Photo: iStockphoto
Photo: iStockphoto

Unnecessary adjournments delay debt recovery proceedings: report

Some 70,000 cases pending across debt recovery tribunals in India; borrowers seeking adjournments cause 46% of all delays, says a report

New Delhi: Needless adjournments seem to be the cause of judicial delays in debt recovery proceedings, according to data analysed by a group of researchers.

There are around 70,000 cases pending across debt recovery tribunals in India.

The report was prepared by Prashanth Regy and Subho Roy of the National Institute of Public Finance and Policy (NIPFP) and Renuka Sane of the Indian Statistical Institute, who analysed 22 complete cases from the debt recovery tribunal in Delhi between February and April 2014.

“This study gives a lot of insight into what might be going wrong, and most importantly, how the incentives of the various parties affect the outcomes," Sane said.

“It also suggests that merely increasing judges is perhaps not the complete remedy. We need procedural reform, as well as administrative reform (in terms of the separation of the judicial from the administrative function). The study also shows how delays should be analysed—we need to move away from just looking at macro pendency statistics, and actually go through the entire process of the case," she said in an emailed response to a questionnaire.

According to the analysis, 46% of all delays were caused by borrowers seeking adjournments.

It’s natural for borrowers to want to delay repayments, but even lenders, the study found, caused delays—37% of all delays were caused by creditors.

The study blamed lawyers for causing delays. Lawyers “ask for more time to file documents... many instances where one or the other (often both) lawyers are absent, or both lawyers request adjournments", the report stated. It then says this data suggests that lawyers are in no hurry to wrap up a case.

“If the incentives of the lawyers are perverse—for instance, if they get paid not on the basis of prompt resolution of the case in favour of their client, but on the basis of the number of hearings—then it is reasonable to expect that they would prefer to have more hearings," the report said.

Managing partner at Delhi-based insolvency law firm Dhir and Dhir, Alok Dhir defended lawyers.

“No lawyer is interested in delaying cases for enhancing appearance fees because in DRTs (debt recovery tribunals) most work is done on a lump sum basis. As such there is no great advantage to a lawyer in increasing the number of hearings as that delays payment. I don’t think this has been analysed thoroughly. In the entire banking sector, at least 95% cases are on a lump sum payment basis and borrowers at least 50%-60% cases are on lump sum basis," Dhir said.

Dhir added that delays were strategic decisions taken by clients. “Say a banker wants to bring pressure on a borrower after getting an interim order of attachment against him, or a borrower, as he has no exit route and personal guarantees, continue to haunt them even after mortgaged assets are sold," he said.

The study, released on 18 May, makes two recommendations—incentivize reducing litigation time for lawyers, judges and litigants, and improving administration through better court infrastructure including technology-based process re-engineering.

This is a departure from the usual plea for increasing the strength of the judiciary. As recently as in March, Chief Justice of India T.S. Thakur made a public request to the government to support the courts in accelerating the process of judicial appointments.

According to Dhir, the delays in cases reflect a larger issue with how the debt recovery system works. “Our current system creates a vested interest to delay by both sides—borrowers or lenders," he said.

The Insolvency and Bankruptcy Code is set to change this, Dhir added.

“Corporate borrowers/debtors will get a window of 180-270 days to revive their company under the Code. After that, the company would go for liquidation. This enactment also provides for exit route to the guarantors, who can be declared insolvent and can then start afresh," he said.

“The Code will also tackle the issue of creditors as there’s now a time frame provided in the enactment for negotiated settlement. In case creditors don’t settle within the stipulated time, the company would go into liquidation and the creditors may get much lower recovery," he said.

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