Supreme Court 30.05.2022) in Kotak Mahindra Bank Ltd. Vs. A. Balakrishnan & Anr. [Civil Appeal No. 689 of 2021] held that;
That a liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within the meaning of clause (8) of Section 5 of the IBC. Consequently, the holder of the Recovery Certificate would be a financial creditor within the meaning of clause (7) of Section 5 of the IBC.
Excerpts of the order;
# 1. The present appeal challenges the judgment and order dated 24th November, 2020 passed by the learned National Company Law Appellate Tribunal, New Delhi (hereinafter referred to as “NCLAT”) in Company Appeal (AT) (Insolvency) No. 1406 of 2019, thereby allowing the appeal filed by the respondent no. 1 – Director and reversing the order dated 20th September, 2019 passed by the learned National Company Law Tribunal, Chennai (hereinafter referred to as “NCLT”), whereby the application filed by the appellant under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC” for short) was admitted. The learned NCLAT while allowing the appeal held that the application filed by the appellant was time-barred and that issuance of Recovery Certificate would not trigger the right to sue.
# 2. A brief factual background giving rise to the present appeal is as under:
# 3. During the period between the years 1993 – 1994, Ind Bank Housing Limited (hereinafter referred to as “IBHL”) sanctioned separate credit facilities to these companies (hereinafter referred to as the “borrower entities”):
(i) M/s Green Gardens (P) Ltd,
(ii) M/s Gemini Arts (P) Ltd. and
(iii) M/s Mahalakshmi Properties & Investments (P) Ltd.
The respondent no. 2 M/s Prasad Properties and Investments Pvt. Ltd. (hereinafter referred to as “the Corporate Debtor”) stood as the Corporate Guarantor/mortgagor and mortgaged its immovable property, situated in Guttala Begampet Village in Ranga Reddy District of Andhra Pradesh, by deposit of title deeds to secure the aforesaid credit facilities sanctioned to the borrower entities.
# 6. Aggrieved by the continuous default of payment by the Corporate Debtor and the borrower entities, KMBL filed three applications under Section 31(A) of the erstwhile Recovery of Debts Due to Banks and Financial Institutions Act, 1993, now known as the Recovery of Debts and Bankruptcy Act, 1993 (hereinafter referred to as “the Debt Recovery Act”) before the Debt Recovery Tribunal (“DRT” for short) for issuance of Debt Recovery Certificates in terms of the said compromise entered into between the parties. The said applications came to be allowed by the DRT vide orders dated 31st March, 2017 and 30th June, 2017, and separate Recovery Certificates dated 7th June, 2017 and 20th October, 2017 came to be issued against each of the borrower entities and the Corporate Debtor. In the meanwhile, from the year 2008 to 2017, certain proceedings between the parties, with regard to a contempt petition filed by the KMBL as well as the dismissal of applications filed for issuance of Recovery Certificate and the subsequent grant of relief in a review application filed by the KMBL, were underway.
# 7. On the basis of the aforementioned Recovery Certificates, on 5th October, 2018 KMBL, claiming to be a financial creditor, filed an application under Section 7 of IBC, being CP/1352/IB/2018 before the learned NCLT and sought initiation of Corporate Insolvency Resolution Process (“CIRP” for short) against the Corporate Debtor, claiming an amount of Rs. 835,93,52,369/. The said application came to be admitted by the learned NCLT on 20th September, 2019. The respondent no. 1, Director of the Corporate Debtor filed an appeal being Company Appeal (AT) (Insolvency) No. 1406 of 2019, against the said order of the learned NCLT before the learned NCLAT. The grounds raised by the respondent no. 1 in the said appeal were with regard to the application for initiating CIRP against the Corporate Debtor being filed after the expiry of limitation period. The said appeal filed by the respondent no. 1 came to be allowed vide impugned judgment and order dated 24th November, 2020 in the aforementioned terms.
# 8. We have heard Shri Guru Krishna Kumar, learned Senior Counsel appearing on behalf of KMBL, Shri S. Prabhakaran and Shri V. Prakash, learned Senior Counsel appearing on behalf of the respondent No.1 and Shri K.V. Viswanathan, learned Senior Counsel appearing on behalf of the respondent No.2.
