DRAT Chennai Restores Civil Arrest In ₹15.14 Cr Kotak Mahindra Bank Recovery, Holds Insolvency No Bar

The Chennai Bench of the Debts Recovery Appellate Tribunal (DRAT) on 19 June held that an adjudication of a judgment debtor as an insolvent does not, by itself, grant immunity from civil arrest unless a protection order is obtained under Section 25 of the Presidency-Towns Insolvency Act, 1909, and that civil arrest can be sustained where statutory conditions are not met.

A Bench led by Chairperson Justice G. Chandrasekharan allowed Kotak Mahindra Bank's appeal, set aside the order of the Debts Recovery Tribunal (DRT) II, Chennai dated 6 September 2017, and restored the Recovery Officer's order dated 25 June 2016 directing civil arrest of the judgment debtor in recovery proceedings of Rs. 15.14 crore. It observed:

“The appellant bank made out a ground that, despite having the means to pay the amount due, the second respondent did not pay the amount nor disclose the assets in spite of directions from the Tribunal.”

The proceedings arose from recovery action initiated by Kotak Mahindra Bank against Ravishankar Industries Pvt. Ltd. and its Managing Director, A. Manohar Prasad, pursuant to a recovery certificate issued in 2013 for Rs. 15.14 crore. As the dues remained unrecovered, the Recovery Officer in June 2016 ordered civil arrest of the judgment debtor.

The DRT II, Chennai subsequently set aside the arrest order, holding that coercive imprisonment could be resorted to only after exhausting recovery measures against secured and unsecured assets, including sale of attached properties.

Challenging this, the bank submitted that repeated attempts to realise the dues failed as the original title documents of attached properties were not available. It further alleged that the judgment debtor was actively engaged in business and had wilfully failed to disclose assets despite specific directions. It also relied on the fact that Rs. 25 crore had been deposited by him in a related Supreme Court proceeding to demonstrate financial capacity and non-cooperation in repayment.

A. Manohar Prasad, the respondent, contended that he had been adjudicated an insolvent in 2013 and therefore could not be subjected to civil arrest. He relied on the Supreme Court decision in Jolly George Varghese v. Bank of Cochin (1980), arguing that imprisonment for debt violates Article 21 unless there is proof of wilful default despite sufficient means. He further argued that the bank should confine recovery to his properties.

The Tribunal examined Section 25 of the Presidency-Towns Insolvency Act, 1909, and held that an adjudged insolvent must obtain a protection order from the insolvency court to claim immunity from arrest. In the absence of such an order, no such protection could be claimed.

It also noted that although the respondent continued to be an adjudged insolvent, he had not obtained any protection order under the statute. It also took note of his deposit of Rs. 25 crore in another proceeding, indicating financial capacity, and observed that both the company and the respondent had failed to disclose assets despite repeated directions. The Bench held:

“The appellant bank made out a ground that, despite having the means to pay the amount due, the second respondent did not pay the amount nor disclose the assets in spite of directions from the Tribunal.”

Further, the Bench reiterated that adjudication as an insolvent does not automatically bar civil arrest, particularly where statutory requirements for protection are not satisfied. It observed:

“Section 24 requires that an adjudged insolvent has to submit to the Court a schedule, verified by an affidavit, in such form and containing such particulars of and in relation to his affairs as may be prescribed within a stipulated time. If he fails to comply with the requirement, the Court may, on the application of the Official Assignee or any creditor, make an order for his committal to civil prison.”

Finding that absence of a protection order disentitled the respondent from claiming immunity, the Bench held that civil arrest was justified to facilitate recovery of the bank's dues.

Accordingly, the DRAT allowed the appeal with costs, set aside the DRT order dated 6 September 2017, and restored the Recovery Officer's order dated 25 June 2016 directing civil arrest and imprisonment of the respondent.

Counsel for Appellant Bank: M/s Ramalingam & Associates

Counsel for 2nd Respondent: M/s S. Prince Pari