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Sunday, July 17, 2022

whether the High Court was right in reversing the order striking off the defence in terms of Order XV Rule 5 of the Code of Civil Procedure, 19082 , as applicable to the present case ?

 whether the High Court was right in reversing the order striking off  the  defence in terms of Order XV Rule 5 of the Code of Civil Procedure, 19082 , as applicable to the present case ?

REPORTABLE

IN THE SUPREME COURT OF INDIA

 CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4682 OF 2022

(ARISING OUT OF SLP(CIVIL) NO. 1319 OF 2019)

ASHA RANI GUPTA ….APPELLANT(S)

 VERSUS

SRI VINEET KUMAR ….RESPONDENT(S)

JUDGMENT

DINESH MAHESHWARI, J.

Leave granted.

2. The present appeal arises out of a suit for eviction and recovery

of arrears of rent as also damages for use and occupation, as filed by

the plaintiff-appellant against the defendant-respondent1

, wherein the

order dated 01.03.2017, as passed by the Trial Court striking off the

defence of the defendant-respondent for failure to pay or deposit the due

rent, which was approved by the Revisional Court in its order dated

18.01.2018, has been set aside by the High Court in its impugned order

dated 02.11.2018.

3. The root question calling for determination in this appeal is as to

whether the High Court was right in reversing the order striking off

1 Hereinafter, the parties have also been referred to as ‘the plaintiff’ or as ‘the defendant’, as

per their status in the suit.

1

defence in terms of Order XV Rule 5 of the Code of Civil Procedure,

19082

, as applicable to the present case3?

4. The relevant factual and background aspects, so far relevant for

the present purpose, are as follows:

4.1. The plaintiff-appellant has filed the suit leading to this appeal,

being S.C.C. Suit No. 27 of 2011, in the Court of Judge, Small Causes,

Aligarh against the defendant-respondent on 30.04.2011 with the

averments, inter alia, that she is the owner of a shop bearing Municipal

Corporation No. 1/225, situated at Naurangabad Sahar, Kol, Aligarh, for

having purchased the same from the erstwhile owner Shri Rajiv Kant

Sharma through a registered sale deed dated 10.05.2010. The

appellant has further averred that the defendant-respondent is a tenant

in the suit shop since the time of its erstwhile owner on a monthly rent of

Rs. 625/- apart from statutory taxes; that after her purchasing the shop,

the defendant became her tenant; and that after registration of the sale

deed, the erstwhile landlord had informed the defendant about sale of

the shop to the plaintiff.

4.2. The plaintiff-appellant has alleged that the defendant-respondent

was a chronic defaulter in payment of rent and taxes; and despite

information of the sale deed dated 10.05.2010 and despite demand

made by her, the rent along with taxes had not been paid by him since

2 ‘CPC’, for short.

3 Rule 5 of Order XV was inserted to CPC for its application in the State of Uttar Pradesh by

the Uttar Pradesh Laws (Amendment) Act, 1972; it was substituted by the Uttar Pradesh Civil

Laws (Reforms and Amendment) Act, 1976 w.e.f. 01.01.1977 and was slightly amended by

Notification No. 121/IV-h-36-D dated 10.02.1981 w.e.f. 03.10.1981.

2

the month of May 2010. The plaintiff has averred that she got served a

legal notice under Section 106 of the Transfer of Property Act, 1882 to

the defendant on 08.02.2011, who refused to accept the notice and has

neither paid the balance rent and damages nor vacated the suit shop. It

has also been pointed out that the suit shop was a newly constructed

one to which, the provisions of U.P. Act No. 13 of 1972 were not

applicable. While asserting her right to receive the rent and damages in

relation to the suit shop from the month of May 2010 and with other

averments regarding cause of action, jurisdiction and court fee etc., the

plaintiff has claimed the reliefs in the following terms: -

“10. That the plaintiff is entitled for the following relief: -

a) the decree may kindly be passed in favour of the plaintiff and against the

defendant for realizing amount of Rs. 8,050/- and damages for use and

occupation @ Rs.625/- per month presently and in future besides the taxes.

b) a decree of eviction in favour of plaintiff and against the defendant for the

shop which is in the possession of defendant and after eviction of the

defendant the possession of the shop may be given to the plaintiff through the

Amin of the Court, may be passed.

c) the expenses of the suit may be recovered from the defendant and be given

to the plaintiff.

d) any other relief which this Hon’ble Court may deem fit and proper in the

circumstances of the case may be given to the plaintiff.”

4.3. In his written statement, the defendant-respondent has, in

essence, denied the relationship of landlord and tenant between the

plaintiff and himself, though he would not deny his status as tenant in

the suit shop. The defendant has also asserted that the alleged sale

deed dated 10.05.2010 is illegal and void. He has assigned the reasons

for this assertion by relying on certain recitals made by said Shri Rajiv

Kant Sharma in another sale deed dated 04.05.2010 executed in favour

of Abhishek Gupta (son of the present plaintiff) and particularly, the

3

boundaries on the northern side of the said property. In other words, the

assertion is that in the sale deed dated 04.05.2010, no such shop was

shown on the northern side as attempted to be sold by the sale deed

dated 10.05.2010. The defendant has further asserted that the shop in

question was let out to him by Smt. Sudha Sharma wife of Shri Rajiv

Kant Sharma; and not by Shri Rajiv Kant Sharma, the alleged transferor

of the plaintiff. According to the defendant, Shri Rajiv Kant Sharma was

not the landlord; and his landlady Smt. Sudha Sharma had not

transferred the shop in question to the plaintiff. The defendant has also

alleged that Smt. Sudha Sharma was earlier issuing the rent receipts but

afterwards, stopped giving the receipts though she was regularly

receiving rent and that the rent up to 31.08.2010 had been paid to Smt.

Sudha Sharma. The defendant has also refuted the averments about

inapplicability of U.P. Act No. 13 of 1972 and has alleged that the shop in

question being too old, the said Act is applicable to it. The defendant has

yet further asserted that the notice dated 18.02.2011 never reached him

and he had never refused to receive the notice.

4.4. It is also noticed that at the stage of evidence in this suit, the

defendant moved an application seeking appointment of a Court

Commissioner with the submissions that a site plan, containing the

details of the property, including the measurement of the suit shop and

the house situated on the southern side of the shop was required to be

called. The Trial Court considered and rejected this application by its

4

order dated 03.02.2016, for there being no reason to issue a

commission in view of the respective stand of the parties and the real

questions involved in the matter.

4.5. Thereafter, the plaintiff-appellant filed an application with

reference to the provisions of Order XV Rule 5 CPC as applicable to the

present case and prayed that the defence of the defendant-respondent

be struck off, for the reason that defendant had not deposited any rent

and no evidence was adduced by him to establish any payment of rent.

This application was contested by the defendant-respondent with the

submissions that the provisions of Order XV Rule 5 CPC were

applicable only to a case where the defendant would accept the plaintiff

as his landlord; and in the present case, he had taken the special plea

that the plaintiff was not the landlord or the owner of the suit shop and

had clearly averred that there was no relationship of landlord and tenant

between the plaintiff and defendant. The defendant-respondent also

referred to certain rent receipts said to have been issued by the said

Smt. Sudha Sharma.

4.6. After having examined the record and the rival contentions, the

Trial Court, in its order dated 01.03.2017, found that no evidence was

placed on record by the defendant to show his payment of rent to the

plaintiff and observed that even if the tenant would deny the relationship

of landlord and tenant, the application under Order XV Rule 5 CPC was

5

maintainable. The Trial Court, accordingly, proceeded to strike off the

defence while observing, inter alia, as under: -

“No such evidence has been filed on the record by the

defendant so that it could become explicit that on the date of sale

deed on 10.05.2010, the alleged rent was deposited in favour of

Asha Devi or payment was made to the plaintiff Asha Devi.

According to the aforesaid documentary evidence available on the

record, principle of law laid down in the citations, if the tenant has

denied the relationship landlord and tenant, then the application

shall be maintainable under the provision of Order XV Rule 5 of

Civil Procedure Code. As per the citation relied upon on behalf of

the plaintiff is more recent in comparison to the citation relied upon

by the defendant. Although the principle of law laid down in both

citations are applicable with respect to the case in this Court, but

due to the citation relied upon by the plaintiff being more recent, so

it has more significance. Therefore, the application 61Ga of the

plaintiff ought to be allowed and the defence of the defendant

ought to be struck off.

ORDER

The application 61Ga is allowed and the defence of the

defendant is struck off. The record be put up on 16.03.2017 for

cross examination of the witness PW-1.”

4.7. The order aforesaid was challenged by the defendantrespondent in S.C.C. Revision No. 11 of 2017, which was duly

considered and dismissed by the Fourth Additional District Judge,

Aligarh on 18.01.2018, while agreeing with the Trial Court and observing

as under: -

“The revisionist has admitted as the tenant of the shop in suit

in the written statement. But it was mentioned that the

respondent / plaintiff is not the owner of the shop in suit and the

respondent has averred that she is the owner of the shop in suit

on the basis of the sale deed. This fact is undisputed that the

revisionist did not deposit the rent of the shop in suit in the Court

on the first date of hearing and even he did not deposit the rent

corresponding to the period thereafter. In case the revisionist

denies the relationship of tenant and landlord, then he should have

complied with second part of the Order XV Rule 5 of Civil

Procedure Code, but it was not done so as per the principle of law

laid down by the Hon’ble High Court of Allahabad in the citation

2012 (1) CAR, 93 Allahabad, Mukesh Singh & Ors. Vs. Ramesh

Chand Solanki. Therefore, in view of facts and circumstances of

6

the present case, no error of law is found in the impugned order

passed by the Ld. Subordinate Court and even the Ld.

