Saturday, 2 July 2022

Kotak Mahindra Bank Ltd. Vs. A. Balakrishnan & Anr. - 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.

Supreme Court (30.05.2022) in Kotak Mahindra Bank Ltd. Vs. A. Balakrishnan & Anr.   [Civil Appeal No. 689 of 2021] held that;

  • 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.

  • 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 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.


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.

 

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.

  • *** **** ***

  • 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.


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.


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”.


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.


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”


52. In any case, we have already discussed hereinabove that the trigger point for initiation of CIRP is default of claim. “Default” is non-­payment of debt by the debtor or the Corporate Debtor, which has become due and payable, as the case may be, a “debt” is a liability or obligation in respect of a claim which is due from any person, and a “claim” means a right to payment, whether such a right is reduced to judgment or not. It could thus be seen that unless there is a “claim”, which may or may not be reduced to any judgment, there would be no “debt” and consequently no “default” on non-­payment of such a “debt”. When the “claim” itself means a right to payment, whether such a right is reduced to a judgment or not, we find that if the contention of the respondents, that merely on a “claim” being fructified in a decree, the same would be outside the ambit of clause (8) of Section 5 of the IBC, is accepted, then it would be inconsistent with the plain language used in the IBC. As already discussed hereinabove, the definition is inclusive and not exhaustive. Taking into consideration the object and purpose of the IBC, the legislature could never have intended to keep a debt, which is crystallized in the form of a decree, outside the ambit of clause (8) of Section 5 of the IBC.

 

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.


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.


75. It is more than well settled that when the language of a statutory provision is plain and unambiguous, it is not permissible for the Court to add or subtract words to a statute or read something into it which is not there. It cannot rewrite or recast legislation. At the cost of repetition, we observe that if the argument as advanced by Shri Viswanathan is to be accepted, it will completely change the texture of the fabric of sub-­section (22A) of Section 19 of the Debt Recovery Act.


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.


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.


-------------------------------------

 


No comments:

Post a Comment

Disclaimer:

The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.