How to File an Application Before the Debt Recovery Tribunal for Filing a Counterclaim in a Debt Suit

How to File an Application Before the Debt Recovery Tribunal for Filing a Counterclaim in a Debt Suit

A Procedural and Analytical Study of Section 19 of the Recovery of Debts and Bankruptcy Act, 1993

By Arpita Anand, Intern, Law Vaani

Abstract / Introduction

When a bank or financial institution drags a borrower before the Debts Recovery Tribunal (DRT) for recovery of an outstanding loan, the borrower is rarely a passive party. In a large number of disputes, the borrower carries a grievance of their own — deficient service, wrongful invocation of guarantees, excess interest charged, or losses caused by the lender’s own conduct. The Recovery of Debts and Bankruptcy Act, 1993 (“RDB Act”), through Section 19, gives such a borrower a structured mechanism to raise this grievance within the very proceeding initiated against them, by way of a counterclaim.

This article examines the procedure for filing a counterclaim before the DRT, the statutory timelines that govern it, and the judicial interpretation that has shaped its scope over three decades. A counterclaim is often treated as a mere defensive footnote to the written statement, yet it functions as an independent plaint capable of surviving even if the bank’s original claim is withdrawn or dismissed. Understanding this dual character is essential for any practitioner appearing before the Tribunal.

The discussion proceeds in four parts. It begins with the statutory architecture of Section 19 and the accompanying Debts Recovery Tribunal (Procedure) Rules, 1993. It then analyses the leading judicial pronouncements that have settled — and occasionally reopened — questions about timelines, jurisdiction, and the borrower’s choice of forum. It closes with a critical assessment of the practical difficulties borrowers face and offers suggestions for reform, before summarising the position as it stands today.

Background / Legal Framework

The DRT was established under the RDB Act to provide banks and financial institutions a specialised, summary forum for recovering debts exceeding the prescribed pecuniary threshold, currently twenty lakh rupees, in place of the ordinary civil court. Section 19(1) allows a bank or financial institution to file an Original Application (OA) before the Tribunal within whose jurisdiction the lending branch maintains the account, or where the defendant resides, carries on business, or works for gain.

Once the OA is filed and summons served, the defendant is not confined to merely denying the claim. Section 19(6) permits the defendant to plead a legal or equitable set-off, provided it is a claim for an ascertained sum arising from a transaction connected with the bank’s claim, and Section 19(8) goes further, permitting the defendant to set up an independent counterclaim in respect of any right or claim, whether or not it arises out of the same transaction as the bank’s claim. Section 19(9) is the crucial provision: it deems such a counterclaim to have the same effect as a cross-suit, obliging the Tribunal to pronounce one final order that deals with both the bank’s claim and the borrower’s counterclaim, unless the Tribunal directs the counterclaim to be tried separately.

Timelines are strictly regulated. Section 19(5), read with Rule 12 of the Debts Recovery Tribunal (Procedure) Rules, 1993, requires the defendant to file the written statement, along with any set-off or counterclaim, within thirty days from the date of service of summons. The proviso to Section 19(5) permits the Presiding Officer to extend this period, but only by a further period not exceeding fifteen days, and only upon recording special reasons in writing for exceptional circumstances. Unlike Order VIII Rule 1 of the Code of Civil Procedure, 1908, which permits extensions up to ninety days in ordinary civil suits, the RDB Act sets a materially tighter outer limit of forty-five days in total.

A conceptual distinction that recurs throughout this body of law is the difference between a set-off and a counterclaim. A set-off must involve a claim for money, must be for an ascertained and liquidated sum, and functions purely as a shield to reduce or extinguish the bank’s claim. A counterclaim, by contrast, can be for any relief, need not be connected to the original transaction, and functions as a sword — an independent cause of action that survives even if the bank’s original claim fails, is withdrawn, or is stayed. This distinction, borrowed from the general principles governing Order VIII Rule 6-A of the Civil Procedure Code, applies with equal force before the Tribunal.

