How Can a Borrower Defend Themselves in a DRT Case?
When a bank or financial institution files a recovery application against a borrower in the Debt Recovery Tribunal (DRT), the borrower has several legal options to defend themselves. The borrower can contest the bank’s claims on various legal grounds and procedural lapses. Below is a detailed explanation of how a borrower can effectively defend themselves in a DRT case:
1. Understanding the Recovery Process at DRT
The Debt Recovery Tribunal (DRT) is established under the Recovery of Debts and Bankruptcy Act, 1993 to handle cases related to the recovery of debts by banks and financial institutions, where the amount is more than ₹20 lakhs. When a borrower defaults on a loan, the bank or financial institution may file an application with the DRT to recover the outstanding debt. The DRT, after examining the evidence, may pass an order for the recovery of dues.
Borrowers can defend themselves by disputing the claims made by the lender or raising procedural or factual objections. The defense strategy largely depends on the nature of the case, the facts surrounding the loan, and the actions taken by the bank or financial institution.
2. Challenging the Amount Claimed by the Bank
One of the most common defenses is challenging the amount claimed by the lender. Borrowers can argue that the amount mentioned in the recovery application is inflated, incorrect, or not reflective of actual dues. To successfully raise this defense, borrowers should:
- Scrutinize Loan Statements: Borrowers should thoroughly examine all loan statements, interest calculations, and repayment schedules to identify any errors or discrepancies.
- Highlight Excessive Charges: Sometimes, banks levy penalty interest, late fees, or other hidden charges, which may not be justified. The borrower can contest these charges in the DRT.
- Prepayment or Partial Payments: If the borrower has made prepayments or partial payments that are not reflected in the bank’s records, they can submit proof of such payments (e.g., bank receipts) to reduce the amount claimed by the lender.
3. Procedural Irregularities by the Lender
The borrower can also challenge the DRT proceedings by pointing out procedural irregularities by the bank. Some common procedural lapses include:
- Failure to Serve Proper Notice: Before initiating a recovery action, the bank must follow proper procedures such as sending demand notices. Under the SARFAESI Act, for instance, a bank must send a 60-day notice to the borrower before taking possession of the secured asset. If this notice was not served or was not in accordance with the law, the borrower can challenge the case.
- Non-compliance with RBI Guidelines: The Reserve Bank of India (RBI) has guidelines that banks must follow for classifying loans as Non-Performing Assets (NPAs). If the bank has not followed these guidelines, the borrower can contest the DRT proceedings on the grounds of irregularities in declaring the loan as NPA.
- Incorrect Loan Classification: If the borrower believes that the loan has been wrongfully classified as an NPA, they can raise this issue in their defense.
4. Questioning the Validity of the Loan Agreement
The borrower can defend themselves by questioning the validity or enforceability of the loan agreement. Some potential grounds for challenging the agreement include:
- Undue Influence or Coercion: If the borrower can prove that they were coerced or unduly influenced into signing the loan agreement, they may argue that the agreement is void or voidable.
- Fraud: The borrower may allege that the bank committed fraud while executing the loan agreement. For example, if there was misrepresentation of loan terms, the borrower could claim that they were misled into signing the agreement.
- Forgery of Documents: In rare cases, borrowers may argue that certain documents or signatures are forged, thereby rendering the loan contract invalid.
5. Disputing the Bank’s Title to the Secured Asset
In cases where the bank seeks to recover the loan by selling the borrower’s secured asset (e.g., under SARFAESI), the borrower can challenge the bank’s title or claim to the asset. The borrower may raise the following points:
- Questioning Ownership of the Asset: The borrower can claim that the bank has no legal right over the asset, either because it is not properly mortgaged or due to legal defects in the creation of the mortgage.
- Third-Party Rights: If a third party (such as a family member or joint owner) has a legitimate interest in the property, the borrower can argue that the bank cannot take possession of the asset without addressing these third-party rights.
- Incorrect Valuation: In cases where the bank auctions the asset to recover dues, the borrower can challenge the valuation of the asset if they believe it is being undervalued to favor the bank or auction purchaser.
6. Seeking Relief for Financial Distress or Unforeseen Circumstances
If the borrower has defaulted due to genuine financial distress, unforeseen circumstances, or other factors beyond their control, they can present this as a defense in the DRT. Some examples include:
- Medical Emergencies: If the borrower or their family members faced a significant medical emergency, which impacted their ability to repay the loan, they can request leniency from the DRT.
- Loss of Employment or Income: Borrowers who have lost their primary source of income due to economic downturns, job loss, or business failure can use this as a mitigating factor in their defense.
- Natural Disasters or Force Majeure: If the borrower’s property or business has been affected by natural disasters (e.g., floods, earthquakes) or other force majeure events, the DRT may take such factors into account while deciding the case.
7. Filing a Counterclaim
The borrower may also file a counterclaim against the bank, especially if the bank’s actions caused them financial loss. For instance:
- Bank’s Failure to Disburse Loan Properly: If the bank failed to disburse the loan on time, leading to the borrower incurring additional costs or suffering losses, the borrower can file a counterclaim for compensation.
- Illegal Possession or Auction: If the bank takes illegal possession of the borrower’s property or conducts an unlawful auction of the property, the borrower can seek compensation or damages for the bank’s wrongful actions.
8. Proving Repayment or Settlement
In some cases, the borrower may have already settled the loan or paid off a significant portion of the debt, but the bank’s records may not reflect this. The borrower should:
- Submit Evidence of Payments: Borrowers should provide bank receipts, transaction records, or any other documentary evidence showing that they have made payments toward the loan.
- Proof of Settlement Agreement: If the borrower has entered into a settlement agreement with the bank and complied with the terms of the agreement, they can submit this as a defense to stop further recovery actions.
