditions of the agreement for sale, he must pay compensation. One must go to the Adjudicating Authority established by the Act in accordance with Section 71 to request compensation.

 Execution order by RERA Court:

• Whenever a complaint is made by an allottee under Section 31 of the RERA Act before the RERA or the Adjudicating Officer, the same is to be adjudicated in terms of the procedure prescribed under the Act and in case the default is proved, the RERA or the Adjudicating Officer has powers under Section 38 and 71 of the RERA Act, to impose penalty or interest upon the builder or developer and to compensate the allottee for the loss faced by him.
• Once the RERA Authority passes such an order upon the complaint filed by the allottee, the builder must execute the order within 45 days or within such a time period as specified in the order and provide a refund or compensation to the allottee.
• Section-40: In case, the builder fails to enforce the order and further commits default in paying the interest or penalty or compensation or processing the refund in favour of the allottee, the home buyer can file for the execution of the said order passed by the RERA or the Adjudicating Officer against the builder before the same RERA Authority under Section 40.
• Under section 40 of the Act, in case of non-compliance by the builder/promoter/ developer, RERA or the Adjudicating Officer, is empowered to pass directions or order to recover the same from such builder or promoter as ‘arrears of land revenue’. Order passed under sec 40 is also known as “Recovery certificate”.
• The term “arrears of land revenue” is not mentioned in RERA act, its given in Chapter XII of the U.P. Revenue Code, 2006 (and Chapter X of the erstwhile U.P. Zamindari Abolition and Land Reforms Act, 1950) for matters related to UP. Under Section 170 of UP Revenue code, 2006, and arrear of land revenue may be recovered by-
• “by arrest and detention of the defaulter;
• by attachment and sale of his movable property including agricultural produce;
• by attachment of any bank account or locker of the defaulter;
• by attachment of the land in respect of which the arrear is due;
• by lease or sale of the land in respect of which the arrear is due;
• by attachment and sale of other immovable property of the defaulter;
• by appointing a receiver of any property, movable or immovable, of the defaulter.”[1]
• Role of DM in recovery- It is the duty of DM to ensure that the recovery certificate is executed stated under the U.P. Revenue Code 2006 under Chapter XII from Section 169 to Section 205, however in cases of non-compliance, allotee’s last resort is to move to High Court.
• Penalty on promoter under section 63- If a promoter disobeys the authority’s orders or directives, they could face penalties under section 63, which apply every day. If default persists, it could increase cumulatively to 5% of the project’s estimated cost for real estate.
• The builder may also be subject to fines of up to 10% of the projected cost of the real estate project, up to three years in prison, or both under the Act’s penalties for non-compliance.

Speeding up execution:

• Writ of mandamus for execution in High Court

According to the U.P. Revenue Code, the Tahsildar and other revenue authorities, such as the Collector, have a statutory obligation to collect  arrears of land revenue and carry out the recovery citation and writ of demand issued by the U.P. RERA and by it, respectively. A Writ of Mandamus may be invoked to enforce the fulfilment of statutory duties.  A person who is aggrieved by a governmental official who disregarded their legal obligations may resort to the Hon’ble High Court to enforce out his RC.

In accordance with Rule 24, the HC may issue a writ of mandamus ordering the RERA to assure execution of the recovery certificate, or it may order the Collector to enforce the recovery citation in a timely manner.

1. In accordance with Rule 24 of the 2016 Up RERA Rules, it was required to start the execution process as soon as the promoter disregarded the order. The U.P. RERA execution processes may be performed similarly to civil court proceedings. Dates for the execution proceedings shall be provided to the complainant, and the RERA should summon a report on the recovery certificate’s execution before itself during those proceedings.
2. In a recent decision, the Hon’ble Allahabad High Court ordered the Collector to enforce the recovery citation that was issued in a timely way.[2]
3. In Ansari Mohammed Zaki vs The State of Maharashtra, Bombay HC said that, if settlement is not reached within 2 months, then within 15 days Tahsildar to execute recovery warrant as per the Land codes of Maharashtra with the attachment of the property.[3]

What is the remedy the if collector is not recovering the recovery citation even after the order of Hon’ble High Court?

The order passed by High Court should be submitted before the Collector/DM concerned and Tahsildar- and be brought to their Notice. This makes them duty bound to enforce the order/recovery certificate issued by RERA. However, if the needful is still not done, one needs to initiate contempt proceedings in the High Court.

Conclusion:

From the above trajectory, it is a long-drawn process to attain the result in compliance of a RERA order/judgement. Obtaining a favourable order from RERA is just the start of the battle; and the actual ordeal begins thereafter. The non-compliance of Recovery certificates by executives is a hurdle to fulfil the objective of RERA act.  Having said that, with consistent efforts and able legal guidance, the compliance/actual; execution of RERA orders it is quite possible to aid the objective of RERA act, aiding allottees.

Footnotes:

[1] Section 170 of  UP Revenue Code, 2006.

[2]Priya Kapahi and Another V. State Of U.P. Writ No- 26717 of 2020.

[3]Ansari Mohammed Zaki V. State of Maharashtra & Ors, Writ Petition No.6872 of 2021.