A spurt in the number of people declaring themselves insolvent to evade repaying bank loans and credit card dues has prompted the high court to stop such declarations for the time being.

Records submitted to the court revealed that the registrar of insolvency, which has its office at the high court, had declared more than 1,000 individuals “insolvent” in the past three years.

Following a petition by Kotak Mahindra Bank, Justice Sanjib Banerjee on Monday ordered the registrar of insolvency and the official assignee not to accept any insolvency application till further orders.

Any application for declaration of bankruptcy has to be cleared by the official assignee before being sent to the registrar for approval (see box).

According to rules, banks and financial institutions cannot recover dues from people declared insolvent.

The Kotak Mahindra Bank submitted in the court that a lot of people were filing insolvency applications not because they had run out of money but because they did not want to repay their credit card dues or outstanding loan.

“More than 1,000 applications were filed by individuals who wanted to be declared insolvent in the past three years. Surprisingly, the department of registrar of insolvency had granted all the prayers,” the petitioner bank stated.

Justice Banerjee, while ordering a stay on the declaration of bankruptcy, also appointed a special officer who would take into custody all registers in the office of the registrar of insolvency.

The special officer, lawyer Surojit Nath Moitra, will “require the official assignee and the registrar to keep apart petitions and applications relating to insolvency matters filed in the past three years,” the judge ruled.

The papers, in sealed covers, have to be stored in a “sanitised place” to ensure they are not tampered with. For preserving the documents, the special officer can “requisition a portion of the office of the registrar of insolvency or call upon the registrar of the original side of the high court”.

The bench also asked the registrar-general of the court to tell the government that the official assignee and the registrar could not be removed from their posts till further orders.

Lawyer Sailendu Rakshit justified the court order, saying: “Many people are using the insolvency certificate to avoid repaying their dues. Some dubious agencies help them get the certificates.”