Subordinate Court has not superseded its jurisdiction. Therefore,

there appears no sufficient ground to interfere with the impugned

order. Consequently the revision ought to be set aside.”

5. The defendant-respondent, being aggrieved of the orders

aforesaid, approached the High Court under Article 227 of the

Constitution of India and his petition (No. 2419 of 2018) came to be

allowed by the High Court by way of its impugned order dated

02.11.2018.

5.1. The High Court took note of the background aspects and the

long-drawn arguments with case laws cited by either of the parties; and

after a survey of various decisions of the Allahabad High Court as also

of this Court, took the view that the discretionary power as regards

striking off defence must be exercised with great circumspection.

Thereafter, though the High Court observed that the pleas taken by the

defendant-respondent might apparently be for the purpose of protracting

the litigation as the property was purchased through a registered sale

deed that distinctly carried the number (1/225) of the shop which was let

out to the defendant-respondent but, opined that the defendantrespondent was entitled to ‘some indulgence’. The High Court, thus, set

aside the orders impugned before it; and issued directions to the

defendant to deposit the arrears of rent together with interest within one

month; and further to deposit the current rent as determined by the Trial

Court, month by month, by seventh of every month during the pendency

of litigation.

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5.2. In the impugned order dated 02.11.2018, where first 42

paragraphs are devoted to background facts, rival contentions and

discussion concerning cited decisions with several extractions, entire of

the reasoning and then, conclusion and directions of the High Court are

contained in paragraphs 43 to 47, which could be usefully reproduced as

under: -

“43. This Court finds from a consideration of the judgments cited

by the counsel for either of the parties that the language of Order

XV, Rule 5 CPC is similar to the language used in sub section 7 of

Section 15 of the Delhi Rent Control Act, 1958 and sub section 1

of Section 13 of the Tripura Building Lease and Control Act,

1975. The Delhi Rent Control Act, was considered by the Supreme

Court in Miss. Santosh Mehta Vs. Om Prakash and in Kamla

Devi Vs. Basudev.

44. The Supreme Court observed that the Rent Control Court /

Appellate Authority has been conferred with a discretionary power

which must be exercised with great circumspection.

45. In the case of the petitioner who is the defendant before the

learned Trial Court, a specific plea was taken regarding non

existence of relationship of landlord and tenant. In fact the

ownership of the landlord of the Suit property was also denied, as

also the identity of the Suit property, which was allegedly

purchased by the plaintiffs. Though the pleas taken by the

defendant / tenant may apparently be for the purpose of

protracting the litigation as the property was bought through a

registered sale deed and the shop number mentioned in the said

sale deed was 1/225 which was the same as the shop rented out

to the defendant / tenant, yet the defendant / tenant deserves

some indulgence.

46. The orders impugned are set aside. However, a direction is

issued to the petitioner / tenant to deposit arrears of rent @ Rs.

625/- per month along with 9% interest per annum and cost before

the learned Trial Court within a period of one month from today.

The tenant shall also deposit the current rent as determined by the

learned Trial Court, month to month by the seventh of every month

during the pendency of the litigation. All such deposits made by

the tenant shall be kept in a separate interest bearing account by

the learned Trial Court and shall abide by the final decision of the

SCC Suit filed by the plaintiff / respondents.

47. This matter stands thus disposed of.”

 (emphasis supplied)

8

6. Assailing the order so passed by the High Court, learned counsel

appearing for the plaintiff-appellant has strenuously argued that the High

Court has dealt with the matter in a rather cursory manner and has

erroneously upset the considered orders dated 01.03.2017 and

18.01.2018, as passed respectively by the Trial Court and the Revisional

Court, striking off the defence of the defendant-respondent in terms of

Order XV Rule 5 CPC for non-payment of the due amount of

rent/damages.

6.1. Learned counsel has argued that the High Court has

misinterpreted and misapplied the provisions of Order XV Rule 5 CPC

and has allowed the petition filed by the defendant by merely holding

that he was entitled to some indulgence but, without giving any specific

reason or finding to overturn the considered orders passed by the

subordinate Courts.

6.2. Learned counsel has referred to the provisions contained in

Order XV Rule 5 CPC and has submitted that as per the said provisions,

the defendant-respondent, being the tenant of the suit shop, was

required to pay or deposit the entire rent for use and occupation of the

shop in question but, he neither paid nor deposited the due amount on

the first hearing though he filed the written statement on 04.09.2012;

and he did not pay or deposit the monthly amount due during the

continuation of the suit. According to the learned counsel, even if the

defendant-respondent had taken the plea suggestive of denial of title of

9

the plaintiff and denial of the relationship of landlord and tenant, he is

not absolved of the liability to make payment of rent; and on his failure to

make such payment/deposit, the consequences contemplated by the

Order XV Rule 5 CPC would indeed follow and he cannot be granted

any so-called indulgence.

6.3. Learned counsel has also attempted to refer to the additional

document filed with I.A. No. 24489 of 2022, inter alia, being of affidavit

filed by the defendant-respondent in the year 1990 admitting Shri Rajiv

Kant Sharma as the owner of the suit property, from whom the plaintiffappellant had purchased under the registered sale deed dated

10.05.2010.

7. Per contra, learned counsel for the defendant-respondent has

duly supported the order impugned and has submitted that the view

taken by the High Court calls for no interference.

7.1. It has been submitted with reference to the decisions of this

Court in the case of Bimal Chand Jain v. Sri Gopal Agarwal: 1981 (3)

SCC 486 and Manik Lal Majumdar and Ors. v. Gouranga Chandra

Dey and Ors.: AIR 2005 SC 1090 that when the defendant-respondent

has taken specific plea regarding non-existence of relationship of

landlord and tenant, he is not liable to deposit any rent in terms of the

Order XV Rule 5 CPC. It is submitted that the plaintiff’s ownership of the

suit property has been denied by the defendant and the identity of the

property allegedly purchased by the plaintiff has also been questioned;

10

and these contentions/objections of the defendant could only be decided

after the trial. Thus, until the matter is duly tried, the defendant cannot

be compelled to deposit the arrears of rent due in this suit and the High

Court has rightly extended him indulgence of not striking off the defence.

7.2. It has also been submitted that the defendant-respondent had

paid the rent to the erstwhile landlord Smt. Sudha Sharma upto

31.08.2010 and the receipts said to have been given by her have been

referred to. It has further been submitted that the defendant-respondent,

obviously, entertained genuine doubt about the entitlement of the plaintiff

because the erstwhile landlord had never informed about her having

sold the property and for payment of rent to the plaintiff; and in view of

obvious discrepancies in the description of properties allegedly sold by

Shri Rajiv Kant Sharma, there had been genuine confusion about the

landlord/owner of the property. In this scenario, the defendantrespondent cannot be faulted in raising objection and in not making

deposit of rent in the present suit.

7.3. It has been asserted on behalf of the respondent that the

expression “may” in sub-rule (1) of Rule 5 of the Order XV merely vests

discretionary power in the Court to strike off the defence but, it does not

oblige the Court to do so in every case of default or non-payment of rent.

In regard to the operation of Order XV Rule 5 CPC, learned counsel for

the defendant-respondent has also relied upon the Division Bench

decisions of the High Court in Ladly Prasad v. Ram Shah Billa and

11

Ors.: (1976) 2 ALR 8 and in Kunwar Baldevji v. The XI Additional

District Judge, Bulandshahar and Ors.: (2003) 1 ARC 637.

7.4. It has also been pointed out that pursuant to the order passed by

the High Court, the defendant-respondent has deposited the entire rent

from 10.05.2010 to 10.11.2018 and is also making further deposits

regularly.

8. We have given thoughtful consideration to the rival submissions

and have examined the record with reference to the law applicable to

the present case.

9. For dealing with the relevant question involved, it would be

appropriate to take note of the provisions of Order XV Rule 5 CPC, as

applicable to the present case. These provisions read as under: -

“5. Striking off defence on failure to deposit admitted rent. - (1) In

any suit by a lessor for the eviction of a lessee after the

determination of his lease and for the recovery from him of rent or

compensation for use and occupation, the defendant shall, at or

before the first hearing of the suit, deposit the entire amount

admitted by him to be due together with interest thereon at the rate

of nine per centum per annum and whether or not he admits any

amount to be due, he shall throughout the continuation of the suit

regularly deposit the monthly amount due within a week from the

date of its accrual, and in the event of any default in making the

deposit of the entire amount admitted by him to be due or the

monthly amount due as aforesaid, the court may, subject to the

provisions of sub-rule (2), strike off his defence.

Explanation 1.- The expression ‘first hearing’ means the date for

filing written statement or for hearing mentioned in the summons

or where more than one of such dates are mentioned, the last of

the dates mentioned.

Explanation 2.- The expression ‘entire amount admitted by him to

be due’ means the entire gross amount, whether as rent or

compensation for use and occupation, calculated at the admitted

rate of rent for the admitted period of arrears after making no other

deduction except the taxes, if any, paid to a local authority in

respect of the building on lessor’s account and the amount, if any,

paid to the lessor acknowledged by the lessor in writing signed by

12

him and the amount, if any, deposited in any court under section

30 of the U.P. Urban Buildings (Regulation of Letting, Rent and

Eviction) Act, 1972.

Explanation 3.- The expression ‘monthly amount due’ means the

amount due every month, whether as rent or compensation for use

and occupation at the admitted rate of rent, after making no other

deduction except the taxes, if any, paid to a local authority in

respect of the building on lessor’s account.

