📚 JAIIB 2025 • PPB • Module B (Ch 8 of 20) • Unit 29

Important Laws for Recovery of Dues

Recovery laws: DRT (1993, Recovery Certificate), SARFAESI (2002, enforce without court, 60-day notice, ARC, CERSAI, not for pledge), IBC (2016, IBBI, NCLT/DRT, CIRP, ≥₹1Cr), Lok Adalat (≤₹20L, Legal Services Act 1987), Limitation Act.

⏱ 18 min read🎯 High Exam Weightage🧠 4 Memory Tricks⚡ 6 Flash Cards

Banky Recovers Dues! ⚖️

When borrowers default, banks need legal tools to recover. Five key laws: DRT for tribunal recovery, SARFAESI for security enforcement without courts, IBC for insolvency resolution, Lok Adalat for compromise, and Limitation Act for time limits!

“Sir, a borrower defaulted on Rs 2 crore. Should we go to DRT, use SARFAESI, or file under IBC?” ⚖️

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Section 1 of 9

Why Read This Chapter?

Recovery is as important as lending — knowing the right legal tool = faster recovery

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What legal options do banks have for recovery?

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5 key laws: (1) DRT (1993): Tribunal for recovery of debts ≥₹20 lakh. Recovery Certificates like court decrees. Appeal to DRAT (deposit 50%). (2) SARFAESI (2002): Enforce security WITHOUT court intervention. 60-day notice to borrower. Take possession/sell. ARC for NPA purchase. CERSAI for registration. NOT for pledge, agri land <5 acres. (3) IBC (2016): Insolvency resolution for defaults ≥₹1 crore. NCLT for companies, DRT for individuals. IBBI regulates. CIRP process. (4) Lok Adalat: ≤₹20 lakh. Legal Services Act 1987 (not Lok Adalat Act — exam PYQ!). Compromise/mutual settlement. (5) Limitation Act: File within time limit (3 years for loans). Keep documents current.

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Exam Marks

3-4 questions — DRT has single Presiding Officer (not bench of 3 — False!), SARFAESI covers securities not in possession (not pledge), IBC applies to ALL (corporates+individuals+partnerships), Lok Adalat under Legal Services Act (not Lok Adalat Act — False!), recovery officer like IT Act (True). Important!

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Career Growth

Recovery skills are in high demand — banks reward officers who can recover NPAs effectively

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Real Life

Understanding recovery laws helps you know your rights as a borrower when facing default

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Section 2 of 9

How Will It Benefit You?

Real career advantages

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Give me a real scenario!

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⚖️ Scenario: A company defaults on Rs 5 crore loan secured by factory + machinery. Options: (1) SARFAESI: Issue 60-day notice → take possession of factory → sell to recover dues (no court needed!). (2) DRT: File application → get Recovery Certificate → execute like decree. (3) IBC: If company is insolvent, file CIRP at NCLT → resolution professional → restructure or liquidate. You choose SARFAESI first (fastest for secured assets). Manager: ‘Right choice — SARFAESI for secured recovery!’ 🌟

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Section 3 of 9

What Is This Chapter About?

30-second summary

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Quick version, sir!

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This chapter covers: DRT (1993): Recovery of Debts and Bankruptcy Act. DRT: single Presiding Officer (exam PYQ! — NOT bench of 3). Recovery Officer executes certificates (like IT Act methods — exam PYQ!). Appeal: DRAT (deposit 50% of DRT order). Jurisdiction: ≥₹20 lakh. SARFAESI (2002): Securitisation + Reconstruction + Enforcement. 60-day notice to borrower. Take possession (physical/constructive). Sell assets. CMM/DM assistance. ARC: acquire NPAs, issue security receipts. CERSAI registration. NOT applicable to: pledge, agri land <5 acres, amount <₹1 lakh, any security interest not in favour of secured creditor. Limitation: 3 years. IBC (2016): Default ≥₹1 crore. Applies to: companies, LLPs, individuals, partnerships (ALL — exam PYQ!). 4 pillars: IBBI, IPA, IP, IU + Adjudicating Authorities. NCLT for corporates, DRT for individuals. CIRP process: interim RP → committee of creditors → resolution plan → NCLT approval. Liquidation if CIRP fails. Appeal: NCLAT/DRAT → Supreme Court. Lok Adalat: Legal Services Authorities Act 1987 (exam PYQ! — NOT Lok Adalat Act). For loans ≤₹20 lakh. Mutual settlement. No appeal against Lok Adalat award. Limitation Act: File within prescribed period. Acknowledgment/part payment extends limitation. Keep documents current.

