Cross-Examination Is Not a Dilatory Tactic but a Fundamental Right When Debt Itself Is Contested: Kerala High Court Quashes DRT’s Order Denying Opportunity to Cross Examine

Summary Proceedings Cannot Trump Natural Justice When Liability and Fraud Are Alleged❞ – In a critical ruling reinforcing procedural fairness in financial recovery proceedings, the Kerala High Court quashed an order of the Debts Recovery Tribunal-II, Ernakulam, which had rejected the petitioner’s request to cross-examine the bank’s witness in a ₹6.81 crore debt recovery case.

Justice Mohammed Nias C.P. held that the Tribunal's refusal to permit cross-examination, despite contested liability and pending criminal prosecution of a former bank manager for fraud, amounted to a violation of natural justice. The Court declared, “Serious prejudice will be caused to the petitioner if his request for cross-examination is not granted.”

The case originates from O.A. No. 185/2006 (renumbered as T.A. No. 32/2017) filed by Union Bank of India for recovery of crop loans allegedly advanced to planters through Cardamom Marketing Corporation, a partnership firm in which the petitioner, V.J. Devasia, is a partner.

The petitioner strongly denied any liability, asserting that the firm only acted as an auction house issuing crop receipts and never availed any crop loans. He contended that the bank wrongly fastened liability for loans availed by third-party planters onto the firm and its partners, “without even impleading the actual borrowers.”

Crucially, a criminal case is pending before the CBI Court against V. Ramanathan, the bank's former Senior Manager, for allegedly siphoning funds in collusion with the firm’s then-manager. The sanction for prosecution was issued by the bank itself in 2007. The petitioner sought to cross-examine the bank’s witness to establish these facts, but the Tribunal dismissed his request on grounds of delay and procedural constraints.

The High Court was called upon to examine whether the DRT erred in rejecting the application for cross-examination under Rule 12(9) of the Debts Recovery Tribunal (Procedure) Rules, 1993, particularly in the face of denied liability and allegations of fraud.

The Tribunal had reasoned that cross-examination was unnecessary since the bank's manager had relied on documents and had no personal knowledge of the original transactions from 1994–2001. It also cited a 7-year delay after filing of the proof affidavit, describing the application as a “delaying tactic.”

Rejecting these findings, the High Court observed: “The reason stated in the impugned order also cannot be accepted, more so on the aspect of delay... The O.A. itself was filed in the year 2006 and there is no allegation that the petitioner was responsible for the case not being finally disposed of till now.”

Justice Nias pointed out that the bank had filed its counter-affidavit to the cross-examination request more than a year later, indicating no urgency on its part either. Importantly, the Court emphasized that the bank had omitted to disclose the ongoing criminal prosecution in its affidavit evidence, further undermining the integrity of its claims.

“The legality of the recoverable dues from the bank is the issue to be gone into... The very debt/liability claimed by the bank is in dispute.”

The Court acknowledged that DRTs are intended for expedited disposal of recovery proceedings and not every party is entitled to oral examination or cross-examination. However, it cautioned:

“Though DRT proceedings are summary in nature, when the core facts are disputed and liability is denied, cross-examination becomes essential to ensure fair adjudication.”

“While cross-examination is a facet of natural justice, it is not universally applicable... Yet, when liability itself is in question and fraud is alleged, denial of cross-examination would result in serious miscarriage of justice.”

The judgment made it clear that discretion under Rule 12(9) must be exercised not arbitrarily, but “judiciously, having regard to the facts of the case,” especially where grave prejudice may be caused.

Finding that the Tribunal had failed to appreciate the disputed facts, ongoing criminal proceedings, and the petitioner’s right to test the bank’s version through cross-examination, the High Court declared:

“The power of this Court under Articles 226 and 227 of the Constitution has to be exercised to set right the injustice which has been caused to the petitioner... Cross-examination of witnesses is treated as a necessary concomitant of the principles of natural justice.”

Accordingly, the Court set aside the impugned DRT order dated 20.02.2025, and directed the Tribunal to permit the cross-examination of the bank’s witness.

It further ordered the DRT to dispose of the matter expeditiously and deliver final orders on or before 31.12.2025, keeping in view that the original application had been pending since 2006.

This judgment underscores that the mere label of “summary proceedings” cannot justify ignoring fundamental procedural rights. When debt liability is not admitted and serious allegations of fraud are involved, the High Court has affirmed that the right to cross-examination becomes indispensable.

In the words of Justice Mohammed Nias, “Natural justice must prevail when facts are in dispute, and denial of cross-examination in such a case is not just irregular — it is unjust.”

Date of Decision: 02 June 2025