– Krusch Pathippallil Antony


This paper is systematically examining the Debt Recovery Tools along with the laws in India vis-à-vis the Alternative Dispute Resolution (ADR) methods, considering the legal recovery practice and methodology opted by the Banking & Finance Institutions, and accepted by the public sector banks, financial institutions and regulatory bodies. In order to prevent the death of consensus, conciliation and mediation in debt recovery law and practice, this paper explores the possibilities how debt recovery laws can be suitably amended and adopt the principles of mandatory mediation, with an optimistic objective of mediation first followed by arbitration, and the rest by Debt Recovery Laws, to decongest the litigation exercise, and to inspire an evolving collaborative ADR system for the domain specific dispute resolution in the banking and finance.

“….an ounce of mediation is worth a pound of arbitration and a ton litigation”

Joseph Grynbaum


Bad Debt in the Indian Banking and Finance sector is a serious challenge to the Indian economy, and a happenstance to the regulatory bodies like Reserve Bank of India (hereafter RBI) and National Housing Bank (hereafter NHB) to contain the same. The Gross Non –Performing Assets in India climbed to USD 143.45 billion by the end of March 2018 from USD 115.33 billion during December end1.

The RBI has offered many schemes like Structuring of Stressed Assets and Strategic Debt Restructuring for the Banking and Non-Banking Finance Companies along with the various master circulars for Banks and NBFCs.The NHB, offered its guidelines to Housing Finance Companies ( hereafter HFCs) , the Housing Finance Companies (NHB) Directions , 2010 , as the standard operating manual for controlling bad debts in India2. The other two prominent approaches preferred, in general, at the cost of economy, for controlling bad debts are “Write-Offs” and “Loan Waivers”. While “Write-Offs” are preferred by the Banking and Financial Institution executives; political will often favors “Loan Waivers”. “Write-Off” usually benefits big defaulters in the industry, whereas “Loan Waiver” schemes are offered to agricultural farmers in large numbers.

1.1 Background: – In the above scenario, the Banking and Finance Institutions, faced with tougher challenges for recovering the bad debts and clearing the non –performing assets (hereafter NPAs), are left with the traditional tools of adjudicatory recovery methods under the Civil Law process and procedures along with the modern SARFAESI3 non-adjudicatory process. Also, with the emergence of arbitration, and the mandatory mediation under the Commercial Court Act4, is changing the gamut in legal recovery gears in India; and the scenario is with multiple tools and with additional and alternative remedies for resolutions.

1.2 Research Objectives: – In the backdrop of the immediate and emergent requirement for bad debt resolutions, given the context of multiple dispute resolutions tools, within the mainstream and in the alternative mode, with adjudicatory and non-adjudicatory procedures, how best the Mandatory Mediation can be suitable for the banking and finance dispute resolution is being examined from the existing laws and regulations. Further, the paper is exploring the possibilities to bridge the gap in law, by suggesting appropriate amendments to the existing legislations, and to suggest measures to bring a hybrid dispute resolution model, by enabling the creditor and debtor to an acceptable step- by -step dispute resolution method, which are in tune to the regulatory bodies, public finance institutions and private institutions; and by empowering the debtors for a negotiated and mediated resolutions, which are quicker and cheaper.

1.3 Research Design: – The Research Design used for this study is descriptive method, and the tools are analytical, based on the legislations, circulars, case laws and case studies.

1.4 Limitations of the Study: – This study is limited to the Indian Banking and Finance Institutions which are regulated and controlled by RBI and NHB, with a comparison to the emerging global trends; and do not cover the Financial Institutions under the other regulatory bodies and statutory laws in India.


Legal Frame work in India as to Debt recovery laws and practice is in a changing scenario , with the evolution of legislations, case laws and regulatory circulars issued from time –to –time by the RBI and NHB.

2.1 Civil Laws & Rules of Practice: – Debt Recovery Civil Suits can be filed under Order 37, Code of Civil Procedure, 1908 (hereafter CPC), based on territorial and pecuniary jurisdictional limits. Data taken from the National Judicial Data Grid5, reveals the fact that average time taken for disposal of civil suit is from 3 years to 10 years. Of the total civil suits, 7% of the cases are delayed from 10 to 30 years, and are at different stages of appeal. The Code of Civil Procedural ( Amendment ) Act, 1999, w.e.f 01-07-2002, by virtue of sec 89, the courts are now at the option of using Alternative Dispute Resolution ( hereinafter ADR) methods.