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Section 4 of 9

Key Definitions — Banky Asks, Mentor Explains

Every term explained like you’re 10

Critical Term

DRT — Recovery of Debts Act 1993

Tribunal for debt recovery ≥₹20L — single Presiding Officer (NOT bench!) — Recovery Certificate — appeal DRAT (50%)

≥₹20 lakh

Banky’s Understanding: DRT (1993): Debt Recovery Tribunal. Single Presiding Officer (exam PYQ! — NOT bench of 3 members). For debts ≥₹20 lakh. Bank files application. DRT issues Recovery Certificate — executed like civil court decree. Recovery Officer: Executes certificates using methods similar to IT Act recovery (exam PYQ! — True). Appeal to DRAT (Appellate Tribunal) — must deposit 50% of DRT-determined amount. Other banks/FIs can join the application.

🧒 Analogy: DRT is like a fast-track court specifically for bank loan recovery. One judge (Presiding Officer), no jury. Issues a recovery certificate = a court decree that lets you attach and sell the borrower’s property!

Critical Term

SARFAESI Act 2002

Enforce security WITHOUT court — 60-day notice — take possession — sell — ARC — CERSAI — NOT for pledge/agri <5 acres

Without court

Banky’s Understanding: SARFAESI (2002): Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest. Bank can enforce security WITHOUT court intervention. Steps: (1) 60-day notice to borrower. (2) Take possession (physical/constructive). (3) Sell asset. (4) CMM/DM assistance if needed. ARC: Acquire NPAs from banks, issue security receipts, managed by RBI. CERSAI: Central Registry for security interests. NOT applicable: (a) Pledged goods (in bank’s possession). (b) Agri land <5 acres. (c) Amount <₹1 lakh. (d) Secured interest not in favour of creditor. (e) Hire purchase/lease covered. Limitation: 3 years. If shortfall after sale → file DRT/civil suit.

🧒 Analogy: SARFAESI = the bank’s power to act as its own enforcement officer. No need to go to court — just send a notice (60 days), then take the property and sell it. Like a landlord who can evict a non-paying tenant without going to court!

Critical Term

IBC 2016

Insolvency resolution for defaults ≥₹1Cr — NCLT (companies)/DRT (individuals) — IBBI — CIRP — applies to ALL entities

≥₹1 Crore

Banky’s Understanding: IBC (2016): Insolvency and Bankruptcy Code. For defaults ≥₹1 crore. Applies to: companies, LLPs, individuals, partnerships (ALL — exam PYQ!). 4+1 pillars: IBBI, IPA, IP, IU + Adjudicating Authorities. NCLT for companies/LLPs. DRT for individuals/partnerships. CIRP: Interim RP → moratorium → committee of creditors → resolution plan (180 days + 90 days extension) → NCLT approval. If fails → liquidation. Appeal: NCLAT/DRAT → Supreme Court (45 days). Not for recovery — for resolution/restructuring.

🧒 Analogy: IBC is like a hospital ICU for sick companies — instead of letting them die (liquidation), try to save them first (resolution). If all treatments fail, then the final option (liquidation). NCLT is the doctor, RP is the specialist!

Critical Term

Lok Adalat & Limitation

Lok Adalat: ≤₹20L, Legal Services Act 1987 (NOT Lok Adalat Act!), no appeal. Limitation: file within time (3 yrs for loans).

