Taking advantage of this process and in a unique experiment of sorts, the Reserve Bank of India had last weeks directed non-banking financial companies (NBFCs) to take part in the all-India Lok Adalat that was organised on November 23 that settled nearly 35 lakh cases.
“The RBI has appealed to all Non-Bank Finance Companies (NBFCs) to participate in the Lok Adalat being organised by National Legal Services Authority (NALSA) on November 23, 2013,” the central bank said in a statement, adding that it Justice GS Singhvi, Judge Supreme Court of India and Executive Chairman, NLSA had desired that all the banks (public, private and foreign) and non-banking finance companies may be directed to participate in the Lok Adalat.
Typically, Lok Adalats function by amicably settling disputes that are pending in a court of law or at a pre- litigation stage.
They have statutory status under the Legal Services Authorities Act, 1987 and have powers similar to those vested in a civil court. All awards are binding on all parties and can not be appealed.
According to RBI guidelines, banks can use Lok Adalats to recover loans upto Rs 20 lakh. Additionally, cases of cheque bouncing as well as motor insurance disputes are also understood to have been taken up.
Apart from Lok Adalats, banks can recover loans through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) and the Debt Recovery Tribunals (DRTs).
Banks used these channels to recover Rs 23,200 crore in 2012-13 while a total of Rs 1,05,800 crore worth of bad loans involving 10.44 lakh cases were referred to them.
Of these, while the SARFESI Act helped recover 80 per cent of the amount, the lion’s share of number of cases were referred to the Lok Adalat. In all, over 8.4 lakh cases were sent to Lok Adalats.
“Lok Adalats dominated with a share of 80 per cent; this was because these courts dealt with a large number of cases involving smaller amounts having an individual ceiling,” the RBI said in its annual Report on Trend and Progress of Banking in India.