(2) Before making an order for striking off defence, the court may

consider any representation made by the defendant in that behalf

provided such representation is made within 10 days, of the first

hearing or, of the expiry of the week referred to in sub-section (1),

as the case may be.

(3) The amount deposited under this rule may at any time be

withdrawn by the plaintiff:

Provided that such withdrawal shall not have the effect of

prejudicing any claim by the plaintiff disputing the correctness of

the amount deposited:

Provided further that if the amount deposited includes any sums

claimed by the depositor to be deductible on any account, the

court may require the plaintiff to furnish the security for such sum

before he is allowed to withdraw the same.”

9.1. A few basic factors related with the provisions of Order XV Rule 5

CPC could be noticed at once. As per these provisions, in a suit by a

lessor for eviction of a lessee after the determination of lease and for

recovery of rent or compensation for use and occupation, the defendant is

under the obligation: (1) to deposit the entire amount admitted by him to

be due together with interest at the rate of 9% per annum on or before the

first hearing of the suit; and (2) to regularly deposit the monthly amount

due within a week of its accrual throughout the pendency of the suit. The

consequence of default in making either of these deposits is that the

Court may strike off his defence. The expression ‘first hearing’ means the

date for filing written statement or the date for hearing mentioned in the

summons; and in case of multiple dates, the last of them. The expression

‘monthly amount due’ means the amount due every month, whether as

13

rent or damages for use and occupation at the admitted rate of rent after

making no other deduction except taxes, if paid to the local authority on

lessor’s account. It is, however, expected that before making an order

striking off defence, the Court would consider the representation of the

defendant, if made within 10 days of the first hearing or within 10 days of

the expiry of one week from the date of accrual of monthly amount.

10. At this juncture, we may also take note of the decisions which

have been referred to and relied upon.

10.1. The High Court has primarily based its decision on the cases of

Miss Santosh Mehta v. Om Prakash and Ors.: (1980) 3 SCC 610 and

Smt. Kamla Devi v. Vasdev: (1995) 1 SCC 356. Both these cases

related to the operation of Section 15(7) of the Delhi Rent Control Act,

19574

.

10.1.1. In the case of Miss Santosh Mehta (supra), the tenant, a

working woman, had regularly paid the rent to her advocate, who neither

deposited the same in the Court nor paid it to the landlord. In the given

circumstances, this Court found it unjustified to punish the tenant by

striking out the defence. In that context, this Court observed that under

Section 15(7) of the Delhi Rent Act, it was in the liberal discretion of the

Rent Controller, whether or not to strike out the defence. This Court also

observed that it was of harsh and extreme step, and having regard to the

benign scheme of the legislation, this drastic power was meant for use in

4 Hereinafter also referred to as ‘the Delhi Rent Act’.

14

grossly recalcitrant situations where the tenant was guilty of disregard in

paying rent. This Court further said, -

“3. We must adopt a socially informed perspective while

construing the provisions and then it will be plain that the

Controller is armed with a facilitative power. He may or may

not strike out the tenant's defence. A judicial discretion has built-inself-restraint, has the scheme of the statute in mind, cannot ignore

the conspectus of circumstances which are present in the case

and has the brooding thought playing on the power that, in a

Court, striking out a party's defence is an exceptional step, not a

routine visitation of a punitive extreme following upon a mere

failure to pay rent. First of all, there must be a failure to pay rent

which, in the context, indicates wilful failure, deliberate default or

volitional non-performance. Secondly, the section provides no

automatic weapon but prescribes a wise discretion, inscribes no

mechanical consequence but invests a power to overcome

intransigence. Thus, if a tenant fails or refuses to pay or deposit

rent and the court discerns a mood of defiance or gross neglect,

the tenant may forfeit his right to be heard in defence….

4. There is no indication whatsoever in the Act to show that the

exercise of the power of striking out of the defence under S. 15(7)

was imperative whenever the tenant failed to deposit or pay any

amount as required by S. 15. The provisions contained in S. 15(7)

of the Act are directory and not mandatory. It cannot be disputed

that S. 15(7) is a penal provision and gives to the Controller

discretionary power in the matter of striking out of the defence,

and that in appropriate cases, the Controller may refuse to visit

upon the tenant the penalty of non-payment or non-deposit. The

effect of striking out of the defence under S. 15(7) is that the

tenant is deprived of the protection given by S. 14 and, therefore,

the powers under S. 15(7) of the Act must be exercised with due

circumspection.”

10.1.2. In the case of Smt. Kamla Devi (supra), the order for payment or

depositing the arrears of rent was made on 27.01.1984 and the

payment/deposit was to be made within one month. The tenant paid

certain amount to the appellant but did not pay the arrears. Earlier, the

Rent Controller passed the order denying benefit to the tenant and

ordered eviction but the matter was remanded for consideration of the

question of condonation of delay in depositing the arrears. After remand,

15

the Rent Controller held that there was some compromise between the

parties and in any case, delay in deposit could not be termed as wilful,

deliberate or contumacious and hence, condoned the same. The order so

passed was maintained by the Tribunal and the High Court. The landlord

then appealed to this Court. This Court referred to the scheme of the

enactment as also the decision in Miss Santosh Mehta (supra) and held

that Section 15(7) of the Delhi Rent Act gave discretion to the Rent

Controller, who may or may not pass the order striking out defence but,

exercise of this discretion will depend upon the circumstances of each

case. This Court observed, inter alia, as under: -

“23. …… In our view, sub-section (7) of Section 15 of the Delhi

Rent Control Act, 1958 gives a discretion to the Rent Controller

and does not contain a mandatory provision for striking out the

defence of the tenant against eviction. The Rent Controller may or

may not pass an order striking out the defence. The exercise of

this discretion will depend upon the facts and circumstances of

each case. If the Rent Controller is of the view that in the facts of a

particular case the time to make payment or deposit pursuant to

an order passed under sub-section (1) of Section 15 should be

extended, he may do so by passing a suitable order. Similarly, if

he is not satisfied about the case made out by the tenant, he may

order the defence against eviction to be struck out. But, the power

to strike out the defence against eviction is discretionary and must

not be mechanically exercised without any application of mind to

the facts of the case.”

10.2. In the case of Manik Lal Majumdar (supra), the question was

slightly different and was related to the maintainability of appeal in terms

of Section 20 of Tripura Buildings (Lease and Rent Control) Act, 1975

where, in view of the embargo put by Section 13 of the said Act, the

tenant was not entitled to prefer an appeal unless he had paid or

deposited all arrears of rent admitted by him to be due. This Court put a

16

purposive interpretation to the expression ‘prefer an appeal’ while

observing that mere filing of appeal was not prohibited but, the Appellate

Authority may not proceed with the hearing of appeal or pass an interim

order in favour of the tenant until he had paid or deposited the arrears of

rent.

10.3. The case of Bimal Chand Jain (supra) directly related to the

provisions of Order XV Rule 5 CPC, as applicable to the present case.

Therein, though the tenant had deposited the arrears admitted to be due,

but had failed to make regular deposits of monthly rent and to submit

representation in terms of sub-rule (2) of Rule 5 of Order XV. Thus, the

Trial Court proceeded to strike off the defence; and the High Court

affirmed the order of the Trial Court. In the said case, the High Court

proceeded with reference to an earlier decision of its Division Bench that

in the given circumstances, the Court was obliged to strike off defence.

Such a construction of the said provisions by the High Court, giving them

mandatory character, was not approved by this Court and the matter was

remanded to the High Court for reconsideration with the following

observations: -

“6. … Sub-rule (2) obliges the court, before making an order for

striking off the defence to consider any representation made by

the defendant in that behalf. In other words, the defendant has

been vested with a statutory right to make a representation to the

court against his defence being struck off. If a representation is

made the Court must consider it on its merits, and then decide

whether the defence should or should not be struck off. This is a

right expressly vested in the defendant and enables him to show

by bringing material on the record that he has not been guilty of

the default alleged or if the default has occurred there is good

reason for it. Now, it is not impossible that the record may contain

17

such material already. In that event, can it be said that sub-r. (1)

obliges the court to strike off the defence? We must remember

that an order under sub-rule (1) striking off the defence is in the

nature of a penalty. A serious responsibility rests on the court in

the matter and the power is not to be exercised mechanically.

There is a reserve of discretion vested in the court entitling it not to

strike off the defence if on the facts and circumstances already

existing on the record it finds good reason for not doing so. It will

always be a matter for the judgment of the court to decide whether

on the material before it, notwithstanding the absence of a

representation under sub-rule (2), the defence should or should

not be struck off. The word “may” in sub-rule (1) merely vests

power in the court to strike off the defence. It does not oblige it to

do so in every case of default. To that extent, we are unable to

agree with the view taken by the High Court in Puran Chand (1981

All LJ 82) (Supra). We are of opinion that the High Court has

placed an unduly narrow construction on the provisions of clause

(1) of Rule 5 of Order XV.”

 (emphasis supplied)

10.4. In Ladly Prasad (supra), the Division Bench of Allahabad High

Court held as follows: -

“8….In case the court after considering the representation made

by the defendant comes to the conclusion that the circumstances

justify grant of further time on security being furnished for the

amount, the court will be competent to do so. It is not obligatory on

the court to refuse to entertain any defence or to strike off the

defence in a case default is committed by the defendant in making

the requisite deposits…..”

10.5. In Kunwar Baldevji (supra), another Division Bench of the High

Court observed as under: -

“13. If amount of rent is admitted then it is not required to be

adjudicated by the Court. In case, tenant denies any rent to be

due, Court shall be required to decide the same. It is obvious that

in such contingency Court will have to adjudicate and its finding

will come subsequent to the ‘first date of hearing’ contemplated

under Order 15, Rule 5, Code of Civil Procedure. It is, therefore,

evident that by the time the Court will render its finding, ‘first date

of hearing’ which is cut off date for deposition of rent, shall be over.