# 14. Shri Viswanathan submitted that the judgment of this Court in the case of Dena Bank (supra) is per incuriam. He submitted that the said judgment is rendered without considering the provisions of sub-Sections (22) and (22A) of Section 19 of the Debt Recovery Act as well as clauses (6), (10), (11) and (12) of Section 3, clauses (7) and (8) of Section 5, Section 6 and Section 14(1)(a) of the IBC. He further submitted that the judgment of this Court in the case of Dena Bank (supra) has applied the judgments of this Court in the cases of Jignesh Shah and another vs. Union of India and another6 and Gaurav Hargovindbhai Dave vs. Asset Reconstruction Company (India) Limited and another7 incorrectly and as such, the judgment of this Court in the case of Dena Bank (supra) is rendered per incuriam. In this respect, he relied on the judgment of this Court in the case of Nirmal Jeet Kaur vs. State of M.P. and another8 so also the judgment of this Court in the case of Secretary to Govt. of Kerala, Irrigation Department and others vs. James Varghese and others9 .
# 20. Before we proceed to consider the rival submissions, it will be apposite to consider the factual scenario, the issues that arose for consideration and the conclusion arrived at in the case of Dena Bank (supra).
# 22. The question therefore that arose for consideration before this Court in the case of Dena Bank (supra) was, as to whether the petition under Section 7 of the IBC was barred by limitation, on the sole ground that it had been filed beyond a period of 3 years from the date of declaration of the loan account of the Corporate Debtor as NPA.
# 24. Though all these issues have been elaborately considered by this Court in the case of Dena Bank (supra), we would only be concerned with the issue, as to whether the issuance of the Recovery Certificate in favour of the “financial creditor” would give rise to a fresh cause of action to initiate proceedings under Section 7 of the IBC. This Court in the said case after considering various provisions of the IBC as well as the earlier judgments of this Court has observed thus:
“99. There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 IBC is three years from the date of accrual of the right to sue, that is, the date of default. In GauravHargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd. [Gaurav Hargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd., (2019) 10 SCC 572 : (2020) 1 SCC (Civ) 1] authored by Nariman, J. this Court held : (SCC p. 574, para 6)
“6. … The present case being “an application” which is filed under Section 7, would fall only within the residuary Article 137.”
100. In B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates [B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528] , this Court speaking through Nariman, J. held : (SCC p. 664, para 42)
“42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condonethe delay in filing such application.”
101. In Jignesh Shah v. Union of India [Jignesh Shah v. Union of India, (2019) 10 SCC 750 : (2020) 1 SCC (Civ) 48] this Court speaking through Nariman, J. reiterated the proposition that the period of limitation for making an application under Section 7 or 9 IBC was three years from the date of accrual of the right to sue, that is, the date of default.
102. In Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank Ltd. [Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC 158 : (2019) 4 SCC (Civ) 308] this Court rejected the contention that the default was a continuing wrong and Section 23 of the Limitation Act, 1963 would apply, relying upon Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan [Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan, 1959 Supp (2) SCR 476 : AIR 1959 SC 798].”
# 25. This Court further went on to observe thus:
“136. A final judgment and order/decree is binding on the judgment debtor. Once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of recovery is also issued authorising the creditor to realise its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the recovery certificate.
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141. Moreover, a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor, to initiate proceedings under Section 7 IBC for initiation of the corporate insolvency resolution process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid.” [emphasis supplied]
# 26. It could thus be seen that this Court in the case of Dena Bank (supra) in paragraphs 136 and 141, has in unequivocal terms held that once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of recovery is also issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the Recovery Certificate. It has further been held that issuance of a certificate of recovery in favour of the financial creditor would give rise to a fresh cause of action to the financial creditor, to initiate proceedings under Section 7 of the IBC for initiation of the CIRP, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid.
