The primary function of banks is to invite deposits and provide credit to various types of borrowers. The impact of liberalisation, privatisation and globalisation has changed the landscape of functioning of the banking industry in India. During the course of their functions, banks have to comply with various rules and regulations prescribed by the regulators. While carrying on their business, banks have to confront various types of risks, such as:

Furthermore, one type of risk is likely to have an impact on other types of risk. It is these risks which may lead to disputes and culminate in litigation.

At present, the banks are undergoing tremendous pressure from litigation and are spending a huge amount of their profits on litigation. A major portion of litigation relates to the recovery of their dues, which also involves counterclaims against the banks. Banks also face litigation relating to disciplinary action against the staff e.g., non-payment of terminal dues, termination, suspension and imposition of other punishments on the staff. Other types of litigation related to premises taken by banks on the lease, litigation with government agencies, litigation regarding deficiencies in service, and litigation regarding credit matters like issuance of bank guarantees. In the following paragraphs, we shall be discussing various types of litigation filed against the banks and their management.

Recovery cases and counterclaims

One of the major types of litigation by the banks relates to the recovery of their non-performing dues. It is well known that at present, the banking industry is undergoing its worst-ever phase due to ever-increasing non-performing assets. Cases are not uncommon that as and when the banks resort to any legal action against the borrower/s for recovery of their loans, the borrower/s come up with counterclaims against the banks on various grounds, including that the concerned bank did not release the requisite funds or that the funds were not released in time due to which they were not able to run their units efficiently or that the bank has applied excess interest in their account. Hence it is imperative that the branch officials ought to take a more pragmatic view and release the sanctioned funds as and when required and not be driven by technicalities in genuine cases. This way, the bank will be in a position to put up a strong defence against the plea of the borrower if the need arises.

The banks file recovery cases either before Civil Courts or the Debts Recovery Tribunals, depending upon the amount involved in the matter. After the issuance of the decree by the Civil Court or Recovery Certificate by the DRTs, the banks have to execute the decree / recovery certificate as the case may be. Although the passage of Recovery Certificate by DRTs has become a bit faster as compared to the issuance of the decree by Civil Courts, the execution of the decree / recovery certificate is still an uphill task. It still takes months and years for the bankers to reap the benefits of the decree / recovery certificate. Despite the enactment of different laws for expediting the litigation relating to the recovery of banks’ dues, there is no plausible explanation as to why the management of such litigation is consistently going awry.

To read more, please subscribe.