It also requires no comment that such an issue is first to be framed

18

and thereafter adjudicated after parties have led evidence in

accordance with law.”

10.6. We have also noticed that in the case of Hisamul Islam Siddiqui

and Anr. v. Mohd. Javed Barki: 2016 (131) RD 135, as referred to in the

impugned order, a learned Single Judge of the same High Court had

referred to the provisions of Order XV Rule 5 CPC as also Section 109 of

the Transfer of Property Act, 1882; and after finding that the purchaser

became the landlord by operation of law upon transfer of property, the

High Court took note of the fact that the defendant had not denied the

status as tenant by filing written statement and had not deposited any

rent. Hence, it was held that the Trial Court had rightly struck off the

defence.

11. The present suit has been filed by the plaintiff-appellant claiming

her capacity as the lessor after having purchased the suit property from

its erstwhile owner. According to the plaintiff, the defendant has been the

lessee in the suit shop and his lease was determined; and while alleging

the rent to be due and having not been paid despite demand, the plaintiff

has filed this suit for eviction and recovery of arrears of rent and damages

for use and occupation. Having regard to the plaint averments, the suit in

question is clearly the one to which the provisions of Order XV Rule 5

CPC are applicable.

11.1. Though the aforesaid decisions in cases of Miss Santosh Mehta,

Smt. Kamla Devi and Manik Lal Majumdar related to the respective rent

control legislations applicable to the respective jurisdictions, which may

19

not be of direct application to the present case but and yet, the relevant

propositions to be culled out for the present purpose are that any such

provision depriving the tenant of defence because of default in payment

of the due amount of rent/arrears have been construed liberally; and the

expression ‘may’ in regard to the power of the Court to strike out defence

has been construed as directory and not mandatory. In other words, the

Courts have leaned in favour of not assigning a mandatory character to

such provisions of drastic consequence and have held that a discretion is

indeed reserved with the Court concerned whether to penalise the tenant

or not. However, and even while reserving such discretion, this Court has

recognised the use of such discretion against the defendant-tenant in

case of wilful failure or deliberate default or volitional non-performance.

This Court has also explained the principles in different expressions by

observing that if the mood of defiance or gross neglect is discerned, the

tenant may forfeit his right to be heard in defence. The sum and

substance of the matter is that the power to strike off defence is

considered to be discretionary, which is to be exercised with

circumspection but, relaxation is reserved for a bonafide tenant like those

in the cases of Miss Santosh Mehta and Smt. Kamla Devi (supra) and

not as a matter of course. The case of Bimal Chand Jain (supra) directly

related with Order XV Rule 5 CPC where the tenant had deposited the

arrears admitted to be due but, failed to make regular deposits of monthly

rent and failed to submit representation in terms of sub-rule (2) of Rule 5

20

of Order XV. The defence was struck off in that matter with the Trial Court

and the High Court taking the said provisions of Order XV Rule 5 CPC as

being mandatory in character. Such an approach was not approved by

this Court while indicating the reserve of discretion in not striking off

defence if, on the facts and circumstances existing on record, there be

good reason for not doing so. The common thread running through the

aforesaid decisions of this Court is that the power to strike off the defence

is held to be a matter of discretion where, despite default, defence may

not be struck off, for some good and adequate reason.

11.2. The question of good and adequate reason for not striking off the

defence despite default would directly relate with such facts, factors and

circumstances where full and punctual compliance had not been made for

any bonafide cause, as contradistinguished from an approach of defiance

or volitional/elective non-performance.

12. Reverting to the provisions under consideration, it is noticed that

while the first part of sub-rule (1) of Rule 5 of Order XV CPC requires

deposit of the admitted due amount of rent together with interest, the

second part thereof mandates that whether or not the tenant admits the

amount to be due, he has to, throughout the continuation of the suit,

regularly deposit monthly amount due within a week from the date of its

accrual. Read as a whole, it is but clear that Order XV Rule 5 CPC

embodies the fundamental principle that there is no holidaying for a

tenant in payment of rent or damages for use and occupation, whether

21

the lease is subsisting or it has been determined. The only basic

requirement in the suit of the nature envisaged by Order XV Rule 5 CPC

is the character of defendant as being the lessee/tenant in the suit

premises. Viewed from this angle, we are not inclined to accept the line of

thought in some of the decisions of the High Court that in every case of

denial of relationship of landlord and tenant, the defendant in suit for

eviction and recovery of rent/damages could enjoy holidays as regards

payment of rent.

12.1. For what has been discussed hereinabove, the decision of the

High Court in Ladly Prasad (supra) does not require much dilation when

it remains indisputable that it is not always obligatory on the Court to

strike off the defence. However, the said decision cannot be read to mean

that despite default of the tenant in payment of rent, the defence has to

be permitted irrespective of its baselessness. The decision in Kunwar

Baldevji (supra), again, would have no application to the facts of the

present case. Herein, the defendant-respondent has not only omitted to

deposit the rent on the first date of the hearing but, has also omitted to

deposit the accrued rent during the pendency of the suit.

13. In a suit of the present nature, where the defendant otherwise has

not denied his status as being the lessee, it was rather imperative for him

to have scrupulously complied with the requirements of law and to have

deposited the arrears of rent due together with interest on or before the

first date of hearing and in any case, as per the second part of sub-rule

22

(1) of Rule 5 of Order XV CPC, he was under the specific obligation to

make regular deposit of the monthly amount due, whether he was

admitting any such dues or not.

14. In the context of the proposition of denial of title of the plaintiff and

denial of relationship of landlord and tenant between the plaintiff and

defendant, we may also observe that such a denial simpliciter does not

and cannot absolve the lessee/tenant to deposit the due amount of

rent/damages for use and occupation, unless he could show having made

such payment in a lawful and bonafide manner. Of course, the question of

bonafide is a question of fact, to be determined in every case with

reference to its facts but, it cannot be laid down as a general proposition

that by merely denying the title of plaintiff or relationship of landlordtenant/lessor-lessee, a defendant of the suit of the present nature could

enjoy the property during the pendency of the suit without depositing the

amount of rent/damages.

15. Taking the facts of the present case, it is at once clear that the

defendant-respondent, by his assertions and conduct, has left nothing to

doubt that he has been steadfast in not making payment of rent/damages,

despite being lessee of the suit shop. The present one has clearly been

the case of volitional non-performance with nothing left to guess about the

defendant’s mood of defiance. Nothing of any fact or any circumstance is

existing on record to find even a remote reason for extending any latitude

or relaxation in operation of Order XV Rule 5 CPC to the present case. It

23

shall be apposite at this juncture to also observe that the contentions on

behalf of the defendant-respondent to the effect that he had made

payment of rent to the alleged erstwhile landlord Smt. Sudha Sharma and

contra submissions on behalf of the appellant that even in the year 1990,

the defendant-respondent admitted the said Shri Rajiv Kant Sharma as

the owner of the property as also the factors co-related with these

submissions, do not call for adjudication in this appeal. This is for two

simple reasons: One, that so far as the fact of volitional non-performance

by the defendant-respondent is concerned, with no cogent evidence of

lawful payment of rent, the findings of fact by the Trial Court and the

Revisional Court against the defendant-respondent stand final and have

not been disturbed even by the High Court. There appears no reason for

this Court to enter into any factual inquiry as regards payment of rent to

Smt. Sudha Sharma or otherwise, now in this appeal. Secondly, so far as

any affidavit filed by the defendant-respondent in the year 1990, allegedly

admitting Shri Rajiv Kant Sharma as owner of property is concerned, it

may be a matter of adjudication by the Trial Court but would not be a

matter of consideration in this appeal. Suffice it to observe that the

present one is a case very near and akin to that of Hisamul Islam

Siddiqui (supra) wherein, the learned Single Judge of the same High

Court has approved the order striking off the defence after finding want of

deposit of the amount of rent, despite the defendant having not denied his

status as tenant.

24

16. In the totality of facts and circumstances, we are clearly of the

view that there was absolutely no reason for the High Court to have

interfered in the present case, where the Trial Court had struck off the

defence after finding that there was no evidence on record to show the

payment or deposit of rent in favour of the plaintiff by the defendantrespondent. The Revisional Court had also approved the order of the Trial

Court on relevant considerations. Even the High Court did not find the

pleas taken by the defendant-respondent to be of bonafide character,

particularly when survey number of the shop let out to him was clearly

stated in the sale deed executed in favour of the plaintiff. We find it rather

intriguing that, despite having not found any cogent reason for which

discretion under Rule 5 of Order XV CPC could have been exercised in

favour of the defendant-respondent, the High Court, in the last line of

paragraph 45 of the order impugned, abruptly stated its conclusion that:

‘yet the defendant/tenant deserves some indulgence’.

17. With respect, the said conclusion of the High Court could only be

said to be an assumptive one, being not supported by any reason. In

paragraph 44, of course, the High Court observed with reference to the

decisions of this Court that the discretionary power must be exercised

with great circumspection but, such enunciation by this Court cannot be

read to mean that whatever may be the fault and want of bonafide in the

defendant/tenant, he would be readily given the so-called ‘indulgence’ of

not striking off defence. Such an approach is neither envisaged by the

25

statutory provisions nor by the referred decisions. In fact, such an

approach would simply render the relevant provisions of law rather

nugatory. The expected circumspection would require the Court to be

cautious of all the relevant facts and the material on record and not to

strike off the defence as a matter of routine. However, when a case of the

present nature is before the Court, disclosing deliberate defiance and

volitional/elective non-performance, the consequence of law remains

inevitable, that the defence of such a defendant would be struck off.