≤₹20 lakh

Banky’s Understanding: Lok Adalat: Under Legal Services Authorities Act 1987 (exam PYQ! — NOT ‘Lok Adalat Act’). For bank loans ≤₹20 lakh. Compromise/mutual settlement. Fast, no court fee. Award = deemed civil court decree. No appeal against Lok Adalat award. Guided by justice, equity, fair play. Limitation Act: File within prescribed period (3 years for most loan recovery actions). Acknowledgment of debt/part payment extends limitation. Keep documents current through acknowledgment letters, letters of continuity. Definition of ‘suit’ does NOT include appeal/application (exam PYQ! — True).

🧒 Analogy: Lok Adalat = neighbourhood mediation centre for small disputes (≤₹20L). Like a village elder settling a dispute — both parties agree to a solution, and it is final (no appeal). Limitation = the clock is ticking — file before time runs out!

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Section 5 of 9

Chapter Explained in Simple Stories

So easy even Banky’s nephew understands

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Sir, explain this like a story!

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Three bite-sized stories coming up — impossible to forget! 🚀

⚖️ Block 1: DRT & SARFAESI

DRT (1993): Single Presiding Officer (NOT bench — exam PYQ!). ≥₹20L. Recovery Certificate. Appeal: DRAT (50% deposit). Recovery Officer = IT Act methods (exam PYQ!).

SARFAESI (2002): Enforce security WITHOUT court. 60-day notice → possession → sell. ARC + CERSAI. NOT for: pledge, agri <5 acres, <₹1L. Limitation: 3 years.

Key Term

DRT ≠ Bench of 3

DRT consists of a SINGLE Presiding Officer — NOT a bench of 3 members. This is a frequently tested fact. The statement ‘DRT consists of a bench of 3’ is FALSE.

🧑‍💼 Banky: “DRT=single PO (not bench!), SARFAESI=no court+60 days, not for pledge/agri<5 acres! ⚖️"

🏛️ Block 2: IBC, Lok Adalat & Limitation

IBC (2016): ≥₹1 Cr default. Applies to ALL (companies+LLPs+individuals+partnerships — exam PYQ!). NCLT/DRT. CIRP → resolution/liquidation. IBBI regulates.

Lok Adalat: ≤₹20L. Legal Services Act 1987 (NOT Lok Adalat Act! — exam PYQ!). No appeal against award.

Limitation: 3 years for loans. ‘Suit’ ≠ appeal/application (exam PYQ!). Acknowledgment extends period.

Key Term

IBC = ALL Entities

IBC 2016 applies to companies, LLPs, individuals, AND partnership firms — ALL types. Not just corporates. This is a key exam distinction.

🧑‍💼 Banky: “IBC=ALL entities (≥₹1Cr), Lok Adalat=Legal Services Act (not Lok Adalat Act!), 3 yr limitation! 🏛️”

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Section 6 of 9

Exam Angle — Every Testable Point

All facts, numbers, definitions JAIIB tests

✅ Must-Know Facts — Highest Probability

DRT: single Presiding Officer (NOT bench of 3!) — exam PYQ! (False)
Recovery Officer uses IT Act methods — exam PYQ! (True)
SARFAESI: enforce security WITHOUT court — 60-day notice — take possession — sell
SARFAESI NOT for: pledge, agri land <5 acres, amount <₹1 lakh
IBC applies to ALL: companies + LLPs + individuals + partnerships — exam PYQ!
IBC default threshold: ≥₹1 crore | NCLT for companies, DRT for individuals
Lok Adalat under Legal Services Authorities Act 1987 (NOT Lok Adalat Act!) — exam PYQ!
Lok Adalat for loans ≤₹20 lakh | No appeal against award
Limitation Act: suit does NOT include appeal/application — exam PYQ! (True)
CERSAI: security interest registration under SARFAESI | Filing within prescribed period
ARC: acquire NPAs, issue security receipts, registered with RBI
CIRP: 180 days + 90 days extension | Resolution plan → NCLT approval | Liquidation if fails
Appeal: DRAT deposit 50% | NCLAT/Supreme Court (45 days) for IBC
Hire purchase/lease contracts ARE covered under SARFAESI (exam PYQ! — Yes)

