DRT Recovery Certificate Cannot Ground an Insolvency Notice, Supreme Court Rules Against HDFC Bank

A Division Bench of the Supreme Court holds that a Debts Recovery Tribunal certificate is not a “decree or order” under the Presidency Towns Insolvency Act, dismissing HDFC Bank’s appeal.

The Supreme Court has dismissed HDFC Bank’s attempt to pursue insolvency proceedings against a personal guarantor on the strength of a recovery certificate issued by the Debts Recovery Tribunal, Bombay. In a judgment dated 13 July 2026, a Division Bench of Justice Dipankar Datta and Justice Satish Chandra Sharma held that a DRT recovery certificate does not constitute a “decree or order” within the meaning of Section 9(2) of the Presidency Towns Insolvency Act, 1909. The ruling rests on a strict construction of the Insolvency Act’s language, the wider ratio of an earlier Constitution Bench-level ruling on arbitral awards, and the Court’s reading of a 2016 parliamentary amendment as confirming, rather than curing, the pre-existing legal gap.

How the Dispute Reached the Court

The original respondent, Kishore K. Mehta, was a director of Beautiful Diamonds Ltd., which had obtained credit facilities from a consortium of 15 banks, including HDFC Bank, for its diamond business. The facilities were secured by mortgage through deposit of title deeds. Mehta and other directors executed personal guarantees.

When the company defaulted and the bank invoked the personal guarantees without success, HDFC Bank filed an application before the DRT, Bombay. On 26 October 2004, the DRT issued a recovery certificate for Rs. 14,74,51,929.35 against Mehta. A formal recovery certificate followed on 30 November 2004.

Armed with that certificate, HDFC Bank approached the Insolvency Registrar, who issued an insolvency notice under Section 9(2) of the Insolvency Act bearing number N/224 of 2006. Mehta challenged the notice before the Bombay High Court by way of Notice of Motion No. 40 of 2007 under Section 9(5), arguing that a DRT recovery certificate could not found an insolvency notice.

A Single Judge agreed with Mehta and set aside the notice. The Division Bench of the High Court upheld that order on 30 June 2007. HDFC Bank obtained leave from the Supreme Court on 4 May 2010, arising out of SLP (Civil) No. 18860 of 2008. This Court had stayed the notice of motion proceedings from 11 July 2008. Mehta died during the appeal’s pendency on 20 May 2024, and his three sons and wife were substituted as respondents by order of 10 February 2025.

The Central Question: What Does “Decree or Order” Mean in Section 9(2)?

Section 9(2) of the Insolvency Act provides that a debtor commits an “act of insolvency” where a creditor has obtained a “decree or order” against the debtor for the payment of money — being one that has become final and whose execution has not been stayed — and has served an insolvency notice with which the debtor has not complied.

HDFC Bank advanced several arguments for reading the phrase broadly. Senior counsel Mr. Gopal Jain contended that Section 9(2) uses “decree or order” without adding “of any Court,” whereas Sections 9(1)(e) and (h) expressly refer to a “decree of any Court.” The omission, the Bank argued, was deliberate and signalled legislative intent to cover orders of quasi-judicial and statutory authorities, including the DRT.

The Bank further argued that when Parliament introduced sub-sections (2) to (5) of Section 9 by amendment in 1978, it consciously dropped the words “of any Court.” It also pressed an anomaly: a civil court decree for a small amount could support insolvency proceedings, but a DRT recovery certificate for a vastly larger bank debt could not, even though the RDB Act transferred jurisdiction over high-value bank claims from civil courts to the DRT. The DRT, the Bank contended, has all the trappings of a civil court and its recovery certificate should be treated as equivalent to a civil court decree.

Why the Court Rejected the Bank’s Reading

The Court declined to depart from the ruling in Paramjeet Singh Patheja v. ICDS Ltd., (2006) 13 SCC 322. That case had addressed whether an arbitral award constitutes a “decree or order” under Section 9(2), and had answered in the negative. HDFC Bank argued that the ratio of Paramjeet Singh Patheja was confined to arbitration and did not extend to DRT proceedings. The Court disagreed.

