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.
What you must do
- Ensure that for every NPA case pending before a Court/DRT/BIFR, the settlement agreement is submitted for a consent decree before closing the matter.
- Update internal NPA settlement checklists to include mandatory consent decree step for litigated cases.
- Train recovery and legal teams on the requirement to avoid suppression of settlements from judicial forums.
- Audit existing settled cases to confirm consent decrees were obtained where applicable.
Who it affects
Scheduled commercial banks (excluding RRBs), Recovery and legal departments of banks, Borrowers involved in NPA litigation
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No, it was originally issued in 2003, withdrawn in 2006, and reissued in 2007 with a stronger emphasis on compliance after a specific violation was observed.