The Supreme Court has ruled that a recovery certificate issued by a Debt Recovery Tribunal (DRT) before the 2016 amendment to the Recovery of Debts and Bankruptcy Act cannot be treated as a "decree or order" for issuing an insolvency notice under Section 9(2) of the Presidency Towns Insolvency Act, 1909. Dismissing HDFC Bank Limited's appeal, the Court upheld the Bombay High Court's view that such recovery certificates did not carry the legal status required to initiate insolvency proceedings at the relevant time.
Background of the Case
The dispute arose from credit facilities extended to Beautiful Diamonds Ltd. by a consortium of banks, including HDFC Bank. After the company defaulted, the bank invoked personal guarantees executed by one of the company's directors, Kishore K. Mehta. When the dues remained unpaid, the bank approached the DRT, Mumbai, which issued a recovery certificate for over ₹14.74 crore in 2004.
Relying on that recovery certificate, the bank obtained an insolvency notice under Section 9(2) of the Presidency Towns Insolvency Act. Mehta challenged the notice before the Bombay High Court, arguing that a DRT recovery certificate could not be the basis for such proceedings. Both the Single Judge and the Division Bench accepted his contention, leading HDFC Bank to approach the Supreme Court.
Court's Observations
The Bench of Justice Dipankar Datta and Justice Satish Chandra Sharma examined whether a DRT recovery certificate issued before the 2016 amendment could be regarded as a "decree or order" under Section 9(2) of the Insolvency Act.
The Court relied on its earlier decision in Paramjeet Singh Patheja v. ICDS Ltd., which had held that insolvency laws must be interpreted strictly because insolvency proceedings have serious civil consequences. It observed that an insolvency notice is not a method of recovering money but a legal step that can significantly affect a person's civil status.
Referring to the earlier judgment, the Bench noted,
"The Insolvency Act must be strictly construed as insolvency has grave civil consequences."
The Court rejected the bank's argument that a recovery certificate should be treated as equivalent to a decree merely because the DRT performs functions similar to a civil court. It held that Parliament itself clarified the position only through the 2016 amendment, which inserted Section 19(22A) into the Recovery of Debts and Bankruptcy Act, expressly deeming recovery certificates to be decrees or orders for initiating insolvency proceedings.
According to the Bench, the very need for this amendment showed that such equivalence did not exist before 2016.
The judgment states,
"The fact that Parliament found it necessary in 2016 to insert sub-section (22A)... is clear legislative recognition that such equivalence did not exist earlier."
The Court further emphasised that the amendment was not retrospective. Therefore, the rights of the parties had to be determined according to the law existing when the litigation commenced, not on the basis of a later statutory change.
Supreme Court's Decision
Finding no error in the Bombay High Court's reasoning, the Supreme Court dismissed HDFC Bank's appeal. It held that a recovery certificate issued by the DRT before the 2016 amendment could not legally support the issuance of an insolvency notice under Section 9(2) of the Presidency Towns Insolvency Act.
The Court also ordered that any pending proceedings in the notice of motion before the Single Judge would stand closed with respect to the deceased original respondent, while clarifying that the bank would be free to pursue any other remedies available in law against the other certificate debtors, subject to limitation and other legal requirements.
Case Details:
Case Title: H.D.F.C. Bank Limited v. Kishore K. Mehta (Dead) Through LRs.
Case Number: Civil Appeal No. 4211 of 2010 (Arising out of SLP (Civil) No. 18860 of 2008)
Judge: Justice Dipankar Datta and Justice Satish Chandra Sharma
Decision Date: July 13, 2026
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