18. For what has been discussed hereinabove, the impugned order as

passed by the High Court cannot be approved and is required to be set

aside.

19. The submissions made on behalf of the defendant-respondent

that he had deposited the due rent from 10.05.2010 to 10.11.2018 and he

has been further making regular deposits do not take his case any further.

The defendant-respondent has made such deposits only pursuant to the

order of the High Court. The said order, being not in conformity with the

law applicable and with the record of this case, is required to be set aside.

In any event, any deposit made under or pursuant to the said order

cannot wipe out the default already committed by the defendantrespondent. On the contrary, with setting aside of the said order of the

High Court, the order of the Trial Court shall stand revived. Simply put,

the deposits belatedly made, pursuant only to the unsustainable order of

the High Court, do not enure to the benefit of the defendant-respondent.

26

20. Before concluding on this matter, a few peripheral aspects may

also be indicated. The petition seeking special leave to appeal in the

present case was entertained on 28.01.2019 when this Court, while

issuing notice, stayed the operation and implementation of the impugned

order of the High Court. Obviously, the impugned order dated 02.11.2018

as passed by the High Court stood eclipsed under and by virtue of the

stay order of this Court. Consequently, the suit was required to proceed

with the order of the Trial Court dated 01.03.2017 striking off the defence

of the defendant continuing in operation. The facts have been placed

before us to the effect that the plaintiff sought expeditious disposal of the

suit and in that regard, also filed a petition bearing No. 2810 of 2020

before the High Court, which was disposed of on 29.09.2020 with

directions to the Trial Court to decide the said suit expeditiously and

preferably within two years from the date of production of the copy of the

order without granting any unnecessary adjournment to either of the

parties. Thereafter, the Trial Court considered and granted an application

moved by the plaintiff to amend the plaint, so as to seek eviction of the

defendant on the ground of denial of title. The said amendment was

allowed on 18.02.2021. As per the material placed on record, the

additional written statement as filed by the defendant was taken on record

on 21.04.2022 and the matter was placed for plaintiff’s evidence.

21. Having taken note of the subsequent events after passing of the

impugned order by the High Court, suffice it to say that with the impugned

27

order of the High Court being set aside and that of the Trial Court dated

01.03.2017 being restored by this judgment, it would be expected of the

Trial Court to take note of the fact that the suit filed way back in the year

2011 has remained pending yet and is required to be assigned a

reasonable priority for expeditious disposal. The order passed by the

High Court on 29.09.2020 is also to be kept in view by the Trial Court.

22. Accordingly, and in view of the above, this appeal succeeds and is

allowed; the impugned order dated 02.11.2018 is set aside with the result

that the order dated 01.03.2017 passed by the Trial Court stands

restored. The Trial Court shall be expected to proceed with the matter

while keeping in view the observations foregoing.

23. Having regard to the circumstances of the case, there shall be no

order as to costs of this appeal.

……....……………………. J.

(DINESH MAHESHWARI)

……....……………………. J.

(ANIRUDDHA BOSE)

NEW DELHI;

JULY 11, 2022.

28


Tuesday, June 7, 2022

whether the application filed by the appellant under Sec.7 - was time­barred and that issuance of Recovery Certificate would not trigger the right to sue.= 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 two­Judge Bench of this Court in the case of Dena Bank (supra) is correct 65 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.

 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION 

CIVIL APPEAL NO.689 OF 2021

KOTAK MAHINDRA BANK LIMITED     ...APPELLANT(S)

VERSUS

A. BALAKRISHNAN & ANR.   ...RESPONDENT(S)

JUDGMENT

B.R. GAVAI, J.

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

1

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 time­barred 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

2

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. 

4. These   borrower   entities   defaulted   in   repayment   of   the

dues and subsequently IBHL classified all the facilities availed

by   them   as   Non   –   Performing   Asset   (“NPA”   for   short)   in

November 1997. Pursuant thereto, IBHL filed three civil suits

before the High Court of Madras, against the borrower entities

and the Corporate Debtor, for recovery of the amounts due.

During   the   pendency   of   the   suits,   the   appellant   –   Kotak

Mahindra Bank Ltd. (hereinafter referred to as “KMBL”) and

IBHL entered into a Deed of Assignment dated 13th  October,

2006, wherein IBHL assigned all its rights, title, interest, estate,

claim and demand to the debts due from borrower entities, to

KMBL. 

5. Pursuant   to   the   said   deed,   KMBL   and   the   borrower

entities   entered   into   a   compromise   on   7th  August,   2006

3

(hereinafter referred to as “the said compromise”). The High

Court   vide   a   common   judgment   dated   26th  March,   2007,

recorded the said compromise between the parties to the effect

that the Corporate Debtor was jointly and severally liable to pay

the   amount   of   Rs.   29,00,96,918/­   due   from   the   borrower

entities to KMBL. It was claimed by KMBL that the borrower

entities failed to make payments as per the said compromise

and thus, KMBL issued a Demand Notice dated 26th September

2007 to them and the Corporate Debtor under Section 13(2) of

the  Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (hereinafter referred

to as “the SARFAESI Act”). The said notice was followed by a

Possession   Notice   dated   10th  January,   2008   issued   under

Section 13(4) of the SARFAESI Act, by the KMBL due to default

in payment by the Corporate Debtor of the amount demanded.

The KMBL further issued a Winding Up Notice dated 6th May,

2008 under sections 433 and 434 of the Companies Act, 1956

to the Corporate Debtor.

4

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.

5

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. 

6

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.

9. Shri   Guru   Krishna   Kumar,   learned   Senior   Counsel

submitted that the issue involved in the present proceedings is

no more res integra.  It is submitted that this Court in the case

of  Dena   Bank   (Now   Bank   of   Baroda)   vs.   C.   Shivakumar

Reddy and another1 has 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 specified in the Recovery Certificate.  It is

submitted that in view of the law laid down by this Court in the

case of Dena Bank  (supra), the present appeal deserves to be

1 (2021) 10 SCC 330

7

allowed inasmuch as, the application under Section 7 of the

IBC, filed by KMBL on 5th October, 2018 is within the period of

three   years   from   the   dates   of   issuance   of   the   Recovery

Certificates being 7th June, 2017 and 20th October, 2017.  

10. Shri   Guru   Krishna   Kumar   further   submitted   that   the

conduct of the respondents is that of a dishonest borrower.

Having entered into the consent terms, which are decreed by

the High Court of Madras vide order dated 26th  March, 2007

and   having   not   complied   with   the   terms   contained   in   the

compromise decree, it is now not open to the respondents to

oppose the admission of application under Section 7 of the IBC.

11. Shri K.V. Viswanathan, learned Senior Counsel, on the

contrary, submitted that the cause of action has merged into

the order of issuance of the Recovery Certificate by the DRT and

therefore, by application of the doctrine of merger, the debt no

more survives.   Shri Viswanathan further submitted that the

initiation of CIRP by KMBL would amount to filing of second

proceedings for the very same cause of action and thus would

8

be hit by the doctrine of res judicata and particularly, per rem

judicatam. In this respect, he relied on the judgments of this

Court in the cases of State of U.P. vs. Nawab Hussain2 and

Gulabchand   Chhotalal   Parikh   vs.   State   of   Bombay  (now

Gujarat)3

.

12. Shri Viswanathan further submitted that in view of the

limited legal fiction under Section 19(22A) of the Debt Recovery

Act, the Recovery Certificates cannot be treated as “decree” for

all purposes.   It is submitted that assuming that a decreeholder may initiate CIRP as a financial creditor, but the holder

of a Recovery Certificate granted under Section 19(22) of the

Debt Recovery Act is not entitled to initiate CIRP under the IBC

as a financial creditor or a decree holder.  He submitted that

sub­sections (22) and (22A) of Section 19 of the Debt Recovery

Act were brought on the statute book by The Enforcement of

Security   Interest   and   Recovery   of   Debts   Laws   and

Miscellaneous Provisions (Amendment) Act, 2016 (Act No. 44 of

2 (1977) 2 SCC 806

3 (1965) 2 SCR 547

9

2016), which was enacted on 16th  August, 2016 and brought

into   force   from   4th  November,   2016.     He   submits   that   the

deeming fiction contained therein applies only for the purposes

of initiation of winding up proceedings.   The deeming fiction

cannot be extended for any other purpose.  In this respect, he

relies on the judgment of this Court in the case of Paramjeet

Singh Patheja vs. ICDS Ltd.4

.   

13. Shri   Viswanathan   further   submitted   that   after   15th

November, 2016, i.e., the date on which Section 255 of the IBC

was brought into force, the Recovery Certificate holders lost

their right to use their certificate as a “decree” for initiating

winding­up   proceedings   under   the   Companies   Act.     Shri

Viswanathan relied on the judgment of the Tripura High Court

in the case of Subhankar Bhowmik vs. Union of India and

another5

in support of his submission that a decree­holder

cannot   initiate  CIRP.   He  submitted that  the  Special  Leave

Petition (Civil) No.6104 of 2022 challenging the judgment of the

4 (2006) 13 SCC 322

5 2022 SCC OnLine Tri 208

10

Tripura   High   Court   in   the   case   of  Subhankar   Bhowmik

(supra) has been dismissed by this Court on 11th April, 2022. 

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 sub­Sections (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

6 (2019) 10 SCC 750

7 (2019) 10 SCC 572

11

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

.

15. Shri Viswanathan further submitted that if the aforesaid

provisions of the IBC and the Debt Recovery Act are considered

in correct perspective, the conclusion that would be inevitable

is that a decree­holder is not a “financial creditor” and as such,

is disentitled to invoke the provisions of Section 7 of the IBC.