# 27. With these findings, we could have very well allowed the present appeal and set aside the judgment and order of the learned NCLAT. Undisputedly, the application for initiation of CIRP under Section 7 of the IBC has been filed by KMBL within a period of three years from the date of issuance of the Recovery Certificate. However, since it has been argued by Shri K.V. Viswanathan, learned Senior Counsel that the judgment rendered by the two-Judge Bench of this Court in the case of Dena Bank (supra) is per incuriam the provisions of the relevant statutes and the judgments of the three-Judge Bench of this Court in the cases of Jignesh Shah (supra) and Gaurav Hargovindbhai Dave (supra) and since the issue is of seminal importance, we would proceed to consider the rival submissions.
# 28. It will be relevant to refer to clauses (6), (10), (11) and (12) of Section 3, clauses (7) and (8) of Section 5, Section 6 and clause (a) of sub-section (1) of Section 14 of the IBC, which are as under: . . . . .
# 29. Clause (6) of Section 3 of the IBC defines the term “claim” in two parts. Subclause (a) of clause (6) of Section 3 of the IBC defines the term to mean, a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. Subclause (b) of clause (6) of Section 3 of the IBC would show that a claim would also mean a right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured.
# 30. Clause (10) of Section 3 of the IBC defines the term “creditor”, to mean any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.
# 31. Clause (11) of Section 3 of the IBC defines the term “debt” to mean, a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt.
# 32. Clause (12) of Section 3 of the IBC defines the term “default” to mean non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be.
33. Clause (7) of Section 5 of the IBC defines the term “financial creditor” to mean any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to.
34. Clause (8) of Section 5 of the IBC defines the term “financial debt”, to mean a debt along with interest, if any, which is disbursed against the consideration for the time value of money and specifies various categories of debts in sub-clauses (a) to (h), which would be included in the definition of term “financial debt”. Sub-clause (i) of clause (8) of Section 5 of the IBC provides that the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause would also be included in the definition of the term “financial debt”.
# 35. It could thus be seen that whereas sub-clauses (a) to (h) of clause (8) of Section 5 of the IBC deal with specific categories, which would come in the definition of the term “financial debt”, sub-clause (i) of clause (8) of Section 5 of the IBC would include the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of the said clause within the meaning of the term “financial debt”.
# 36. Section 6 of the IBC provides as to who may initiate CIRP. It provides that where any Corporate Debtor commits a default, a financial creditor, an operational creditor or the Corporate Debtor itself may initiate CIRP in respect of such Corporate Debtor in the manner as provided under the said Chapter.
# 38. From the scheme of the IBC, it could be seen that where any Corporate Debtor commits a default, a financial creditor, an operational creditor or the Corporate Debtor itself is entitled to initiate CIRP in respect of such Corporate Debtor in the manner as provided under the said Chapter. The default has been defined to mean non-payment of debt. The debt has been defined to mean a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. A claim means a right to payment, whether or not such right is reduced to judgment, fixed, disputed, etc. It is more than settled that the trigger point to initiate CIRP is when a default takes place. A default would take place when a debt in respect of a claim is due and not paid. A claim would include a right to payment whether or not such a right is reduced to judgment.
# 39. It is a settled principle of law that the provisions of a statue ought to be interpreted in such a manner which would advance the object and purpose of the enactment.
# 40. This Court in the case of Swiss Ribbons Private Limited and another vs. Union of India and others12 has held that preserving the Corporate Debtor as an ongoing concern, while ensuring maximum recovery for all creditors is the objective of the IBC.
# 42. In this background, we will have to consider, as to whether a person, who holds a Recovery Certificate would be a financial creditor within the meaning of clause (7) of Section 5 of the IBC.
# 43. A person to be entitled to be a “financial creditor” has to be owed a financial debt and would also include a person to whom such debt has been legally assigned or transferred to. Therefore, the only question that would be required to be considered is, as to whether a liability in respect of a claim arising out of a Recovery Certificate would be included within the meaning of the term “financial debt” as defined under clause (8) of Section 5 of the IBC.
# 44. It will be pertinent to note that in clause (8) of Section 5 of the IBC, i.e, the definition clause of the term “financial debt”, the words used are “means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes”.
