The Kerala High Court has held that banks and financial institutions can initiate proceedings under the Kerala Revenue Recovery Act, 1968 for recovering debts below ₹20 lakh as the provisions of the Recovery of Debts and Bankruptcy Act, 1993 applies only to defaulted loans of ₹20 lakh and above.
Justice P.V. Kunhikrishnan while making the observation set aside the Thrissur District Collector’s order directing the revenue authorities not to initiate revenue recovery proceedings for defaulted loans of above ₹10 lakh on the requests of banks and other financial institutions.
The verdict was passed recently while allowing a writ petition filed by the Federal Bank challenging the District Collector’s order. According to the bank, the circular was issued on a miscomprehension of the law. In fact, as per the notification issued by the Central government in 2018, the provisions of the Recovery of Debts and Bankruptcy Act do not apply where the amount of debt due to any bank or financial institution or to a consortium of banks or financial institutions is less than ₹20 lakh. Therefore, the Debts Recovery Tribunal can entertain an application only in cases where the defaulted loan amount is more than ₹20 lakh. In fact, the banks are entitled to recover ₹20 lakh and below under the Revenue Recovery Act.
The court observed that since the pecuniary jurisdiction of the Debt Recovery Tribunal under the Recovery of Debts and Bankruptcy Act had been enhanced to ₹20 lakh and above as per the notification, the bar of jurisdiction under Section 18 of the said Act does not apply to recovery actions initiated under the Kerala Revenue Recovery Act, 1968 by the banks and financial institutions for recovery of debts below ₹20 lakhs. Besides, the Rajasthan High Court has already upheld the validity of the notification.