He submitted that the provisions of Section 14 of the IBC would

also amplify this position, inasmuch as, under clause (a) of

sub­section (1) thereof, the 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 is

specifically prohibited.  He therefore submits that the learned

NCLAT has correctly held that the application filed by KMBL

8 (2004) 7 SCC 558

9 2022 SCC OnLine SC 545

12

under Section 7 of the IBC was beyond the period of limitation

since issuance of Recovery Certificate does not give rise to a

fresh   cause   of   action   and   the   timeline   for   the   purpose   of

limitation would start in the year 1997 when the accounts of

the   borrower   entities   were   declared   NPA,   and   that   no

interference is warranted with the same. 

16. Shri S. Prabhakaran and Shri V. Prakash, learned Senior

Counsel   appearing   on   behalf   of   the   respondent   No.1   have

advanced their arguments on similar lines as were advanced by

Shri K.V. Viswanathan.  

17. Shri Guru Krishna Kumar, in rejoinder, submitted that

the judgment of this Court in the case of Dena Bank  (supra)

correctly lays down the position of law.  He submits that if the

relevant   provisions   of   the   IBC   are   construed   in   correct

perspective, the only conclusion that would be arrived at is that

KMBL is a “financial creditor”.   He submits that the correct

approach   would   be   to   consider   the   underlying   transaction

forming the basis of the proceedings initiated by the creditor

13

culminating in a Decree/Recovery Certificate.   He submitted

that if the underlying transactions are such that they constitute

a financial debt and the creditor is a financial creditor, then

that   would   be   the   determining   factor   for   deciding   the

maintainability   of   the   CIRP   application.     Learned   Senior

Counsel further submitted that the judgment debt does not lose

its legal essence or character solely because it has fructified

into a Recovery Certificate.   He relied on the judgment of the

Division Bench of the Madras High Court in the case of  P.S.

Ramamoorthy Sastry vs. Selvar Paints and Varnish works

(Pvt.) Ltd.10 in respect of this proposition.  He also relied on the

judgment of the learned NCLAT in the case of Mukul Agarwal

vs. Royale Resinex Pvt. Ltd.11

18. Shri Kumar further submitted that the purpose of the IBC

is to preserve the Corporate Debtor as an on­going concern,

while ensuring maximum recovery for all the creditors.   He

submits that the provisions of the IBC have to be interpreted in

10 The Law Weekly, Vol. XCVII (97) dated 28th January, 1984 Part 1

11 Company Appeal (AT) (Insolvency) No.777 of 2020 dated 30.03.2022

14

such a manner as to advance the purpose of the IBC and not in

a manner in which they defeat the object of the IBC.  

19. Shri   Kumar   submitted   that   the   contention   that   the

judgment of this Court in the case of Dena Bank (supra) is per

incuriam the provisions of the IBC and the Debt Recovery Act is

totally without substance.  He submits that the law laid down

by this Court in the case of Dena Bank  (supra) is correct and

warrants no interference.  

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).  

21. In the case of Dena Bank (supra), the loan account of the

Corporate Debtor was declared NPA on 31st  December, 2013.

The Corporate Debtor had addressed a letter dated 24th March,

2014   to   the   appellant   Bank   therein   making   a   request   for

restructuring the term loan.  The appellant Bank did not accede

15

to the same. On 22nd  December, 2014, the Bank issued legal

notice to the Corporate Debtor as well as the respondent No.2

therein, calling upon them to make payment of Rs.52.12 crores.

The Corporate Debtor did not make the payment.  On or about

1

st  January,   2015,   the   Bank   filed   an   application   being   OA

No.16 of 2015 under Section 19 of the Debt Recovery Act.  On

27th March, 2017, the DRT, Bengaluru passed a judgment and

order   against   the   Corporate   Debtor   for   recovery   of

Rs.52,12,49,438.60 with future interest at the rate of 16.55%

per annum from the date of filing of the application till the date

of realisation.   The Recovery Certificate came to be issued on

25th May, 2017 by the DRT.  There were certain proceedings in

the  intervening period, reference to  the same would  not be

necessary. On 12th  October, 2018, the Bank filed a Company

Petition before the Adjudicating Authority under Section 7 of

the IBC.  The Corporate Debtor filed its preliminary objection,

inter   alia,   contending   that   the   said   petition   was   barred   by

limitation.  By order dated 21st March, 2019, the Adjudicating

16

Authority admitted the petition under Section 7 of the IBC and

appointed an Interim Resolution Professional (“IRP” for short).

The same came to be challenged by the respondent No.1 therein

before the learned NCLAT by way of an Appeal under Section 61

of the IBC.  The learned NCLAT vide order dated 18th December,

2019 allowed the appeal and dismissed the petition filed by the

appellant Bank holding that the same was barred by limitation.

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.   

23. While   considering   the   said   issue,   this   Court   was   also

called upon to consider other issues.  The first one was, as to

whether the application under Section 7 of the IBC could be

held to be barred by limitation, though the Corporate Debtor

had subsequently acknowledged its liability within a period of 3

17

years prior to the date of filing of the petition under Section 7 of

the IBC, by making a proposal for a one­time settlement, or by

acknowledging the  debt in its statutory balance sheets and

books of accounts.   The second issue that was considered in

the case of  Dena   Bank  (supra) was, as to whether a final

judgment   and  decree  of  the  DRT in   favour of   the  financial

creditor, or the 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   within   three   years   from   the   date   of   the   final

judgment and decree, and/or within three years from the date

of issuance of the certificate of recovery.  The third issue was,

as to  whether the Adjudicating Authority had the power to

permit amendment of pleadings or to permit filing of additional

documents in a petition filed under Section 7 of the IBC.  

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

18

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)

19

“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 condone

the 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

20

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

21

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

22

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 two­Judge 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 three­Judge Bench

of this Court in the cases of Jignesh Shah (supra) and Gaurav

Hargovindbhai Dave (supra) and since the issue is of seminal

23

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 sub­section (1) of Section 14 of the IBC, which are

as under:

“3. Definitions.—In this Code, unless the

context otherwise requires,­­

(1) ………………………………….

………………………………….

(6) “claim” means—

(a) a right to payment, whether or not such

right   is   reduced   to   judgment,   fixed,

disputed,   undisputed,   legal,   equitable,

secured or unsecured;

(b) 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;

***      ***     ***

(10) “creditor” means any person to whom

a debt is owed and  includes a  financial

24

creditor, an operational creditor, a secured

creditor,   an   unsecured   creditor   and   a

decree­holder;

(11) “debt” means a liability or obligation in

respect of a claim which is due from any

person and includes a financial debt and

operational debt;

(12) “default” means non­payment of debt

when whole or any part or instalment of

the amount of debt has become due and

payable and is not 5

[paid] by the debtor or

the corporate debtor, as the case may be;

***      ***     ***

5.  Definitions.­  In this Part, unless the

context otherwise requires,­

(1) ………………………………….

………………………………….

(7) “financial creditor” means any person to

whom   a   financial   debt   is   owed   and

includes a person to whom such debt has

been legally assigned or transferred to;

(8)   “financial   debt”   means   a   debt   along

with  interest, if any, which is disbursed

against   the   consideration   for   the   time

value of money and includes—

(a) money borrowed against the payment of

interest;

25

(b) any amount raised by acceptance under

any   acceptance   credit   facility   or   its   dematerialised equivalent;

(c)   any   amount   raised   pursuant   to   any

note   purchase   facility   or   the   issue   of

bonds,   notes,   debentures,   loan   stock   or

any similar instrument;

(d) the amount of any liability in respect of

any lease or hire purchase contract which

is   deemed   as   a   finance   or   capital   lease

under the Indian Accounting Standards or

such other accounting standards as may

be prescribed;

(e)   receivables   sold   or   discounted   other

than any receivables sold on non­recourse

basis;

(f)   any   amount   raised   under   any   other

transaction, including any forward sale or

purchase   agreement,   having   the

commercial effect of a borrowing;

Explanation.—For   the   purposes   of   this

sub­clause,—

(i)   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; and

(ii)   the   expressions,   “allottee”   and   “real

estate   project”   shall   have   the   meanings

respectively assigned to them in clauses (d)

and (zn) of Section 2 of the Real Estate

(Regulation   and   Development)   Act,   2016

(16 of 2016);

(g) any derivative transaction entered into

in   connection   with   protection   against   or

26

benefit from fluctuation in any rate or price

and   for   calculating   the   value   of   any

derivative   transaction,   only   the   market

value of such transaction shall be taken

into account;

(h)   any   counter­indemnity   obligation   in

respect of a guarantee, indemnity, bond,

documentary letter of credit or any other

instrument issued by a bank or financial

institution;

(i) the amount of any liability in respect of

any of the guarantee or indemnity for any

of the items referred to in sub­clauses (a)

to (h) of this clause;

***      ***     ***

6.   Persons   who  may   initiate   corporate

insolvency   resolution   process.—Where

any corporate debtor commits a default, a

financial creditor, an operational creditor

or the corporate debtor itself may initiate

corporate insolvency resolution process in

respect   of   such   corporate   debtor   in   the

manner as provided under this Chapter.

***      ***     ***

14.   Moratorium.—(1)   Subject   to

provisions of sub­sections (2) and (3), on

the   insolvency   commencement   date,   the

Adjudicating   Authority   shall   by   order

declare moratorium for prohibiting all of

the following, namely—

27

(a) the 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;”

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

28

incudes a financial creditor, an operational creditor, a secured

creditor, an unsecured creditor and a decree­holder. 