📝 Previous Year Questions

Q: DRT consists of bench of 3:

A: False ✅ (single Presiding Officer)

Q: Recovery Officer uses IT Act methods:

A: True ✅

Q: IBC applies to:

A: (d) All — corporates + LLPs + individuals + partnerships ✅

Q: Lok Adalats under:

A: Legal Services Authorities Act 1987 ✅ (NOT Lok Adalat Act)

Q: Hire purchase covered under SARFAESI:

A: Yes ✅

Q: Limitation: suit includes appeal:

A: False ✅ (suit does NOT include appeal/application)

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Section 7 of 9

Memory Tricks That STICK

Lock every fact permanently

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Too many facts! Help! 🤯

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These tricks will lock everything in forever! 🧲

🧠 Trick 1 — DRT = Single PO

Not bench!

DRT = SINGLE Presiding Officer! (NOT a bench of 3!) Recovery Certificate = decree Appeal: DRAT (deposit 50%)

DRT has a single Presiding Officer, not a bench. Recovery Certificates are executed like civil court decrees.

🧠 Trick 2 — SARFAESI = No Court

Key power

SARFAESI = WITHOUT court! 60-day notice → take possession → sell NOT for: Pledge | Agri <5 acres | <₹1L CERSAI registration | ARC for NPAs

SARFAESI’s main power is enforcement without court intervention. But it doesn’t apply to pledged goods (already in bank’s possession) or small agricultural land.

🧠 Trick 3 — IBC = ALL

Coverage

IBC applies to ALL: Companies ✅ LLPs ✅ Individuals ✅ Partnerships ✅ (≥₹1 Crore default)

IBC covers all types of entities and individuals for insolvency resolution. Not just corporates.

🧠 Trick 4 — Lok Adalat = Legal Services Act

Not Lok Adalat Act!

Lok Adalat = Legal Services Act 1987! (NOT ‘Lok Adalat Act’!) ≤₹20 lakh | No appeal Compromise + mutual settlement

Lok Adalats are organized under the Legal Services Authorities Act, 1987. There is no separate ‘Lok Adalat Act’. Common exam trap.

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Section 8 of 9

Visual Summary — Chapter Map

Entire chapter in one diagram

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Section 9 of 9

Flash Revision — Last-Minute Cards

Read these 10 minutes before exam

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EXAM IN 15 MINUTES! 😰

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6 cards — read twice, you’ll get every question right! 💪

DRT

Single Presiding Officer | ≥₹20 lakh

Recovery Certificate | Appeal: DRAT (50%)

SARFAESI

Enforce WITHOUT court | 60-day notice

Not for pledge/agri<5acres/<₹1L | ARC+CERSAI

IBC

≥₹1 Crore | ALL entities | IBBI regulates

NCLT (companies) | DRT (individuals) | CIRP

Lok Adalat

≤₹20 lakh | Legal Services Act 1987

No appeal | Compromise/mutual settlement

Limitation

3 years for loans | Keep docs current

Suit ≠ appeal | Acknowledgment extends period

ARC

Acquire NPAs | Security receipts | RBI registered

Asset reconstruction | Qualified buyers

⚡ Chapter 29 Complete — Important Laws Relating to Recovery of Dues

DRT: single PO (not bench!), ≥₹20L, Recovery Certificate, DRAT appeal (50%)
SARFAESI: without court, 60-day notice, possession+sell, NOT pledge/agri<5acres
IBC: ≥₹1Cr, ALL entities, NCLT/DRT, CIRP, IBBI, resolution or liquidation
Lok Adalat: ≤₹20L, Legal Services Act 1987 (not Lok Adalat Act!), no appeal | Limitation: 3 years

Banky says: “DRT=single PO, SARFAESI=no court, IBC=ALL entities, Lok Adalat=Legal Services Act!” 🎉⚖️

You now know all 5 recovery laws. Choose the right tool for each situation — DRT for tribunal, SARFAESI for security, IBC for insolvency, Lok Adalat for compromise! 💪

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