Rajasthan High Court Upholds DRAT’s Discretion Under Section 19(20) of Recovery of Debts and Bankruptcy Act | DRAT May Reduce Interest Granted by DRT in Favour of Secured Creditor
Sanchayita Lahkar
The High Court of Rajasthan Single Bench of Justice Anoop Kumar Dhand upheld the Debt Recovery Appellate Tribunal’s authority under Section 19(20) of the Recovery of Debts and Bankruptcy Act, 1993, to lower the interest fixed by the Debt Recovery Tribunal in a loan recovery dispute between Bank of India and Paras Talkies. Finding that the appellate tribunal had properly exercised its statutory discretion to reduce the DRT’s 15% quarterly-compounded rate to 12% simple interest in view of mitigating circumstances, the Court rejected the bank’s writ petition and ordered it to promptly return the mortgaged property documents to the borrower.
The dispute arose when Bank of India, a body corporate under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, extended loan facilities to Paras Talkies and its proprietors in Udaipur for establishing a cinema theatre. The borrowers allegedly failed to repay the loan as per the agreed terms. The Bank filed a recovery application before the Debt Recovery Tribunal (DRT), Jaipur, seeking recovery of ₹44,64,029.14 with interest at 15% per annum with quarterly rests in accordance with the loan agreement.
The DRT allowed the application and directed the respondents to pay the claimed amount with the contractual rate of interest. Aggrieved, the borrowers appealed before the Debt Recovery Appellate Tribunal (DRAT), Mumbai, challenging the interest component. The DRAT, by order dated 30 March 2000, upheld the principal recovery but reduced the interest from 15% per annum with quarterly compounding to 12% per annum simple interest from the date of the suit until realization, granting eight weeks for payment. The DRAT’s decision was based on six circumstances narrated by the borrowers, including delayed and lesser disbursement of loan amounts, part payments even after completion of the building, business competition due to video cassette films, deposit of ₹60 lakhs, and disallowance of penal interest.
The Bank challenged the DRAT order before the Rajasthan High Court, contending that the DRAT lacked jurisdiction to modify the interest rate contrary to the loan agreement and Section 19(20) of the Recovery of Debts and Bankruptcy Act, 1993. The borrowers defended the DRAT’s discretion under the said provision.
Justice Anoop Kumar Dhand recorded that “Perusal of the order passed by the DRAT reveals that the respondents narrated following six circumstances… delayed disbursement… lesser disbursement of ₹1 lac… part payment of the loan even after completion of building… competition in the business of Cinema Theatre due to Video Cassettes films being shown… deposit of ₹60 lacs by the appellants uptil now… penal interest charged by the bank disallowed by the Presiding Officer.”
The Court observed that “Considering the above six circumstances, the DRAT has used its discretion contained under Section 19(20) of the Act of 1993.”
Justice Dhand stated that “The judgment passed by the DRAT finds support by the judgment passed by the Constitutional Bench of five Judges of Hon’ble Apex Court in the case of M/s Sarathi Textiles (supra).”
He further recorded that “This Court finds no error in the order passed by the DRAT as the discretion has been exercised by the DRAT as per Section 19(20) of the Act of 1993 and as per the judgment passed by the Apex Court in the case of M/s Sarathi Textiles (supra).”
Justice Anoop Kumar Dhand ordered: “This Court finds no merit and substance in this writ petition and accordingly, the same is hereby rejected. Pending applications, if any, also stand rejected.”
“The petitioners are directed to release the mortgaged documents to the respondents forthwith, without any further delay.”
Advocates Representing the Parties
For the Petitioners: Mr. Ajay Shukla with Mr. Raghav Sharma
For the Respondents: Mr. Arvind Gupta with Mr. Sohan Sharma
Case Title: Bank of India v. Paras Talkies & Ors.
Case Number: S.B. Civil Writ Petition No. 2521/2000
Bench: Justice Anoop Kumar Dhand