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 non­payment 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,

29

which is disbursed against the consideration for the time value

of   money   and   specifies   various   categories   of   debts   in   subclauses (a) to (h), which would be included in the definition of

term “financial debt”.  Sub­clause (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 sub­clauses (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 sub­clauses (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”,

sub­clause (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 sub­clauses (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,

30

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.  

37. Section 14 of the IBC provides “Moratorium”, consequent

upon   the   admission   of   the   application   under   Section   7   or

Section 9 or Section 10 of the IBC, on an order passed by the

Adjudicating Authority.  Clause (a) of sub­section (1) of Section

14 of the IBC prohibits the 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.

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 non­payment of debt.  The debt has been

defined to mean a liability or obligation in respect of a claim

31

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.  

12 (2019) 4 SCC 17

32

41. It is an equally well settled principle of law that all the

provisions in the Statute have to be construed in context with

each other and no provision can be read in isolation. 

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,

33

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 shew 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.”

13 (1899) AC 99

34

46. This Court in the case of Associated Indem Mechanical

(P) Ltd. vs. W.B. Small Industries Development Corpn. Ltd.

and   others14 while   construing   the   definition   of   the   term

“premises”   as   provided   under   Section   2(c)   of   the   W.B.

Government Premises (Tenancy Regulation) Act, 1976, observed

thus:

“13. ……..The   definition   of   premises   in

Section   2(c)   uses   the  word   “includes”  at

two  places.  It   is   well   settled   that   the

word   “include”   is   generally   used   in

interpretation   clauses   in   order   to

enlarge   the  meaning   of   the   words   or

phrases   occurring   in   the   body   of   the

statute;  and  when   it   is   so  used   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. 

(See Dadaji  v. Sukhdeobabu [(1980) 1 SCC

621: AIR 1980 SC 150]; Reserve Bank of

India v. Peerless   General   Finance   and

Investment   Co.   Ltd. [(1987)   1   SCC   424   :

AIR 1987 SC 1023] and Mahalakshmi Oil

Mills v. State of  A.P. [(1989) 1 SCC 164 :

14 (2007) 3 SCC 607

35

1989 SCC (Tax) 56 : AIR 1989 SC 335] )

The inclusive definition of “District Judge”

in Article 236(a) of the Constitution has

been   very   widely   construed   to   include

hierarchy   of   specialised   civil   courts   viz.

Labour   Courts   and   Industrial   Courts

which   are   not   expressly   included   in   the

definition.   (See State   of

Maharashtra v. Labour   Law   Practitioners'

Assn. [(1998) 2 SCC 688 : 1998 SCC (L&S)

657   :   AIR   1998   SC   1233]   )  Therefore,

there is no warrant or justification for

restricting  the  applicability  of  the  Act

to   residential   buildings   alone   merely

on the ground that in the opening part

of   the   definition   of   the   word

“premises”, the words “building or hut”

have been used.”

[emphasis supplied]

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

36

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.  

48. In   the   case   of  Karnataka   Power   Transmission

Corporation   and   another   vs.   Ashok   Iron   Works   Private

Limited15, this Court, while construing the definition of the

word “person” as could be found in Section 2(1)(d) read with

Section 2(1)(m) of the Consumer Protection Act, 1986, observed

thus:

“17. It   goes   without   saying   that

interpretation of a word or expression must

depend on the text and the context. The

resort   to   the   word   “includes”   by   the

legislature often shows the intention of the

legislature that it wanted to give extensive

and enlarged meaning to such expression.

Sometimes,   however,   the   context   may

suggest   that   word   “includes”   may   have

been   designed   to   mean   “means”.   The

setting, context and object of an enactment

may   provide   sufficient   guidance   for

interpretation   of   the   word   “includes”   for

the purposes of such enactment.”

15 (2009) 3 SCC 240

37

18. Section 2(1)(m) which enumerates four

categories, namely,

(i) a firm whether registered or not;

(ii) a Hindu Undivided Family;

(iii) a cooperative society; and

(iv)   every   other  association  of   persons

whether registered under the Societies

Registration Act, 1860 (21 of 1860) or

not

while defining “person” cannot be held to

be restrictive and confined to these four

categories as it is not said in terms that

“person” shall mean one or other of the

things which are enumerated, but that it

shall “include” them.

19. The   General   Clauses   Act,   1897   in

Section 3(42) defines “person”:

“3.   (42)   ‘person’   shall   include   any

company   or   association   or   body   of

individuals,   whether   incorporated   or

not;”

20. Section 3 of the 1986 Act upon which

reliance is placed by learned counsel for

KPTC provides that the provisions of the

Act are in addition to and not in derogation

of any other law for the time being in force.

This   provision   instead   of   helping   the

contention of KPTC would rather suggest

that the access to the remedy provided to

(sic under) the Act of 1986 is an addition to

38

the provisions of any other law for the time

being in force. It does not in any way give

any   clue   to   restrict   the   definition   of

“person”.

21. Section 2(1)(m), is beyond all questions

an interpretation  clause, and  must have

been   intended   by   the   legislature   to   be

taken   into   account   in   construing   the

expression “person” as it occurs in Section

2(1)(d). While defining “person” in Section

2(1)(m), the legislature never intended to

exclude a juristic person like company. As

a matter of fact, the four categories by way

of   enumeration   mentioned   therein   is

indicative, Categories (i), (ii) and (iv) being

unincorporate and Category (iii) corporate,

of its intention to include body corporate

as   well   as   body   unincorporate.   The

definition of “person” in Section 2(1)(m) is

inclusive and not exhaustive. It does not

appear to us to admit of any doubt that

company is a person within the meaning of

Section   2(1)(d)   read   with   Section   2(1)(m)

and we hold accordingly.”

49. It could thus be seen that though the word “company” was

not specifically included in Section 2(1)(m) of the Consumer

Protection Act, 1986, this Court in the case of  Karnataka

Power   Transmission   Corporation  (supra) found   that   the

39

legislature   never   intended   to   exclude   a   juristic   person   like

company from the definition of the word “person”.  It was found

that   the   categories   (i),   (ii)   and   (iv)   mentioned   therein   were

unincorporate and category (iii) was corporate.   As such, the

legislative intention was to include body corporate as well as

body unincorporate.  It was held that the definition of “person”

in Section 2(1)(m) was inclusive and not exhaustive.

50. The   three­Judge   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

16 (2019) 8 SCC 416

40

subject­matters 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”

52. In any case, we have already discussed hereinabove that

the   trigger   point   for   initiation   of   CIRP   is   default   of   claim.

41

“Default” is non­payment 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 non­payment 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

42

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 sub­section (1) of Section 14 of the IBC is

concerned, we do not find that the words used in clause (a) of

sub­section (1) of Section 14 of the IBC could be read to mean

that the decree­holder 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

43

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 decree­holder is also prohibited from initiating CIRP, if he is

otherwise entitled to in law.     The effect would be that the

applicant, who is a decree­holder, 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 three­Judge 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 winding­up petition,

44

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 timebarred petition. This Court held that Section 238A of the IBC

would not extend the period of limitation for filing winding­up

petition.  On the facts of the said case, it was found that on the

date on which the winding­up 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 time­barred 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).  

45

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 three­Judge 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.  

58. Shri Viswanathan next contended  that this Court in the

case of  Jignesh  Shah  (supra)  has approved the judgment of

the Calcutta High Court in the case of  Rameswar   Prasad

Kejriwal  &  Sons  Ltd.  vs.  Garodia  Hardware  Stores17.   In

17 2001 SCC OnLine Cal 586

46

this respect, it will be relevant to note that this Court was

considering various judgments which were relied upon by Dr.

Singhvi.   Insofar as the judgment of the Calcutta High Court in

the case of Rameswar Prasad Kejriwal  (supra) is concerned,

in the said case, the cause of action arose in the year 1992. The

suit was filed in 1994 and the decree was obtained in the year

1997.  It is to be noted that the winding­up petition came to be

filed in the year 2001, i.e., after a period of three years.  It was

sought to be argued that the limitation period would be 12

years. The same was rejected.  

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 winding­up would, in no manner,

impact the limitation within which the winding­up proceeding

is to be filed, by somehow keeping the debt alive for the purpose

of the winding­up proceeding.   However, the question, as to

47

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   well­settled   theory   of

precedents,   every   decision   contains   three

basic   postulates—(i)   findings   of   material

facts,   direct   and   inferential.   An   inferential

18 (1996) 6 SCC 44

48

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   subject­matter   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

49

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.”

61. It   will   also   be   apposite   to   refer   to   the   following

observations   of   this   Court   in   the   case   of  The   Regional

Manager and another vs. Pawan Kumar Dubey19:

“7. ….   Even where there appears to be

some conflict, it would, we think, vanish

when the ratio decidendi of each case is

correctly   understood.   It   is   the   rule

deducible from the application of law to the

facts and circumstances of a case which

constitutes   its   ratio   decidendi   and   not

some conclusion based upon facts which

may appear to be similar. 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.”

19 (1976) 3 SCC 334

50

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 three­Judge 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.”

20 (2019) 9 SCC 158

21 1959 Supp (2) SCR 476 : AIR 1959 SC 798

51

64. In the said case, the respondent No.2 was declared NPA

on 23rd December, 1999; the Recovery Certificate was issued on

24th  December, 2001; application under Section 7 of the IBC

came to be filed on 21st July, 2017.  In this factual background,

this Court found that the application under Section 7 of the

IBC, which was filed after a period of almost 16 years, i.e.,

much   beyond   the   period   of   three   years,   was   barred   by

limitation.  

65. It was found that the limitation period for filing a windingup petition would be three years and since the same was filed

beyond the period of three years, it was liable to be dismissed.