45. At this juncture, we may rely on the following observations in the case of Dilworth vs. Commissioner of Stamps13 , which have been consistently followed by this Court:
“The word ‘include’ is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. But the word ‘include’ is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to ‘mean and include’, and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions.”
# 47. It is thus clear that it is a settled position of law that when the word “include” is used in interpretation clauses, the effect would be to enlarge the meaning of the words or phrases occurring in the body of the statute. Such interpretation clause is to be so used that those words or phrases must be construed as comprehending, not only such things, as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. In such a situation, there would be no warrant or justification in giving the restricted meaning to the provision.
# 50. The three-Judge Bench of this Court in the case of Pioneer Urban Land and Infrastructure Limited and another vs. Union of India and others16 was considering a challenge to the amendments made to the IBC vide which Explanation to subclause (f) of clause (8) of Section 5 of the IBC was inserted, which provides that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing. This Court held that “the expression “and includes” speaks of subject-matters which may not necessarily be reflected in the main part of the definition”.
# 51. Applying these principles to clause (8) of Section 5 of the IBC, it could clearly be seen that the words “means a debt along with interest, if any, which is disbursed against the consideration for the time value of money” are followed by the words “and includes”. Thereafter various categories (a) to (i) have been mentioned. It is clear that by employing the words “and includes”, the Legislature has only given instances, which could be included in the term “financial debt”. However, the list is not exhaustive but inclusive. The legislative intent could not have been to exclude a liability in respect of a “claim” arising out of a Recovery Certificate from the definition of the term “financial debt”, when such a liability in respect of a “claim” simpliciter would be included in the definition of the term “financial debt”
53. Having held that a liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within the ambit of its definition under clause (8) of Section 5 of the IBC, as a natural corollary thereof, the holder of such Recovery Certificate would be a financial creditor within the meaning of clause (7) of Section 5 of the IBC. As such, such a “person” would be a “person” as provided under Section 6 of the IBC who would be entitled to initiate the CIRP.
# 54. Insofar as the contention of the respondents with regard to clause (a) of sub-section (1) of Section 14 of the IBC is concerned, we do not find that the words used in clause (a) of sub-section (1) of Section 14 of the IBC could be read to mean that the decree-holder is not entitled to invoke the provisions of the IBC for initiation of CIRP. A plain reading of said Section would clearly provide that once CIRP is initiated, there shall be prohibition for institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority. The prohibition to institution of suit or continuation of pending suits or proceedings including execution of decree would not mean that a decree-holder is also prohibited from initiating CIRP, if he is otherwise entitled to in law. The effect would be that the applicant, who is a decree-holder, would himself be prohibited from executing the decree in his favour.
# 55. That leaves us to consider the contention, as to whether the judgment of this Court in the case of Dena Bank (supra) is contrary to the judgments of three-Judge Bench of this Court in the cases of Jignesh Shah (supra) and Gaurav Hargovindbhai Dave (supra), as contended by the respondents, and therefore, per incuriam.
# 56. In the case of Jignesh Shah (supra), the cause of action arose in the month of August, 2012. The winding-up petition, which was transferred to the learned NCLT, was filed on 21st October, 2016, i.e., after a period of three years from the date on which cause of action arose. This Court in the said case was considering a question that, if a winding up petition was barred by limitation on the date it was filed, whether Section 238A of the IBC will give a new lease of life to such a time-barred petition. This Court held that Section 238A of the IBC would not extend the period of limitation for filing winding-up petition. On the facts of the said case, it was found that on the date on which the winding-up petition was filed, it was barred by lapse of time and Section 238A of the IBC would not give a new lease of life to such a time-barred petition. The question that falls for consideration in the present case is, as to whether a claim which is fructified in a decree would give a fresh cause of action to file an application under Section 7 of the IBC within a period of three years from such decree or not. This issue did not fall for consideration before this Court in the case of Jignesh Shah (supra).