2.2 N. I Act & Practice: – Cheque bounce case u/s 138 of Negotiable Instruments Act, 1881, (hereafter N.I Act) is a major instrument for debt recovery. As per the Law Commission Report of 213, under the Chairmanship of Dr. Justice A.R. Lakshmanan, there are more than 38 lakhs of cheque bounce cases were pending before various courts (as of October, 2008). The average time for disposal of cheque cases are 3 years.6 Criminal cases, which are in compoundable nature like offences u/s 138 of NI Act can be refereed to Adalath. The Honorable Supreme Court in K. N Govindan Kutty Menon V. C.D Shaji7, clarified that a case u/s 138 of NI Act can be referred to Lok Adalath. And as per sec 21 of the Legal Service Societies Act, 1987, an Award passed by the Adalath based on compromise has to be treated as a decree capable of execution by civil court.

2.3 Arbitration & Conciliation: – The arbitral remedy under The Arbitration & Conciliation Act, 1996, (hereafter Arbitration Act) is often used by the Banks and Financial Institutions, by retaining the right to appointment of Sole Arbitrator, and with venue of their choice, is a serious limitation to the neutrality of the process. Despite the limitations, the arbitration settlement Awards take place in debt recovery arbitrations. Further, the practice of conciliation, or the mediation, is at incipient stage. The use of Mediation cum Arbitration is yet to evolve, and the Arbitration Act is silent whether the same neutral appointed can be both a mediator and arbitrator, in a dispute, in Indian context is the major subject to be taken up for suitable amendments, for exactitude.

2.4 Lok Adalaths: – National Legal Service Society, established under the Legal Service Society Act, 1987, offers pre-litigation conciliation settlements for debt recovery cases. Pre-litigation debt recovery cases can be referred to the Lok Adalaths for a conciliation settlement. The Conciliators cannot coerce parties for compromise or settlement. The Lok Adalath conciliated Award is final and binding on parties.

2.5 SARFAESI:-The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (hereafter SARFAESI) is a special legislation for enforcement of security interest which allows non-judicial or non- adjudicatory enforcement of security interest in addition to the judicial or adjudicatory remedies, under other statutes. The SARFAESI further regulates the securitization and reconstruction of financial assets of Banks and Financial Institutions. The pecuniary jurisdictional limit for opting SARFAESI is limited to claims of one lakh and above.

2.6 RDD Act: – The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereafter RDD Act). RDD Act is to provide for the establishment of Debt Recovery Tribunals (hereafter DRT) for expeditious adjudication and recovery of debts due to banks and financial institutions with a pecuniary jurisdictional limit of debts amounting to twenty lakhs and above. Considering the fact that the civil courts are burdened with diverse types of cases recovery of dues to banks and financial institutions like any other litigants have to go through a process of pursuing the cases for recovery through civil courts for unduly long period, and based on Tiwari Committee Report, RDD Act was developed, and DRT started playing crucial role in recovery of bad debts in India. As amended in 2018, the RDD Act provides quicker remedy for Banks and Financial Institutions to recover any debts due over and above twenty lakhs. This is a serious limitations for recovery of debts below twenty lakhs, and the purpose of the act is defeated in small cause recovery cases.

2.7 Commercial Court Act:- The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 , ( hereafter CCA) , is an Act to provide for the constitution of commercial courts , commercial appellate division in the High Court for adjudicating commercial disputes for disputes above three lakhs. The essential feature is mandatory pre-institution of mediation, with the insertion of sec 12A.The Commercial Courts, Commercial Division and Commercial Appellate Division of High Court (Amendment) Ordinance, May 3, 2018). Sec 12A (1) sates that “ a suit which does not contemplate any urgent relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation and settlement in accordance with such manner and procedure as may be prescribed by rules made by the central government”.

2.8 IBC: – Insolvency and Bankruptcy Code, 2016, (hereinafter IBC), is one of the most significant laws, is one of the most significant laws, affecting how financial institutions deal with distress, liquidation and bankruptcy. This is a consolidated law as to the debt restructuring and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. If the resolution plan is not approved within the time period of 180- 270 days, the NCLT may order liquidation of the debtor company. In Innovative Industry Ltd V. ICICI Bank & Another8, the Supreme Court upheld the findings of NCLT and recognized the objective of the Code as to providing a unified and time bound regime on Insolvency and Bankruptcy which can ease the process of exit of the companies who are in distress.

2.9 Court Annexed Mediation :- Civil Procedure Code ( Amendment) Act, 1999, introduced sec 89 in Civil Procedure Code , 1908, for reference of cases pending in the courts to Alternative Dispute Redressal ( hereinafter ADR); and Mediation through court annexed mechanisms got introduced in India.