Once filed, the counterclaim does not sit merely as an appendage to the written statement; the Tribunal is required, under Section 19(9), to record a single, composite final order addressing both the bank’s Original Application and the borrower’s counterclaim, unless it directs a separate trial. An order passed on the counterclaim is appealable to the Debts Recovery Appellate Tribunal (DRAT) in the same manner as the principal order, subject to the pre-deposit conditions attached to such appeals. This appellate architecture means a borrower’s counterclaim, once adjudicated, carries the same finality and enforceability as any recovery certificate issued against them.

Main Analysis & Case Studies

Filing a counterclaim before the DRT follows a defined sequence, and interns advising borrowers or drafting such pleadings should track each step carefully.

The first step is computing the limitation period correctly. The thirty-day clock begins running from the date of service of summons, not from the date the OA was filed. Where summons or accompanying documents are illegible or incomplete, the defendant should place this on record immediately and request fresh, legible service, since courts have shown limited sympathy for such objections raised belatedly. The Delhi High Court’s decision in Anita Garg v. State Bank of India (2021) illustrates the rigidity of this timeline. There, the borrowers filed a joint written statement and counterclaim on the forty-fifth day from an earlier service, arguing that legible copies were supplied only later. The High Court rejected this defence, holding that the defendants had neither raised the illegibility objection before the Tribunal nor produced the allegedly illegible documents, and upheld the DRT’s order striking off the belated counterclaim. The Court explained that the words “not exceeding fifteen days” in the proviso to Section 19(5) sets a hard ceiling on the Presiding Officer’s discretion, reflecting Parliament’s concern that public money locked up in litigation should not be delayed by routine condonation of default.

The second step is drafting the counterclaim itself. Since Section 19(9) treats the counterclaim as having the same effect as a cross-suit, it must be pleaded with the same rigor as an independent plaint — a clear statement of facts, the cause of action, the relief sought, and, where the claim is for money, a specific and quantified figure. Where the borrower’s grievance rests on the bank’s own default (say, wrongful debit of charges, unauthorised invocation of a guarantee, or loss caused by delay in disbursing a sanctioned facility), the counterclaim should plead these facts independently of the defence to the bank’s claim, since a counterclaim is judged on its own merits and does not automatically fail merely because the defence to the original claim is rejected.

The third step concerns valuation and court fee. Because a counterclaim is treated as a cross-suit, it must independently satisfy the Tribunal’s pecuniary jurisdiction and must be accompanied by the prescribed court fee calculated on the value of the relief claimed, in the same manner as an Original Application filed by a bank.

The fourth step is anticipating the bank’s likely objections. Banks frequently move applications under Order VII Rule 11 of the Civil Procedure Code (read with Section 22 of the RDB Act, which allows Tribunals to be guided by natural justice rather than the strict Code) to seek rejection of a counterclaim filed beyond the statutory window, exactly as occurred in Anita Garg. A well-drafted counterclaim should therefore pre-empt limitation objections by explaining, with dates and supporting material, why it falls within time or why any delay merits condonation under the narrow exception written into the proviso.

