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Consent Decree Must for NPA Settlements in Court

No longer current — withdrawn, no replacement on file yet
Source: Reserve Bank of India · RBI/2007-2008/200 · issued 30 Nov 2007 · ~2 min read
Quick answerRBI mandates that once an NPA case is filed in Court/DRT/BIFR, any settlement with the borrower must be formalized through a consent decree from that forum. Banks cannot suppress settlements or bypass judicial approval.
The rule, in the simplest words
How it plays out — a real example

A credit & lending officer in Indore, Mr. Kumar, recently helped a borrower settle a pending NPA case. Before closing the matter, Mr. Kumar ensured that the settlement agreement was submitted for a consent decree to the Court. This avoided any potential regulatory action and maintained the integrity of the judicial process.

What changed

RBI withdrew its earlier 2003 circular on this subject and reissued the requirement in 2007. The key change is a clear directive that banks must invariably obtain a consent decree from the relevant Court/DRT/BIFR after a settlement is reached in a pending case. This follows an instance where a bank failed to do so for over two and a half years, wasting tribunal time.

What it means for you

Banks must now treat consent decrees as non-negotiable for any NPA settlement where litigation is ongoing. Failure to obtain one could lead to regulatory action and undermines the integrity of the judicial process. This reinforces the principle that settlements cannot be kept secret from the forum handling the case.

Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.

What banks were required to do at the time

Who it affects

Scheduled commercial banks (excluding RRBs), Recovery and legal departments of banks, Borrowers involved in NPA litigation

❓ Common questions

Regulatory timeline

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

What happens if a bank settles an NPA case without a consent decree?

The bank would be violating RBI guidelines, potentially inviting regulatory action. The settlement may not be recognized by the Court/DRT/BIFR, and the case could continue, wasting judicial resources.

Does this apply to cases before BIFR as well?

Yes, the circular explicitly covers cases before Courts, Debt Recovery Tribunals (DRTs), and the Board for Industrial and Financial Reconstruction (BIFR).

Is this a new requirement?

No, it was originally issued in 2003, withdrawn in 2006, and reissued in 2007 with a stronger emphasis on compliance after a specific violation was observed.

📜 Read the original circular — full text as issued by RBI
RBI/2007-2008/200 DBOD.BP.BC.55/ 21.04.117 / 2007-08 November 30, 2007 The Chairman & Managing Director/ Chief Executive Officers of the Scheduled Commercial Banks (Excluding RRBs) Dear Sir, Guidelines on Settlement of Non Performing Assets – Obtaining Consent Decree from Court Please refer to our circular No. DBOD.BP.BC. 65/21.04.117/2002-2003 dated January 29, 2003 , on the captioned subject, which has since been withdrawn in terms of our Circular No.DBOD.No.Inf.BC.48/11.01.009/2006-07 dated December 18, 2006. The guidelines, inter alia, stipulate that the cases where action has been initiated before the Courts/DRTs/BIFR, the settlement under the guidelines should be subject to the consent decree being obtained from the Courts/DRTs/BIFR. 2. The Debt Recovery Tribunal, Ernakulam has observed in a case that although the bank and the defendant borrowers had reached a settlement under the Compromise Settlement Scheme, the bank had not only failed to obtain the consent decree from the DRT, but had also suppressed from the DRT the fact of settlement for more than two and half years thereby violating the aforesaid RBI guidelines and causing the Tribunal to unnecessarily waste its valuable time. 3. The banks are, therefore, hereby advised to invariably ensure that once a case is filed before a Court/DRT/BIFR, any settlement arrived at with the borrower is subject to obtaining a consent decree from the Court/DRT/BIFR concerned. Yours faithfully, (Prashant Saran) Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2007-2008/200 · issued 30 Nov 2007. The plain-English explanation above is BankPulse’s own independent summary.
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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=3962&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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