Debt counseling and Mediation practice and laws varies from country to country. Debt counseling cum mediation is considered to be one of the effective elucidation for bad debt resolution. In India, under the RBI, Financial Literacy and Credit Counseling Centers (FLCCCs) are being appointed to deal with the moment. Debt counseling is a process that is used to help individual debtors to come out from debt crisis through credit counseling agencies or debt counselors. The traditional method used by them are awareness creation, education and budgeting9. Regulations on debt counseling agencies vary from country to country10.

3.1 Mediation is all about rights and interests of parties getting resolved amicably. A successful Mediator can try to reorient the parties’ discussion from rights to interest and then proceed with an “interest –based” approach11. In the matter of Debt Mediations, power balance in Mediation is of serious issue, and efforts to connect the parties, and rebalance power combinations in negotions is an all important task of the Mediator. The quintessence of Debt Mediation is mindful mediation12. It is a mediation with much broader and deeper involvement by the mediator, going beyond the routine mediation techniques and methods, and get involved to the subject, with historic and cultural background in mind; and adopting the required skill set of a counseling expert, with a healing touch.

3.2 Farm Debt Mediation: – Farm Debt Mediation is currently a statutory requirements in many countries like USA, South Africa, New Zealand, and Australia. In South Australia, New South Wales, Victoria, and most recently in Queensland is practicing Mandatory Farm Debt Mediation. Farm Debt Mediation Act, 2018(South Australia), to be administered by the South Australian Small Business Commissioner, and the act protects in law mandatory debt mediation. The objective of the act is to provide for efficient and equitable resolution of farm debt dispute resolution by requiring the banks and financial institutions to provide farmers with opportunity to have the disputes referred to mediation before the creditors are able to take possession of property or other enforcement action under the Farm Mortgages.


On a closer examination of the legal recovery of bad debts and laws, the emergence of hybrid dispute resolution is imminent, and to be structured by inter –linking with alternative dispute resolution methods.

4.1 SARFAESI & ARBITRATION; – SARFAESI proceedings are in the nature of enforcement proceedings, and Arbitration proceedings is an adjudicatory process. In the event that the secured assets are insufficient to satisfy the debts, the secured creditor can proceed against other assets in execution against the debtor, after determination of the pending outstanding amount by the concerned dispute resolution mechanism. Thus SARFAESI proceedings, Arbitration proceedings can go hand in hand, as per the Supreme Court rulings in HDFC Bank Ltd v. Satpal Singh Bakshi13 and in India bulls Housing Finance Ltd v. Deccan Chronicle Holdings Ltd.14 and the dispute resolution method in this context is at the choice of parties, often at the discretion of the lending banker or the financial institution.

4.2 IBC & ARBITRATION – The Appellate Tribunal (NCLAT) in Jharkhand Bijli Vitran Ltd V. IVRCL Ltd & Anr15, held that, there lied no bar under IBC on adjudicating upon a counter claim filed against the corporate debtor in an arbitration proceeding initiated by a corporate Debtor during the subsistence of Moratorium. As such, the IBC adjudication and Arbitral proceedings can go together, and in emerging conflicting scenarios, hopefully, the Supreme Court shall find a mode of resolution, which facilitates hybrid resolution method.

4.3 MEDIATION & ARBITRATION: – Arbitration Act allows Mediation cum Arbitration (herein after Med-Arb), and the process is administered as separate chapters, as Part-1 deals exclusively with Arbitration , and Part 3 deals exclusively with Conciliation, and by separate neutrals, is the existing law and practice. However, Arbitral Tribunals can encourage settlements, and can use conciliation, to encourage settlement. Though, the Arbitrator can conciliate or mediate, he can adopt only informal methods, since the formal conciliation is as per Part-3 of the Arbitration Act , and for which, Arbitrator is not permitted, and sec 30 of the Arbitration Act, is not empowered to combine the process. However, effective use of mediation during the arbitration proceedings may improve administration of justice16 .A single process, combining both the process of mediation and arbitration to resolve disputes, especially in the banking and finance domain dispute resolutions, make the entire mechanism simple, cost effective and quicker17. . Knowing of the facts, figures, parties, evidence, and the case in its entirety can avoid duplication of process is the eventual advantage of Med-Arb. The Chinese model of combining Mediation with Arbitration is known for its success in settlements18. The Arbitration Law 1995 of China encourages Med- Arb. Art. 51 states that “The Arbitral Tribunal may carry out mediation prior to giving an arbitral award. The Arbitral Tribunal shall conduct mediation if both the parties voluntarily seek mediation. If mediation is not successful, an arbitral award shall be made promptly”. The new CETAC Arbitration Rules, 2012, Article 45(1) of the CIETAC Rules 2012 and Article 40 of the CIETAC Rules 2005) and Beijing Arbitration Commission (BAC) Arbitration Rules 2008 recognizes the Med-Arb, as a process and as a successful instruments for dispute resolutions.