A recurring point of confusion for interns is whether a counterclaim can be filed after the written statement itself has already been submitted. While Section 19(5) contemplates filing them together, the general procedural philosophy — recognised by the Supreme Court in Ashok Kumar Kalra v. Wing Commander Surendra Agnihotri (2020) in the context of Order VIII Rule 6-A of the Civil Procedure Code — is that a counterclaim need not invariably accompany the written statement, and courts retain discretion to permit a belated counterclaim up to the stage of framing of issues, and only in exceptional cases thereafter. Tribunals dealing with RDB Act matters have applied analogous reasoning, though always subject to the tighter forty-five-day ceiling set by Section 19(5) itself, which leaves considerably less room for a Presiding Officer to exercise this discretion than a civil court enjoys under the Code.
The question of forum choice has generated the richest body of case law. In United Bank of India v. Abhijit Tea Co. Pvt. Ltd. (2000), the Supreme Court took the view that the legislative scheme of the RDB Act conferred jurisdiction on the DRT to try a counterclaim and set-off, and that a cross-suit filed independently by the borrower ought to be tried by the Tribunal rather than a civil court. A subsequent Division Bench in Indian Bank v. ABS Marine Products (P) Ltd. (2006) took a narrower view, holding that while Section 19 permits a counterclaim or set-off before the Tribunal, no provision of the RDB Act ousts a borrower’s independent right to sue the bank in a civil court, since the statutory bar under Sections 17 and 18 operates only against applications filed by banks and financial institutions, not against suits filed by borrowers. This divergence deepened in Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation (2009), prompting a reference to a larger Bench.

That reference was finally resolved by a three-judge Bench in Bank of Rajasthan Ltd. v. VCK Shares & Stock Broking Services Ltd. (2022). The Supreme Court held that nothing in the RDB Act ousts a borrower’s right to institute an independent civil suit against the bank, and that the borrower retains a genuine choice: file a counterclaim before the DRT, or pursue a separate civil suit, accepting the consequences of that choice. The Court clarified that a civil court has no power, whether under the Code of Civil Procedure or otherwise, to transfer such an independent suit to the DRT for joint trial with the bank’s Original Application, even with the consent of both parties, since the Tribunal is a creature of statute and the RDB Act contains no such transfer mechanism. Importantly, the Bench cautioned that a borrower who chooses the civil court route cannot use that parallel suit to stall the DRT proceedings, which must proceed on their own timeline given the public money at stake. This 2022 ruling now represents the settled law on the borrower’s options, and it should be the starting point for any intern advising a client on whether to counterclaim before the Tribunal or approach a civil court instead.

Applying this framework to the topic at hand, a defendant seeking to file a counterclaim for damages arising from an unlawful invocation of a corporate guarantee, wrongful debit of penal charges, or losses flowing from a bank’s delay in releasing sanctioned funds should proceed as follows: first, note the date of service of summons and calendar the thirty-day and forty-five-day deadlines immediately; second, draft the counterclaim as a self-contained statement of facts, cause of action, and quantified relief, independent of the defence to the bank’s own claim; third, compute court fee on the counterclaim’s value exactly as a plaint would require, and confirm the amount independently satisfies the Tribunal’s pecuniary jurisdiction; and fourth, retain and annex all correspondence, account statements, and internal bank communications that establish the factual foundation of the grievance, since DRT proceedings are decided substantially on affidavit evidence rather than oral testimony.

Critical Analysis & Evaluation

The statutory design of Section 19 reflects an evident tension between two competing legislative goals: the RDB Act was enacted to secure the swift recovery of public money locked up in non-performing loans, yet the same Act simultaneously invites borrowers to litigate independent, sometimes unrelated, claims within that same summary proceeding. A counterclaim for damages running into crores, as seen in Anita Garg, can transform what was intended to be an expeditious recovery mechanism into a full-fledged, evidence-heavy trial, defeating the very purpose for which specialised tribunals were created.

The forty-five-day outer limit for filing a written statement and counterclaim, while laudable in intent, sits uneasily against the practical realities of institutional litigation, particularly where multiple defendants, insolvency proceedings, or parallel NCLT and High Court matters are involved, as the facts in Anita Garg themselves demonstrate. A borrower with a genuine and substantial counterclaim may lose the opportunity to raise it merely because of a rigid procedural deadline, pushing them toward the less desirable option of a separate civil suit — precisely the parallel-litigation problem that Bank of Rajasthan v. VCK Shares sought to manage rather than eliminate.