# 57. In the case of Gaurav Hargovindbhai Dave (supra), the respondent therein was declared NPA on 21st July, 2011 and an application under Section 7 of the IBC was filed in the year 2017 while IBC was brought into force on 1st December, 2016. The three-Judge Bench of this Court in the said case held that the time began to run from the date when the respondent was declared NPA and as such, the application under Section 7 of the IBC, which was filed beyond the period of three years, was barred by limitation. The question, as to whether a person would be entitled to file an application for initiation of CIRP within a period of three years from the date on which the decree was passed or a Recovery Certificate was granted did not fall for consideration in the said case also.
# 59. No doubt that Shri Viswanathan is justified in referring to paragraph 21 of the judgment in the case of Jignesh Shah (supra) to the extent that this Court observed that the suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding-up would, in no manner, impact the limitation within which the winding-up proceeding is to be filed, by somehow keeping the debt alive for the purpose of the winding-up proceeding. However, the question, as to whether such a suit or an application which has been culminated into a decree or a Recovery Certificate would give a fresh cause of action to file an application under Section 7 of the IBC did not arise for consideration in the said judgment/case. The said judgment cannot be held to be a ratio decidendi for a proposition that even after the suit is decreed, or Recovery Certificate is issued, it could not give fresh cause of action to initiate CIRP within a period of three years.
# 60. As to what is ratio decidendi has been succinctly observed by this Court in the case of Union of India and others vs. Dhanwanti Devi and others18, which is as under:
“9. …… It is not everything said by a Judge while giving judgment that constitutes a precedent. The only thing in a Judge’s decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates—(i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgment. Every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there is not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. It would, therefore, be not profitable to extract a sentence here and there from the judgment and to build upon it because the essence of the decision is its ratio and not every observation found therein. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on a consideration of the judgment in relation to the subject-matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding. It is only the principle laid down in the judgment that is binding law under Article 141 of the Constitution. A deliberate judicial decision arrived at after hearing an argument on a question which arises in the case or is put in issue may constitute a precedent, no matter for what reason, and the precedent by long recognition may mature into rule of stare decisis. It is the rule deductible from the application of law to the facts and circumstances of the case which constitutes its ratio decidendi.”
# 62. It could thus be seen that one additional or different fact can make a world of difference between conclusions in two cases even when the same principles are applied in each case to similar facts.
# 63. It will further be relevant to note that the judgment of this Court in the case of Jignesh Shah (supra) was authored by R.F.Nariman, J. R.F.Nariman, J. in the case of Vashdeo R. Bhojwani vs. Abhyudaya Cooperative Bank Limited and another20, while relying on the judgment of three-Judge Bench of this Court in the case of Balakrishna Savalram Pujari Waghmare and others vs. Shree Dhyaneshwar Maharaj Sansthan and others21 has observed thus:
“Following this judgment, it is clear that when the recovery certificate dated 2412 2001 was issued, this certificate injured effectively and completely the appellant’s rights as a result of which limitation would have begun ticking.”
# 66. It can thus be seen that this Court observed that the issuance of Recovery Certificate injured effectively and completely the appellant’s rights and therefore the limitation would begin from the said date. In effect, this Court observed that the issuance of Recovery Certificate could trigger the limitation. As such, in our view, this Court in the case of Dena Bank (supra) has rightly relied on Vashdeo R. Bhojwani (supra), which, in turn, relied on the earlier three-Judge Bench judgment of this Court in the case of Balakrishna Savalram Pujari Waghmare (supra).
# 67. Shri Viswanathan, learned Senior Counsel relied on various judgments of this Court to fortify his submission that the judgment of two-Judge Bench of this Court in the case of Dena Bank (supra) is per incuriam. Recently, a two-judge Bench of this Court (consisting of L.N. Rao and B.R. Gavai, JJ.) had an occasion to consider this doctrine in the case of James Varghese (supra). It is a settled law that “Incuria” literally means “carelessness”. A decision or judgment can be per incuriam any provision in a statute, rule or regulation, which was not brought to the notice of the Court. It can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a coequal or larger Bench.
