LI Network
Published on: 8 September 2023 at 11:30 IST
The Kerala High Court, in agreement with the Rajasthan High Court’s findings, has ruled that the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) does not apply when the debt owed to a bank, financial institution, or consortium of banks/financial institutions is less than twenty lakhs rupees.
The High Court’s decision clarified that, following the Central Government’s notification (Ext.P4) invoking powers under sub-section (4) of Section 1 of the 1993 Act, which enhanced the pecuniary jurisdiction of the Debt Recovery Tribunal to Rs. 20 lakhs and above, the jurisdictional bar under Section 18 of the 1993 Act does not apply to debt recovery actions initiated under the Kerala Revenue Recovery Act, 1968 by banks and financial institutions. This applies when the amounts sought to be recovered are below twenty lakhs rupees.
A Single Judge Bench led by Justice P. V. Kunhikrishnan noted, “As per Ext.P4 notification, issued by the Government of India in exercise of the powers conferred under sub-section (4) of Section 1 of the Act, 1993, it is declared that the act shall not apply where the amounts of debts due to any bank or financial institution or to a consortium of banks or financial institutions are less than twenty lakh rupees.”
Background of the Case:
The petitioner, a banking company, challenged a Circular issued by the District Collector, instructing revenue officials not to initiate revenue recovery proceedings for loans exceeding ten lakhs rupees. The petitioner argued that this circular was based on a misunderstanding of the law.
They pointed out that, following the Central Government’s notification under Section 1(4) of the Recovery of Debts and Bankruptcy Act, 1993, the Debt Recovery Tribunal’s jurisdiction only extends to amounts exceeding twenty lakhs rupees. For debts up to twenty lakhs rupees, banks are entitled to recover them under the Revenue Recovery Act.
After reviewing the submissions, the Bench referred to the Union Government’s notification, which declared that the 1993 Act does not apply to debts owed to banks, financial institutions, or consortiums of banks/financial institutions that are less than twenty lakhs rupees.
The Bench also cited the Rajasthan High Court’s decision, which confirmed the Central Government’s rationale for raising the threshold from ten to twenty lakh rupees.
The Rajasthan High Court held that the notification aimed to achieve the objectives for which the Tribunals were established, as evident from the statement of objects and reasons and the preamble of the 1993 Act.
Consequently, the Bench disposed of the petition, noting that the stay on the contested notification had already been lifted.
Case Title: The Federal Bank Ltd. v. State of Kerala and Ors.
