Supreme Court pulls up finance ministry for burdening debt recovery tribunals as cases pile up

The rebuke followed a report submitted by the presiding officer of the DRT in Visakhapatnam to the top court, revealing that the quasi-judicial body’s staff had been directed to assist the finance ministry in tasks such as data compilation, undermining the tribunal’s functioning.

Experts said the ministerial interference hampers the DRT’s ability to function effectively, resulting in delays in debt recovery cases and substantial financial losses for creditors. These delays exacerbate the issue of non-performing assets, or loans not repaid in time, and diminish the value of collateral, ultimately reducing recoverable amounts for creditors.

The Supreme Court in its order noted a shocking state of affairs at the DRT.

“The ministry of finance, department of financial services, called upon the learned member of the DRT to submit data. The extent of data requested from the DRT required a considerable effort by the registrar, necessitating that the stenographers and staff attached to the DRT devote the second session to collating this data. Prima facie, it appears to us that the ministry of finance is treating the office of the debt recovery tribunal as a subordinate office,” the court said.

In its 30 September order, a division bench of the apex court comprising Justice Abhay S. Oka and Justice Augustine George Masih issued a notice to the section officer of the finance ministry’s department of financial services demanding an explanation for treating the DRT as a subordinate office. The court has summoned the officer on 21 October to provide a full explanation.

“The DRTs are barely functional and have failed in delivering on their objective,” said Jayesh H., co-founder of Juris Corp Advocates and Solicitors. “They were established to ensure a speedy recovery process for banks and financial institutions, as civil and high court suits were pending for years, even decades. Today, DRTs take longer than the courts used to.”

Experts also said the Supreme Court’s intervention may set a precedent against future misuse of tribunal staff.

“The Supreme Court has clearly condemned the misuse of judicial staff. This message should serve as a deterrent to similar instances of misuse that may otherwise remain hidden,” stated Shiv Sapra, partner at law firm Kochhar & Co.

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‘Busy with ministry work’

The Supreme Court’s attention was drawn to the Visakhapatnam DRT when it adjourned a securitization case, citing that staff members were busy preparing a statement for the finance ministry, leading to the postponement of a crucial hearing.

Following that, the Supreme Court on 17 September instructed the DRT’s presiding officer to provide a sealed report detailing the finance ministry’s involvement and the type of work the tribunal staff had been doing.

The securitization case originated from a plea by Andhra Pradesh-based coaching company Superwhizz Professionals Pvt. Ltd, which approached the Supreme Court in May over repeated adjournments of its securitization application filed in 2022. The company claimed that calls for abstention by the Visakhapatnam Bar Association had rendered the DRT non-functional.

On 30 July, the Supreme Court issued a contempt notice to the Visakhapatnam Bar Association for obstructing DRT operations in the case. The court directed the DRT to proceed with hearings as scheduled, warning that it would hear the case on its merits if the DRT failed to comply.

Despite this, the DRT postponed the case again until 1 October, citing staff involvement in ministry-related work. This led the Supreme Court to ask for a sealed report on the finance ministry’s influence on DRT operations.

“The court’s criticism highlights the dysfunction within the DRTs, exacerbated by administrative overreach, lack of autonomy, and resource constraints,” said Deepak Chawla, partner at law firm Khaitan & Khaitan. “It signals an urgent need for reforms to restore the DRT’s effectiveness in handling debt recovery cases and to uphold their independence as judicial bodies.”

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Dysfunctional DRTs

As of 24 January, 215,431 cases were pending before DRTs, former minister of state for finance Bhagwat Karad revealed in the Lok Sabha in February. Of those, 162,317 were original applications under the Recovery of Debts and Bankruptcy Act, and 53,114 were securitization applications under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (Sarfaesi) Act.

Notably, 185,076 cases had been pending for more than 180 days, including 142,187 original applications.

Currently, there are 39 DRTs and five debts recovery appellate tribunals (DRATs) operating across India.

At the current pace, clearing the backlog in DRTs could take up to seven years. About 60,000 new cases are filed annually, but only half that number are resolved.

Chawla of Khaitan and Khaitan added that DRTs are overwhelmed due to a shortage of staff and inadequate infrastructure. “The lack of judges and support personnel, coupled with insufficient courtrooms and basic facilities, causes significant delays in hearings and case closures,” he said.

Furthermore, limited digitization and the absence of co-benches in appellate tribunals exacerbate the backlog.

Analysts highlight that unresolved debt recovery cases erode creditors’ confidence in the legal system, creating uncertainty within the financial sector. This impacts not just individual creditors but also disrupts the wider economy by restricting capital flow and hindering new lending. Such stagnation can slow economic growth and jeopardise the nation’s financial stability.

“The inordinate delays only encourage many defaulting borrowers to indulge in asset stripping and create adverse interests for friendly third parties,” said Jayesh of Juris Corp. “This ends up heavily reducing the amounts that can be recovered. Often, banks assign the NPA for a low value rather than engage in a lengthy and expensive recovery process.”

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