# 68. A perusal of the judgment of this Court in the case of Dena Bank (supra) would reveal that this Court considered all the relevant provisions of the IBC and the earlier judgments of this court. As already discussed hereinabove, we do not find any inconsistency in the judgment of this Court in the case of Dena Bank (supra) with the earlier judgments of this Court on which reliance is placed by Shri Viswanathan. We find that the contention that the judgment of this Court in the case of Dena Bank (supra) being per incuriam to the statutory provisions and earlier judgments of this Court, is wholly unsustainable.
# 69. We have already hereinabove, done the exercise of considering the relevant provisions of the IBC afresh and come to a conclusion that a liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within the meaning of clause (8) of Section 5 of the IBC and a holder of the Recovery Certificate would be a “financial creditor” within the meaning of clause (7) of Section 5 of the IBC. We have also held that a person would be entitled to initiate CIRP within a period of three years from the date on which the Recovery Certificate is issued. We are of the considered view that the view taken by the two-Judge Bench of this Court in the case of Dena Bank (supra) is correct in law and we affirm the same.
# 70. That leaves us with the contention of Shri Viswanathan with regard to sub-sections (22) and (22A) of Section 19 of the Debt Recovery Act, which read thus:
“19. Application to the Tribunal.(1)
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(22) The Presiding Officer shall issue a certificate of recovery along with the final order, under sub-section (20), for payment of debt with interest under his signature to the Recovery Officer for recovery of the amount of debt specified in the certificate.
(22A) Any recovery certificate issued by the Presiding Officer under sub-section (22) shall be deemed to be decree or order of the Court for the purposes of initiation of winding up proceedings against a company registered under the Companies Act, 2013 (18 of 2013) or Limited Liability Partnership registered under the Limited Liability Partnership Act, 2008 (9 of 2008) or insolvency proceedings against any individual or partnership firm under any law for the time being in force, as the case may be.”
# 77. From the plain and simple interpretation of the words used in sub-section (22A) of Section 19 of the Debt Recovery Act, it would be amply clear that the Legislature provided that for the purposes of winding-up proceedings against a Company, etc., a Recovery Certificate issued by the Presiding Officer under sub-section (22) of Section 19 of the Debt Recovery Act shall be deemed to be a decree or order of the Court. It is thus clear that once a Recovery Certificate is issued by the Presiding Officer under sub-section (22) of Section 19 of the Debt Recovery Act, in view of sub-section (22A) of Section 19 of the Debt Recovery Act it will be deemed to be a decree or order of the Court for the purposes of initiation of winding-up proceedings of a Company, etc. However, there is nothing in sub-section (22A) of Section 19 of the Debt Recovery Act to imply that the Legislature intended to restrict the use of the Recovery Certificate limited for the purpose of winding-up proceedings. The contention of the respondents, if accepted, would be to provide something which is not there in sub-section (22A) of Section 19 of the Debt Recovery Act.
# 78. In any case, when the Legislature itself has provided that any Recovery Certificate issued under sub-section (22) of Section 19 of the Debt Recovery Act will be deemed to be a decree or order of the Court for initiation of winding-up proceedings, which proceedings are much severe in nature, it will be difficult to accept that the Legislature intended that such a Recovery Certificate could not be used for initiation of CIRP, which would enable the Corporate Debtor to continue as an ongoing concern and, at the same time, pay the dues of the creditors to the maximum. We, therefore, find no substance in the said submission.
# 84. To conclude, we hold that a liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within the meaning of clause (8) of Section 5 of the IBC. Consequently, the holder of the Recovery Certificate would be a financial creditor within the meaning of clause (7) of Section 5 of the IBC. As such, the holder of such certificate would be entitled to initiate CIRP, if initiated within a period of three years from the date of issuance of the Recovery Certificate.
# 85. We further find that the view taken by the two-Judge Bench of this Court in the case of Dena Bank (supra) is correct in law and we affirm the same. We further find that in the facts of the present case, the application under Section 7 of the IBC was filed within a period of three years from the date on which the Recovery Certificate was issued. As such, the application under Section 7 of the IBC was within limitation and the learned NCLAT has erred in holding that it is barred by limitation.
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