The bifurcation between DRT and civil court remedies, even after the 2022 clarification, leaves borrowers navigating two very different procedural regimes for what is often a single underlying financial relationship. A civil suit follows the full rigor of the Code of Civil Procedure, including detailed discovery and cross-examination, while a counterclaim before the DRT is decided largely on affidavit evidence under a summary procedure. This asymmetry can disadvantage borrowers whose claims genuinely require the more exacting standard, while simultaneously exposing banks to prolonged parallel proceedings when a borrower opts for the civil court instead.

A further gap concerns pecuniary jurisdiction. Because a counterclaim is treated as an independent cross-suit, it must independently satisfy the Tribunal’s minimum pecuniary threshold of twenty lakh rupees. A borrower with a legitimate but smaller-value grievance against the bank may find no forum at all within the DRT framework, and would be forced into the ordinary civil court regardless of whether the bank’s own claim is being tried before the Tribunal.

As a reform, Parliament or the DRT Rules Committee could consider a graded timeline — for instance, distinguishing between counterclaims that arise from the same transaction as the bank’s claim (which could remain subject to the current tight window) and independent counterclaims of a different character (which could be permitted a longer period, mirroring the ninety-day flexibility available under the Code of Civil Procedure). Equally, empowering the DRT with a limited, discretionary power to transfer or consolidate a related civil suit filed by the borrower — subject to safeguards against delay tactics — would reduce the risk of inconsistent findings on the same set of facts arising from parallel proceedings, a concern the Supreme Court itself flagged without fully resolving in the 2022 decision.

Conclusion

The counterclaim mechanism under Section 19 of the RDB Act occupies a distinctive position in Indian debt recovery jurisprudence: it is simultaneously a shield permitting borrowers to answer a bank’s claim and a sword permitting them to pursue independent relief, all within a proceeding designed for speed rather than exhaustive adjudication. The procedure for invoking it is precise — computed from the date of service of summons, capped at forty-five days in total, pleaded with the rigor of an independent plaint, and valued and stamped as a cross-suit in its own right.

Three decades of litigation, culminating in the Supreme Court’s 2022 ruling in Bank of Rajasthan v. VCK Shares & Stock Broking Services Ltd., have settled the borrower’s choice of forum without resolving the deeper structural tension between summary recovery and substantive adjudication of counterclaims. For interns and practitioners alike, the practical lesson is straightforward: treat the limitation clock with the same seriousness a civil litigant would treat a plaint’s limitation period, plead the counterclaim as a self-contained cause of action, and evaluate at the outset whether the DRT or a civil court is the more appropriate forum for the borrower’s grievance, since that choice, once exercised, carries consequences the Supreme Court has now made clear the borrower must live with.

References & Citations

1. The Recovery of Debts and Bankruptcy Act, 1993, s. 19.

2. Debts Recovery Tribunal (Procedure) Rules, 1993, r. 12.

3. The Code of Civil Procedure, 1908, Order VIII Rule 6-A.

4. United Bank of India v. Abhijit Tea Co. Pvt. Ltd., (2000) 7 SCC 357.

5. Indian Bank v. ABS Marine Products (P) Ltd., (2006) 5 SCC 72.

6. State Bank of India v. Ranjan Chemicals Ltd., (2007) 1 SCC 97.

7. Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation, (2009) 8 SCC 646.

8. Ashok Kumar Kalra v. Wing Commander Surendra Agnihotri, (2020) 2 SCC 394.

9. Anita Garg & Ors. v. State Bank of India, W.P.(C) 6886/2021 (Del HC, 7 September 2021).

10. Bank of Rajasthan Ltd. v. VCK Shares & Stock Broking Services Ltd., 2022 SCC OnLine SC 1557.

11. IBC Laws, “Section 19 of Recovery of Debts and Bankruptcy Act, 1993: Application to the Tribunal”, available at ibclaw.in.

12. Bhatt & Joshi Associates, “Understanding Debt Recovery in India: Key Laws, Processes and Enforcement Tools”, available at bhattandjoshiassociates.com.