9. Negotiating for One-Time Settlement (OTS)
If the borrower is willing to settle the matter and clear the outstanding dues, they can approach the bank with a proposal for a One-Time Settlement (OTS). Many banks have schemes allowing borrowers to settle their debts by paying a lump-sum amount, which is less than the total outstanding. Borrowers can negotiate with the bank and present the OTS proposal to the DRT as a possible resolution.
10. Filing an Appeal Against DRT’s Order
If the DRT passes an adverse order, the borrower has the right to appeal to the Debt Recovery Appellate Tribunal (DRAT) within 30 days of the DRT’s order. In their appeal, the borrower can challenge the findings of the DRT and present additional evidence or arguments to support their case.
11. Engaging Legal Representation
Given the complexity of DRT cases, it is crucial for borrowers to engage experienced legal counsel who can navigate the intricacies of the case. A lawyer with expertise in DRT proceedings can:
- Draft detailed replies to the recovery application.
- Represent the borrower before the DRT and argue against the bank’s claims.
- Gather evidence to refute the bank’s allegations and present a strong defense.
FAQs on How a Borrower Can Defend Themselves in a DRT Case
Q1: Can a borrower defend themselves in a Debt Recovery Tribunal (DRT)?
Yes, a borrower can defend themselves in a DRT case by presenting evidence, challenging the bank’s claims, pointing out procedural irregularities, and raising legal defenses related to the loan agreement or the bank’s actions.
Q2: What is the first step a borrower should take when a bank files a case in DRT?
The first step a borrower should take is to carefully review the recovery application filed by the bank, gather all relevant loan-related documents, and engage an experienced legal professional to draft a strong reply or defense.
Q3: Can a borrower challenge the amount claimed by the bank in DRT?
Yes, a borrower can challenge the amount claimed by the bank if there are discrepancies, errors in calculation, excessive charges, or if certain payments made by the borrower are not reflected in the claim.
Q4: What procedural lapses can a borrower point out in their defense?
Borrowers can raise procedural lapses like non-service of proper notices, non-compliance with RBI guidelines on declaring the loan as a Non-Performing Asset (NPA), or failure to follow due process before taking possession of secured assets.
Q5: Can a borrower challenge the classification of their loan as an NPA in DRT?
Yes, if a borrower believes that their loan has been wrongly classified as a Non-Performing Asset (NPA) without following RBI guidelines, they can raise this defense in the DRT.
Q6: What should a borrower do if they have made payments that the bank has not accounted for?
The borrower should submit proof of payments such as bank statements, receipts, or transaction records to show that they have repaid part of the loan and challenge the bank’s claim for the total outstanding amount.
Q7: Can a borrower defend themselves by proving financial hardship?
Yes, borrowers can argue that financial hardship due to medical emergencies, job loss, or unforeseen circumstances led to their inability to repay the loan. While it may not absolve the debt, it can help in seeking leniency or time for repayment.
Q8: Can the borrower file a counterclaim against the bank in DRT?
Yes, a borrower can file a counterclaim if they believe the bank’s actions, such as wrongful seizure of property or failure to properly disburse loan amounts, have caused them financial loss.
Q9: What happens if a borrower wants to settle the loan outside of DRT?
Borrowers can negotiate for a One-Time Settlement (OTS) with the bank, offering to pay a lump-sum amount to clear the outstanding dues, and present the settlement proposal to the DRT as an amicable solution.
Q10: Can a borrower appeal against a DRT order?
Yes, if the borrower is not satisfied with the DRT’s decision, they can appeal to the Debt Recovery Appellate Tribunal (DRAT) within 30 days of the DRT order.
Q11: How can a borrower defend themselves if the bank initiates recovery under the SARFAESI Act?
If the bank initiates recovery under the SARFAESI Act, the borrower can file an appeal with the DRT under Section 17 of the SARFAESI Act, challenging the bank’s possession of the asset, or seek relief if they feel the bank’s actions were unjust or illegal.
Q12: What should a borrower do if they feel the loan agreement is invalid?
The borrower can challenge the validity of the loan agreement by raising defenses like undue influence, coercion, or fraud, arguing that the loan contract is void or voidable due to such factors.
Q13: Is it necessary to hire a lawyer for a DRT case?
While it is not mandatory, it is highly advisable to hire a lawyer with expertise in DRT proceedings. A competent legal professional can draft strong defenses, represent the borrower, and navigate complex legal processes.
Q14: Can a borrower challenge the valuation of their secured asset in DRT?
Yes, if the borrower believes that the bank is undervaluing the asset, they can challenge the valuation in DRT, especially if the bank plans to auction the property to recover dues.
Q15: Can the borrower request a stay on the bank’s recovery process during the DRT proceedings?
Yes, borrowers can seek an interim stay from the DRT to temporarily halt the bank’s recovery process, including possession or sale of the secured asset, until the case is fully heard and decided.
Conclusion
A borrower can defend themselves in a DRT case by challenging the amount claimed by the lender, highlighting procedural irregularities, questioning the validity of the loan agreement, disputing the bank’s title to secured assets, seeking relief for financial distress, or filing a counterclaim. Additionally, negotiating for a One-Time Settlement (OTS) or appealing an adverse DRT order can be effective strategies for borrowers. Engaging a competent legal representative and presenting evidence to refute the lender’s claims are critical steps in successfully defending a case in the DRT.
Disclaimer: This information is intended for general guidance only and does not constitute legal advice. Please consult with a qualified lawyer for personalized advice specific to your situation.
Adcocate J.S. Rohilla (Civil & Criminal Lawyer in Indore)
Contact: 88271 22304