4.4 PRE-LITIGATION CONCILIATION & SUITS: – Legal Service Societies Act, 1987, (Hereafter NALSA) enables a party for pre-litigation mediation u/s 18(1) of the NALSA, and is called as Lok Adalath. A Lok Adalth shall have jurisdiction to determine a dispute for mediation in respect of any case pending before court of law; or any matter which is falling within the jurisdiction, but not before any court or law. Lok Adalath are established at High Court, District Court, and Taluk Court levels in each State.

4.5 MEDIATION & COMMERCIAL DISPUTES: – Mediation is mandated under the CCA; and now all commercial suits above three lacks are mandatorily pre-mediated, and Sec 12A (1) sates that “a suit which does not contemplate any urgent relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation and settlement in accordance with such manner and procedure as may be prescribed by rules made by the central government”.

4.6 MEDIATION & CPC:-The courts in India can refer the parties to Arbitration, Conciliation, Mediation, Lok Adalath or judicial settlement in terms of sec 89 of the Code of Civil Procedural Act, 1999, w.e.f 01-07-2002, as amended. Though the Malimath Committee Report recommended for making mediation mandatory for courts before adjudication, the sec 89 of CPC offers an optional path that too, when it appears to the court that there exist elements of a settlement which may be acceptable to the parties, and based on a reformulated terms by the Court for a probable settlement.

4.7 DEBT MEDIATION:-COOK COUNTY CIRCUIT MORTGAGE FORCLOSURE MEDIATION (hereinafter CMFM) MODEL19. The Circuit Court of Cook County is the largest of the circuits in Illinois as well as in the court system of the United States of America. The CMFM program was launched in April 2010, with unique features of community outreach, housing counseling, and legal aid. The CMFM program by the end of two years, touched 47% success rate. Out of 2, 754 cases that completed Mediation within two years of inception, 1304 people reached some sort of an agreement with Bank with a permanent loan modification that saved the home. This was made possible by the intervention of the Illinois Supreme Court that formed a special committee to formulate a policy to clear off 78000 Mortgage foreclosure cases that were pending at Cook County Circuit Court. The special committee formed court annexed Mortgage mediation programs, and they are now called as CMFM.

4.8 DOMAIN SPECIFIC DISPUTE RESOLUTION :-CASE STUDY: PRIME FINANCE20 –The Dutch government supported initiative of Prime financial disputes resolution center , known as PRIME FINANCE ,( hereinafter known as PRIME FINANCE), was established in 2012 , in the city of Hague. Financial regulatory bodies from Dutch, Moscow, London, New York, Frankfurt, Paris, and Dublin are the founding member participants of PRIME FINANCE.

PRIME FINANCE is the single largest collective knowledge source for financial services product dispute resolutions, regulatory compliance solutions and governing laws in the World.

The panel of PRIME FINANCE constitutes form diverse fields, and the panel consists of Arbitrators, Mediators, Experts and Neutrals.

The core strength of PRIME FINANCE is a panel of over 130 legal and financial experts with a collective 4000+ years of relevant experience.


5.1 To introduce Pre-Litigation Mediation mandatory, by encompassing mindful mediation for Debt Civil Suits and Cases u/s 138 of NI Act, by sculpting effective use of Legal Service Society / Accredited Mediation Institutions & Mediators service at all territorial and pecuniary jurisdictions, with necessary amendments in law.

5.2 By enabling Mediation into the SARFAESI process, before seeking sec 14 of SARFAESI assistance form Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of the secured asset. A secured creditor , invoking police power and lawfully evict persons from home , often leads to law and order issues including serious mental distress to evicted families. In Sundaram BNP Paribas Home Finance Ltd v. State of Kerala21, it is being discussed what power is conferred by the Parliament while exercising the physical power to dispossess borrowers in home loan default. The CMFM model of Debt Mediation, Illinois, USA, is appropriate in this context, is proposed and recommended; and a suitable amendment to SARFAESI Act, with an enabling mandatory Debt Mediation prior to sec 14 application can be facilitative through housing counseling and mediation, prior to the eviction distress, can be of advantageous to the lender and borrower.

