Civil Arrest of an Adjudged Insolvent: DRAT Chennai Clarifies When Statutory Protection Applies

The decision of the DRAT, Chennai in Kotak Mahindra Bank Ltd. Vs Ravishankar Industries Pvt. Ltd. is a significant ruling on whether an assessee who has been adjudged insolvent can still be subjected to civil arrest in debt recovery proceedings, and under what conditions such protection from arrest is actually available in law.

The appeal arose from proceedings under the Recovery of Debts and Bankruptcy (RDB) Act, where the bank sought restoration of an order for civil arrest of one of the certificate debtors, despite his insolvency status. The Tribunal examined in detail the interplay between insolvency legislation, the Code of Civil Procedure, and principles used in the Income Tax Act 1961 for arrest and detention of defaulters.

Background of the Dispute

Original Bank Claim and Recovery Proceedings

  • Kotak Mahindra Bank Ltd. filed OA No. 84/2011 before DRT-II, Chennai against M/s Ravishankar Industries Pvt. Ltd. and two other defendants for recovery of Rs. 15,14,19,212/- along with consequential reliefs.
  • The Original Application was allowed, and a Debt Recovery Certificate was issued in DRC No. 5/2013.
  • During execution of this DRC, the Recovery Officer, by order dated 25.06.2016, directed civil arrest of Certificate Debtor No. 3 / Defendant No. 3, Mr. A. Manohar Prasad (second respondent before DRAT).

Appeal Before DRT-II and Its Decision

  • The certificate debtors challenged the Recovery Officer’s order by filing Appeal No. 13/2016 before DRT-II, Chennai.
  • The Presiding Officer allowed that appeal on 06.09.2017, holding that:
    • The bank was first required to exhaust remedies of recovery by sale of secured and unsecured properties; and
    • Only after such steps failed could recourse be taken to civil arrest for enforcement of the DRC.

This reversal of the Recovery Officer’s order led the bank to approach the DRAT, Chennai under Section 20 of the RDB Act.

Arguments Before DRAT Chennai

Submissions on Behalf of Kotak Mahindra Bank Ltd.

Counsel for the bank argued that the Recovery Officer’s order for civil arrest was justified and ought to be restored, on the following grounds:

  1. Failure of Recovery Through Sale of Properties

    • Several attempts were made to bring attached properties to sale.
    • Sale could not be proceeded with because the title documents were unavailable; the properties had devolved on the debtors through a Will dated 27.09.1990, and relevant documents could not be procured.

  2. Non-disclosure of Assets Despite Tribunal’s Directions

    • The Recovery Officer had directed the respondents to disclose their assets on oath by filing an affidavit.
    • The respondents did not comply with this direction and failed to file any affidavit disclosing assets.
    • This deliberate non-disclosure obstructed further recovery by attachment and sale.

  3. Capacity to Pay but Intentional Non-payment

    • The second respondent was actively engaged in business and controlled various movable and immovable properties.
    • Despite having the means, he had not come forward to settle the outstanding dues of the bank.
    • It was highlighted that the respondents had, pursuant to an order of the Hon’ble Supreme Court, deposited Rs. 25 crore, demonstrating financial capacity, yet they had not cleared the loan liability nor cooperated in recovery.

  4. Reliance on Supreme Court Precedent

    • The bank placed reliance on the decision of the Hon’ble Supreme Court in Bhudev Mallick Alias Bhudeb Mallic and another, Civil Appeal No. 2248/2025, particularly on the principle that once willful disobedience of a court order is established, the court is justified in using its coercive powers, including imprisonment, to uphold the authority and efficacy of its decrees.

On these grounds, the bank sought:

  • Setting aside of the order dated 06.09.2017 passed by DRT-II, Chennai; and
  • Restoration of the Recovery Officer’s order dated 25.06.2016, directing civil arrest of the second respondent.

Submissions on Behalf of the Second Respondent (Certificate Debtor No. 3)

The second respondent resisted the bank’s appeal primarily by invoking his insolvency status and constitutional protections:

  1. Adjudication as Insolvent
    • The second respondent had been adjudged insolvent in IP No. 5/2013.
    • Subsequently, he moved Application Nos. 298 and 299/2018 before the Hon’ble Madras High Court seeking:
      • Annulment of the order of adjudication dated 28.09.2015 in IP No. 5/2013; and
      • Stay of further proceedings in the insolvency petition.
    • By order dated 14.06.2021, the High Court allowed the applications and annulled the adjudication.