Case Note & Summary
The petitioners, Kishor K. Mehta and Rajesh K. Mehta, were directors and guarantors of Beautiful Diamonds Company Limited, which had availed loan facilities from HDFC Bank Ltd. The bank filed Original Application No.146/2002 before the Debts Recovery Tribunal (DRT), Mumbai, for recovery of Rs.14,74,51,929/- with interest. On 26 October 2004, the DRT held the petitioners jointly and severally liable, and a recovery certificate was issued on 30 November 2004. Subsequently, the Recovery Officer passed an order on 5 February 2020 directing the arrest of the petitioners, attachment of their bank accounts, and restrictions on travelling abroad. The petitioners challenged this order before the High Court. The main legal issue was whether the Recovery Officer could order arrest without issuing a show cause notice and affording a hearing. The petitioners argued that Section 25 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 requires a notice and hearing before arrest, and that the order violated principles of natural justice. The respondent bank contended that the Recovery Officer had the power to arrest under Section 25 and that the petitioners had been given opportunities earlier. The court analyzed Section 25 and held that arrest is a coercive measure affecting personal liberty, and therefore, the Recovery Officer must issue a show cause notice and provide an opportunity of hearing before ordering arrest. The court found that the impugned order was passed without any notice or hearing, thus violating natural justice. The court quashed the order dated 5 February 2020 and remanded the matter to the Recovery Officer for fresh consideration after giving notice and hearing to the petitioners. The court also directed the petitioners to cooperate and not seek adjournments.
Headnote
A) Debt Recovery - Arrest of Judgment Debtor - Section 25, 31 RDDBFI Act, 1993 - Natural Justice - Recovery Officer ordered arrest of guarantors without prior notice or hearing - Held that Section 25 requires the Recovery Officer to issue a show cause notice and afford an opportunity of hearing before ordering arrest, as it is a coercive measure affecting personal liberty (Paras 10-15).
Issue of Consideration
Whether the Recovery Officer can order arrest of a judgment debtor without issuing a show cause notice and affording an opportunity of hearing under Section 25 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
Final Decision
The impugned order dated 5 February 2020 is quashed and set aside. The matter is remanded to the Recovery Officer for fresh consideration after giving notice and hearing to the petitioners. The petitioners are directed to cooperate and not seek adjournments.
Law Points
- Arrest of judgment debtor requires prior notice and hearing
- Recovery Officer must follow principles of natural justice
- Section 25 of Recovery of Debts Due to Banks and Financial Institutions Act
- 1993
- Section 31 of Recovery of Debts Due to Banks and Financial Institutions Act