In   the   present   case,   undisputedly,   the   application   under

Section 7 of the IBC was filed within a period of three years

from the date of issuance of the Recovery Certificate.  

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

52

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 three­Judge 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 two­Judge Bench of this Court in the case of

Dena   Bank  (supra)  is  per   incuriam.    Recently, a  two­judge

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

53

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

54

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 two­Judge 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 sub­sections (22) and (22A) of Section 19 of the

Debt Recovery Act, which read thus:

“19.   Application   to   the   Tribunal.­(1)

………………………………………………..

………………………………………………..

(22)   The   Presiding   Officer   shall   issue   a

certificate of recovery along with the final

order, under sub­section (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   sub­section

(22) shall be deemed to be decree or order

of the Court for the purposes of initiation

55

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.”

71. It could be seen that sub­section (22) of Section 19 of the

Debt Recovery Act empowers the Presiding Officer to issue a

certificate of recovery along with the final order, under subsection (20), for payment of debt with interest. The certificate is

given   for   the   purposes   of   recovery   of   the   amount   of   debt

specified in the certificate.  Sub­section (22A) of Section 19 of

the Debt Recovery Act provides that any Recovery Certificate

issued by the Presiding Officer under sub­section (22) shall be

deemed to be decree or order of the Court for the purposes of

initiation of winding up proceedings against a company, etc.  

72. It is sought to be argued by Shri Viswanathan that the

Recovery Certificate is for the limited purpose of initiation of

winding up proceedings.   If we accept the contention of Shri

56

Viswanathan,   we   would   be   required   to   insert   the   word

“limited” between the words “shall be deemed to be decree or

order   of   the   Court”   and   “for   the   purposes   of   initiation   of

winding up proceedings”.  If the contention is to be accepted,

sub­section (22A) of Section 19 of the Debt Recovery Act would

have to be reframed as “Any recovery certificate issued by the

Presiding Officer under sub­section (22) shall be deemed to be

decree   or   order   of   the   Court   for   the  limited  purposes   of

initiation of winding up proceedings…”.  

73. In our considered view, if we accept the said submission,

it would result in doing violence to the provisions of sub­section

(22A) of Section 19 of the Debt Recovery Act.  

74. It will be apposite to refer to the following observations of

this Court in the case of  Mohd.  Shahabuddin   vs.  State  of

Bihar and others22:

“179. Even   otherwise,   it   is   a   wellsettled  principle  in  law  that  the court

22 (2010) 4 SCC 653

57

cannot  read  anything  into  a  statutory

provision   which   is   plain   and

unambiguous.   The   language   employed

in a statute is a determinative factor of

the legislative intent. If the language of

the   enactment   is   clear   and

unambiguous,   it   would   not   be   proper

for the courts to add any words thereto

and evolve  some legislative intent,  not

found   in   the   statute. Reference in this

regard may be made to a recent decision of

this Court in Ansal Properties & Industries

Ltd. v. State   of   Haryana [(2009)   3   SCC

553].”

[emphasis supplied]

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

sub­section (22A) of Section 19 of the Debt Recovery Act.  

58

76. Though   there   are   umpteen   number   of   authorities   to

support   this   proposition,   we   do   not   wish   to   burden   our

judgment with them.   Suffice it to refer to the judgment of

three­Judge Bench of this Court in the case of Nasiruddin and

others vs. Sita Ram Agarwal23 wherein this Court has held as

under:

“37. The court's jurisdiction to interpret a

statute can be invoked when the same is

ambiguous. It is well known that in a given

case the court can iron out the fabric but it

cannot change the texture of the fabric. It

cannot enlarge the scope of legislation

or  intention when the  language of  the

provision is plain and unambiguous. It

cannot   add   or   subtract   words   to   a

statute or read something into it which

is not there. It cannot rewrite or recast

legislation.   It   is   also   necessary   to

determine   that   there   exists   a

presumption   that   the   legislature   has

not  used  any   superfluous  words.   It   is

well   settled   that   the   real   intention  of

the   legislation  must  be  gathered   from

the   language  used.  It may be true that

use of the expression “shall or may” is not

decisive   for   arriving   at   a   finding   as   to

whether   the   statute   is   directory   or

23 (2003) 2 SCC 577

59

mandatory.   But   the   intention   of   the

legislature   must   be   found   out   from   the

scheme of the Act. It is also equally well

settled that when negative words are used

the courts will presume that the intention

of the legislature was that the provisions

are mandatory in character.”

[emphasis supplied]

77. From the plain and simple interpretation of the words

used in sub­section (22A) of Section 19 of the Debt Recovery

Act, it would be amply clear that the Legislature provided that

for the purposes of winding­up proceedings against a Company,

etc.,   a  Recovery   Certificate  issued   by   the   Presiding   Officer

under sub­section (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   sub­section   (22)   of   Section   19   of   the   Debt

Recovery Act, in view of sub­section (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   winding­up

proceedings of a Company, etc.  However, there is nothing in

60

sub­section (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   winding­up

proceedings.   The contention of the respondents, if accepted,

would   be   to   provide   something   which   is   not   there   in   subsection (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   sub­section   (22)   of

Section 19 of the Debt Recovery Act will be deemed to be a

decree   or   order   of   the   Court   for   initiation   of   winding­up

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.  

61

79.   Insofar as the judgment of  this  Court  in  the case of

Paramjeet Singh Patheja (supra) is concerned, we do not find

it necessary to refer to the same, inasmuch as the view, which

we have taken, has been taken after interpreting the provisions

of the IBC, whereas the view in the case of Paramjeet Singh

Patheja  (supra) is with regard to legal fiction as provided in

Section 36 of the Arbitration and Conciliation Act, 1996.

80. Insofar as the reliance on the case of  Nawab  Hussain

(supra) is concerned, what has been observed by this Court is

that the doctrine of per rem judicatam is based on two theories,

viz., (i) the finality and conclusiveness of judicial decisions for

the final termination of disputes in the general interest of the

community as a matter of public policy, and (ii) the interest of

the individual that he should be protected from multiplication

of litigation.  It has been held that the said doctrine serves not

only a public but also a private purpose by obstructing the

reopening of matters which have been adjudicated upon.  

62

81. In the case of  Nawab  Hussain  (supra), the respondent

was a confirmed Sub­Inspector of Police in Uttar Pradesh.  He

challenged his dismissal in a writ petition before the Allahabad

High   Court   on   the   ground   that   he   was   not   afforded   a

reasonable opportunity. The said writ petition was dismissed.

After the dismissal of the said writ petition, he filed a suit in the

Court of Civil Judge, Etah, raising certain additional grounds.

The   same   was   also   dismissed.   The   respondent   preferred   a

second appeal, which was allowed by the High Court.  The High

Court had held that the suit was not barred by the principle of

constructive  res judicata.   In this background, the aforesaid

observations   were   made   by   this   Court   while   reversing   the

judgment of the High Court and holding it to be barred by res

judicata.  

82. In the case of Gulabchand Chhotalal Parikh (supra), the

appellant   therein   had   prayed   for   the   issuance   of   a   writ   of

mandamus and a writ of prohibition against the respondentState in a writ petition filed in the High Court.  The High Court

63

dismissed   the   petition   on   merits   after   full   contest.     The

appellant thereafter filed a suit against the respondent and

raised a similar plea.  In this background, the Trial Court, the

First Appellate Court and the High Court held that the suit was

barred by res judicata in view of the judgment of the High Court

in   the   writ   petition.     In   appeal,   this   Court   affirming   the

concurrent views held that on general principles of res judicata,

the decision of the High Court in a writ petition under Article

226 of the Constitution of India, after full contest, will operate

as res judicata in a subsequent regular suit between the same

parties with respect to the same matter. 

83. Insofar   as   the   judgment   in   the   case   of  Thoday   vs.

Thoday24 is concerned, the same has been considered by this

Court in the case of Bhanu Kumar Jain vs. Archana Kumar

and another25

, wherein this Court held that a cause of action

estoppel arises where, in two different proceedings, identical

issues   are   raised,   in   which   event,   the   latter   proceedings

24 (1964) 2 WLR 371

25 (2005) 1 SCC 787

64

between the same parties shall be dealt with similarly as was

done in the previous proceedings.  In such an event, the bar is

absolute   in   relation   to   all   points   decided   save   and   except

allegation of fraud and collusion.  We are of the view that the

said judgment would not even remotely be applicable to the

facts of the present case.  In that view of the matter, we do not

find   that   reliance   on   the   said   judgment   would   be   of   any

assistance to the case of the respondents.   

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  two­Judge

Bench of this Court in the case of Dena Bank (supra) is correct

65

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. 

86. In the result, we pass the following judgment:

(i) The appeal is allowed.

(ii) The   impugned   judgment   and   order   dated   24th

November,   2020   passed   by   the   learned   National

Company   Law   Appellate   Tribunal,   New   Delhi   in

Company Appeal (AT) (Insolvency) No.1406 of 2019 is

quashed and set aside.  

87. We further clarify that though elaborate arguments have

been   advanced   by   the   rival   parties   upon   the   merits   of   the

matter, we have not touched the same. We have only decided

66

the legal issues.  The parties would be at liberty to raise all the

issues, considering the merits of the matter before the learned

NCLT.  The learned NCLT would decide the same in accordance

with law.   

88. Pending applications, including the application(s) for exparte stay and disposal of the matter shall stand disposed of in

the above terms.  There shall be no order as to costs.

…..….......................J.

[L. NAGESWARA RAO]

…….........................J.       

[B.R. GAVAI]

…….........................J.       

[A.S. BOPANNA]

NEW DELHI;

MAY 30, 2022.

67