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.
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