The Court extracted the wider principles on which Paramjeet Singh Patheja rested. First, the Insolvency Act must be strictly construed because insolvency carries grave consequences amounting to “civil death.” Second, the terms “decree” and “order” must be understood in accordance with the definitions in the Code of Civil Procedure, 1908, since the Insolvency Act itself provides no separate definition. Third, an insolvency notice is not a mode of execution or enforcement of a debt.

Under the CPC definition, a decree can only be passed by a court, only in a suit commenced by a plaint, and only after adjudication by a judgment pronounced by the court. The DRT is not a court in this constitutional sense; it is a statutory tribunal. Its recovery certificate is accordingly not a “decree or order” as that phrase has been understood since the Civil Procedure Codes of 1859 and 1882.

The Court acknowledged that the specific reason which also weighed in Paramjeet Singh Patheja — that arbitration law predated the Insolvency Act, so the lawmakers who enacted the Insolvency Act were already aware of what an “award” was and chose to exclude it — did not apply here, because the concept of a DRT recovery certificate post-dated the Insolvency Act. The RDB Act came into force only in 1993. But the Court found this distinction immaterial in light of the wider ratio stated above.

The Court also noted that in Sundaram Finance Limited v. Ashok D. Soniminde, a bench of this Court had doubted Paramjeet Singh Patheja. However, a three-judge Bench had subsequently held by order dated 23 April 2015 in Civil Appeal No. 485 of 2008 that Paramjeet Singh Patheja “does not require any reconsideration.” That settled the matter.

The 2016 Amendment Cuts Against the Bank

HDFC Bank sought support from Section 19(22A) of the RDB Act, inserted by Act 44 of 2016. That provision expressly deems a recovery certificate issued by a DRT to be “a decree or order of the Court for the purposes of initiation of winding up proceedings” against companies or LLPs, or “insolvency proceedings against any individual or partnership firm under any law for the time being in force.”

The Court held that Section 19(22A) does not help the Bank — it destroys the Bank’s case. The Court reasoned: the very fact that Parliament considered it necessary in 2016 to insert a deeming provision expressly equating a recovery certificate with a “decree or order” is “clear legislative recognition that such equivalence did not exist earlier.” To hold otherwise, the Court observed, would be to supply what the legislature had omitted — a casus omissus. The amendment was also not given retrospective effect, which reinforced this reading.

The Court further held that the dispute must be decided on the law as it stood when the litigation commenced. It drew on Rameshwar v. Jot Ram, AIR 1976 SC 49, which quoted the principle that “the right to relief must be judged to exist as on the date a suitor institutes the legal proceeding,” and on Beg Raj Singh v. State of U.P., (2003) 1 SCC 726, which stated that “the rights of the parties stand crystallized on the date of commencement of litigation.”

The Court drew a logical corollary from these authorities: just as a suitor cannot be denied relief that had crystallised at the date of institution merely because a subsequent change in law made it unavailable, a claim that was untenable on the date the suitor entered the court cannot become tenable simply because a later development made it so. The insolvency notice was issued and challenged before the 2016 amendment. That amendment therefore cannot rescue the Bank’s case.

The Court added a further point raised by senior counsel Mr. Dhruv Mehta for the respondents: even on its own terms, Section 19(22A) would not have assisted the Bank, because the provision applies to the “initiation” of insolvency proceedings. That stage never fructified here — the insolvency notice itself had been quashed by the High Court.

Outcome

The Supreme Court dismissed the appeal. The proceedings in the notice of motion pending before the Single Judge of the Bombay High Court, if still alive, were directed to stand closed as against the deceased original respondent.

The Court noted that Mehta’s two sons — Respondents 1.2 and 1.3 — had also been named as certificate debtors in the DRT proceedings, but HDFC Bank had proceeded only against the original respondent in the insolvency action. In view of the dismissal of the appeal, no order was necessary against them. The Court left it open to HDFC Bank to work out its remedies against those respondents in accordance with law, if not barred by limitation or otherwise.