Recovery Certificates Issued by DRTs Cannot Form the Basis of Insolvency Notices Under Section 9(2).

The Appellant-Bank extended credit facilities to a company where the original respondent (Kishore K. Mehta) was a director and personal guarantor

Upon default, the Bank approached the Debt Recovery Tribunal (DRT), Mumbai, which issued a recovery certificate for approx. Rs. 14.74 crores

Based on this certificate, the Insolvency Registrar issued an insolvency notice under Section 9(2) of the Presidency Towns Insolvency Act, 1909

The respondent challenged this notice via a Notice of Motion in the Bombay High Court

Both a Single Judge and a Division Bench of the High Court held that a DRT recovery certificate cannot form the basis of an insolvency notice, relying on the precedent in Paramjeet Singh Patheja v. ICDS Ltd.

During pendency, the respondent died and was substituted by his legal representatives

1. Whether an insolvency notice under Section 9(2) of the Presidency Towns Insolvency Act, 1909 can be issued on the basis of a recovery certificate issued by a Debts Recovery Tribunal (DRT)

Section 9(2) of the Presidency Towns Insolvency Act, 1909, which requires a "decree or order" for payment of money to trigger an act of insolvency

Sections 2(2) and 2(14) of the Code of Civil Procedure (CPC), 1908, defining "decree" and "order" as adjudications by a "Court"

Paramjeet Singh Patheja v. ICDS Ltd. (2006), which held that insolvency statutes must be strictly construed and that "decree or order" excludes awards or certificates from non-court tribunals

Section 19(22A) of the Recovery of Debts and Bankruptcy (RDB) Act, 1993 (inserted in 2016), which creates a legal fiction deeming a recovery certificate to be a decree for insolvency purposes

The Court reasoned that since insolvency leads to "civil death," Section 9(2) must be strictly interpreted

Applying Paramjeet Singh Patheja, the Court held that a recovery certificate is not a "decree" because it does not originate from a suit in a civil court

The Court rejected the Bank’s argument that the DRT steps into the shoes of a civil court, noting that insolvency notices are not mere execution tools but status-altering proceedings

Regarding the 2016 amendment (Section 19(22A) of the RDB Act), the Court observed that the express introduction of a "deeming fiction" by Parliament in 2016 proves that such certificates were not considered decrees prior to the amendment

Furthermore, the Court maintained that the rights of the parties must be determined as they existed on the date the litigation commenced (2006), and since the 2016 amendment was not retrospective, it could not validate a notice that was untenable when issued

The judgment of the High Court was upheld, and the appeal was dismissed

While the proceeding against the deceased respondent was closed, the Court clarified that the Bank may pursue remedies against other surviving certificate debtors (the sons) if permissible by law