5.3 RDD Act to be amended suitably by bringing Mandatory Mediation in the lines of Commercial Court Act.

5.4 Appropriate Amendments in the Arbitration & Conciliation Act, 1996, enabling Med-Arbitration, for Sole Arbitrator and Arbitral Institutions. To make the ADR process simple, unified, cost effective, and quicker, with the objective to encourage settlements, an enabling provision is recommended in sec 30 of the Arbitration & Conciliation Act, 1996, to recognize Med-Arb by Sole Arbitrator or by Panel of Arbitrators, and by Arbitral Institutions in India.

5.5 Institutional Arbitration clauses, with Med-Arb, with a panel of 5 member Arbitrators, through representative Arbitrators from the concerned regulatory body and government are recommended, for corporate debt resolutions in banking and finance. Such a structure can facilitate debt restructuring programmes prior and together with IBC; and by effective Debt Arbitration to shunning the existing practice of bad debt “Write-Offs” and “Loan Waivers” , by facilitating and using subsidy schemes implemented by the governments from time -to-time.

5.6 Mandating a step-by step process to avoid duplication and multiplicity of disputes for the same cause of action in banking and finance dispute resolution, with a domain specific model, like PRIME FINANCE dispute resolutions, Hauge, by encompassing domain specific experts under the proposed institutional structure.


A step-by -step dispute resolution process, by ensuring the participation of regulatory bodies like RBI and NHB, with Mediation followed by Arbitration, wherever Arbitration clauses supported; and in other cases by Commercial Court or SARFAESI or DRT or IBC or Court to be dispute resolution forum, with recommended amendments, by encompassing mindful mediation, can resolve the disputes in the domain specific segment of banking and finance by quicker, cheaper and efficient resolutions. The resolution methods to be fine-tuned and supported with required amendments requisitely to be institutionalized under a single umbrella, by establishing an Institutional structure on the lines of PRIME FINANCE, by creating a pool of domain specific dispute resolution experts; and the Institutional structure to safeguard that, it is accessible to the disputants, with reasonable cost, in nearby locations, through free debt counseling, and by encouraging hybrid dispute resolution formats. Thus, the domain specific dispute resolution forum, with the required amendments, and by discontinuing “one size fits all” legal recovery policy and practice adopted by the banking and finance institutions and regulators, with a collaborative ADR along with vanilla process, can transform the existing antiquated debt recovery law and practice in India.


1. S.Kumar, India’s Bad –Debt conundrum in the Banking Sector, (April 02, 2019, 11.00 AM), http:// India’s-bad-debt-conundrum-in the – banking sector.

2. National Housing Bank, Notification No. NHB.HFC.DIR.1/CMD/2010( April 04, 2019, 08.29 AM), https:// Regulation / direction .php

3. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, No. 54, Acts of Parliament, 2002 (India).

4. The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2005, No. 4, Acts of Parliament, 2016 (India).

5. National Judicial Data Grid ( April 04, 2019, 10.30 AM),

6. National Judicial Data Grid, supra note 5.

7. K. N Govindan Kutty Menon v. C.D Shaji, (2012) 2 S.C.C. 51 (India).

8. Innovative Industry Ltd v. ICICI Bank & another, (2018) 1 S.C.C. 407 (India).

9. Krusch Antony, Debt Mediation –for a debt free world, WMO Conflict Insight, world, ISSN: 2628-6998, 7th December, 2018.

10. Krusch, supra, note 9.


12. Alvin Powel, When Science Meets mindfulness, the Harvard Gazette, (April 03, 2019, 10.00AM),

13. HDFC Bank Ltd v. Satpal Singh Bakshi,(2002) 4 S.C.C. 225 (India).

14. India Bulls Housing Finance Ltd v. Deccan Chronicle Holdings, (2018) 2 Bom. C.R 739.

15. Jharkhand Bijli Vitran Ltd V. IVRCL Ltd & Anr, NCLT, CP (IB) No. 294/7/HDB/2017.

16. Gabrielle Kaufmann- Kohler, When Arbitrators Facilitate Settlement:-towards a transnational Standard, Arbitration International, Vol.25, No.2, 2009.

17. Ellen E. Deason, Combinations of Mediation and Arbitration with the same neutral:-A Framework for Judicial Review, Arbitration Law Review, Vol. 5, Art.12, 2013.

18. Christine Kang, Oriental Experience of Combining Arbitration with Conciliation: New Development of Cietac And Chinese Judicial Practice, Fordham International Law Journal, Vol. 40, Issue 3, Art. 8, 2017.

19. Mortgage Foreclosure Program- Cook County Circuit Court Resolution System Institute, (April 18, 2019, 9 AM),—cook-county-circuit-court.

20. Dispute Resolution, Prime Finance,

21. Sundaram BNP Paribas Home Finance Ltd v. State of Kerala, (2009) A.I.R 85(Kerala).