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of <h1>Financial creditor with DRT decree and recovery certificate can initiate insolvency proceedings under section 7</h1> The NCLAT dismissed an appeal challenging the NCLT's decision to allow a section 7 application filed by a financial creditor holding a DRT decree and ... Maintainability of application u/s 7 - time limitation - Financial debt or not - whether the Respondent / Financial Creditor cannot assume the character of Financial Creditor under Insolvency and Bankruptcy Code, (IBC) 2016 merely on basis of an Assignment Agreement and a Recovery Certificate issued by Debt Recovery Tribunal, Hyderabad? - loan classified as NPA. Whether the NCLT has erred in holding that the liability arising out of the decree obtained in DRT-I, Hyderabad on 19.02.2019 and the consequent Recovery Certificate issued on 09.07.2019 is a financial debt within the meaning of section 5(8) of IBC, 2016? - Whether the FC / Respondent being the holder of such a decree and such Recovery Certificate, is entitled to initiate CIRP under section 7 of IBC, 2016 as on 24.10.2021 the date on which he filed the Application under section 7 of IBC, 2016 before NCLT, Hyderabad? - HELD THAT:- The appellant has cited 3 Judgments of NCLAT, namely Ashok Agarwal Vs Amitex Polymers [2021 (2) TMI 823 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , NEW DELHI], Ishrat Ali Vs Cosmos Cooperative Bank Ltd. [2020 (3) TMI 1238 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] and Sushil Ansal Vs Ashok Tripathy & Ors. [2020 (8) TMI 396 - NATIONAL COMPANY LAW APPEALLATE TRIBUNAL, NEW DELHI]. In all these Judgments, NCLAT has taken the view that a Financial Creditor does not include the Decree holder within the definition of section 5(7) of IBC, 2016 and that the claimed amount is an adjudicated amount under a decree and not against a debt disbursed. The Respondent has countered the same by stating that matter has reached a finality with the decision of the 3-Judge bench the Hon’ble Supreme Court in the case of Kotak Mahindra Bank Limited Vs A. Balakrishnan [2022 (6) TMI 13 - SUPREME COURT] - With this ruling it is crystal clear that a liability in respect of a claim arising out of a Recovery Certificate would be a financial debt within the meaning of section 5(8) of IBC and that the holder of such Recovery Certificate would be a financial creditor as per section 5(7) of IBC and would be entitled to initiate CIRP. Whether such Application is barred by limitation as laid down under section 238 of IBC r/w Article 137 of Limitation Act, 1963? - HELD THAT:- The section 7 application of FC / Respondent is clearly not barred by limitation as date of filing is 24.10.2021 which is within the 3 years of the date of decree (19.02.2019) and of date of issue of Recovery Certificate (19.07.2019). Whether pendency of an appeal to the decree render the decree and the consequent Recovery Certificate devoid of merits? - Whether the AA / NCLT failed to see that the FC / decree holder abused the provisions of IBC for recovery of its dues and not for resolution of insolvency which is the objective of the code? - HELD THAT:- The fact that a decree holder, has moved an application under section 7 of IBC will not lead to a conclusion that the CIRP, if ordered, will only result in recovery of the FC’s dues at the cost of CD. IBC prescribes an elaborate procedure for ‘Resolution of Insolvency’, including revival of CD, if possible, with the help of ‘Resolution Professionals’. Seen this way, it will not be correct to say that AA / NCLT failed to see that the FC / Respondent abused the provisions of IBC , for ‘recovery of its dues’, at the cost of the avowed objective of the Insolvency & Bankruptcy Code, 2016. Thus, the Adjudicating Authority / NCLT has been correct in allowing the application filed by the FC / Respondent under section 7 of Insolvency & Bankruptcy Code, 2016 - appeal dismissed. Issues Involved:a. Whether the NCLT has erred in holding that the liability arising out of the decree obtained in DRT-I, Hyderabad on 19.02.2019 and the consequent Recovery Certificate issued on 09.07.2019 is a financial debt within the meaning of section 5(8) of IBC, 2016Rs.b. Whether the FC / Respondent being the holder of such a decree and such Recovery Certificate, is entitled to initiate CIRP under section 7 of IBC, 2016 as on 24.10.2021 the date on which he filed the Application under section 7 of IBC, 2016 before NCLT, HyderabadRs.c. Whether such Application is barred by limitation as laid down under section 238 of IBC r/w Article 137 of Limitation Act, 1963Rs.d. Whether pendency of an appeal to the decree render the decree and the consequent Recovery Certificate devoid of meritsRs.e. Whether the AA / NCLT failed to see that the FC / decree holder abused the provisions of IBC for recovery of its dues and not for resolution of insolvency which is the objective of the codeRs.Summary:Issue a & b:The appellant cited three NCLAT judgments stating that a Financial Creditor does not include a Decree holder under section 5(7) of IBC, 2016. However, the respondent referenced the Supreme Court ruling in Kotak Mahindra Bank Limited Vs A. Balakrishnan (2022) 9 SCC 186, which confirmed that a liability arising out of a Recovery Certificate is a financial debt under section 5(8) of IBC. Consequently, the holder of such a certificate is a financial creditor and entitled to initiate CIRP. Therefore, the NCLT correctly held that the liability arising from the decree and Recovery Certificate is a financial debt.Issue c:The appellant argued that the debt was classified as NPA on 31.10.2015, and the three-year limitation period expired on 31.10.2018. The respondent countered by citing the Supreme Court judgments in Dena Bank Vs C. Sivakumar Reddy and Kotak Mahindra Bank Ltd. Vs A. Balakrishnan, which stated that the judgment, decree, or Recovery Certificate gives a fresh cause of action. Therefore, the section 7 application filed on 24.10.2021 is within the limitation period, as it was within three years from the date of decree (19.02.2019) and Recovery Certificate (19.07.2019).Issue d:The appellant contended that the decree had not reached finality due to pending set aside petitions. The respondent argued that the pendency of such petitions does not affect the finality of the decree. The NCLT correctly admitted the section 7 application based on the decree, as the law states that the pendency of an appeal does not affect the decree's finality.Issue e:The appellant claimed that the FC abused IBC provisions for debt recovery rather than insolvency resolution. The Supreme Court in Kotak Mahindra Bank Limited (Supra) clarified that a decree holder can initiate CIRP, and the IBC prescribes a procedure for insolvency resolution. Therefore, the NCLT did not err in its judgment.Findings:The NCLT's order dated 11.04.2022 in CP(IB) No.153/7/HDB/2021 does not suffer from legal infirmities. The appeal is dismissed, and connected IAs, if any, are also closed. No costs.
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