Indian Banking industry is hamstrung by non-performing assets. The biggest malady of the banking sector is the absence of any effective legal remedy to recover their ever-increasing dues. The existing procedure for recovery of debts has blocked a significant portion of the funds of banks and financial institutions in unproductive assets, the value of which deteriorates with the passage of time. So far as the recovery mechanism of banks and financial institutions is concerned, our legal system has not kept pace with changing commercial practices and financial sector reforms. To tackle the malaise, Debts Recovery Tribunals (DRTs) were established on the recommendation of M Narasimham and T Tiwari. Initially, the DRTs held some ground, but after a few years, it was being felt that the DRTs did not prove very fruitful and failed to serve the purpose for which these were established. The government of India constituted the Narasimham Committee and Andhyarujina Committee to examine the Banking Sector reforms and recommended the need for change in the legal system in respect of financial sector reforms. These Committees recommended the enactment of new legislation for securitisation and empowering the banks and financial institutions to take possession of the securities to sell them without the intervention of the Court. SARFAESI Act has fairly improved the recovery position of the banks and financial institutions.

Recently, by an amendment in the Recovery of Debts and Bankruptcy Act, the pecuniary jurisdiction of DRTs has been revised. After the amendment, DRTs are entitled to entertain OAs involving more than INR 20 lacs. As of now, suits up to INR 20 lacs shall have to be filed in Civil Courts, which are likely to delay the recovery process of the banks. It is well established that litigation relating to recovery suits before Civil Courts is a long drawn process that takes decades to effect recovery. It is not necessary that the banks must file an ordinary civil suit for recovery in each and every case. Provision for filing summary suits, in certain cases, has been provided under Order 37 of the Code of Civil Procedure 1908, through which recovery of loans can be affected in a speedy manner as compared to ordinary civil suits. It has been provided under Order 37 of the Code that a summary suit can be filed if the suit is based upon bills of exchange, hundis, promissory notes, suits for a liquidated sum of money or any other written contract. It may be noted that the liquidated demand is different from unliquidated demand, which is subject to the discretionary assessment of the Court while deciding the suit.

The case for a summary suit

It seems that this provision has not attracted the desired attention either of the bankers or the legal fraternity. Summary suits are different from traditional ordinary civil suits in that, in summary, suits there is no long drawn trial like evidence, examination, cross-examination and long-drawn arguments. The procedure is of a summary nature, and the suit is decided within a given time frame. The defendant, in a summary suit, cannot claim the right to defend himself otherwise than as provided under Order 37 of the Code. Under summary suit proceedings, the defendant has to apply to the Court for leave to defend the suit within ten days of service of summons. It has been held by various High Courts and the Apex Court that the provisions of the summary suit are not violative of principles of natural justice. Leave is granted by the Court only if the affidavit filed by the defendant shows such facts as the Court may deem sufficient for granting leave to the defendant to appear and defend the suit. Leave is granted subject to certain conditions; the non-compliance of such conditions entitles the plaintiff bank to the decree. If leave is not granted, the Court goes on to decree the suit. It was held in the matter of Bankey Bihari G Agarwal vs M/S Bhagawanji Meghji & Others, 2001 (2) Bom. CR 86 that the object underlying the summary procedure is to prevent unreasonable obstruction by a defendant who has no defence. The order is, however, confined to suits of negotiable instruments only.

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