Recovery certificate as financial debt supports Section 7 insolvency claims; missing standalone default date does not bar maintainability.

A recovery certificate issued by the DRT can crystallise a financial debt, and a Section 7 insolvency application based on that certificate is maintainable if filed within three years from the certificate date. The absence of a separately pleaded date of default does not by itself defeat maintainability where the application and supporting record disclose the debt, default, and basis of liability. Corporate guarantors remain liable on the underlying adjudicated debt, and the existence of CIRP and liquidation proceedings against the principal borrower does not negate the established default against them.

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Issues: (i) Whether the applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the corporate guarantors were barred by limitation or liable to be rejected for want of a stated date of default. (ii) Whether the existence of DRT orders and recovery certificates, together with CIRP proceedings against the principal borrower, was sufficient to sustain the Section 7 applications against the corporate guarantors.

Issue (i): Whether the applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the corporate guarantors were barred by limitation or liable to be rejected for want of a stated date of default.

Analysis: The applications were founded on final adjudication by the DRT and the consequential recovery certificates. Liability arising out of a recovery certificate constitutes a financial debt, and the holder of such certificate is entitled to initiate CIRP within three years from the date of issuance of the recovery certificate. The applications also referred to the DRT orders and the dates on which they were passed, which was sufficient to identify the relevant date of default for insolvency purposes. The omission to set out a separate standalone date of default in the form did not justify rejection when the substance of the application disclosed the debt, default, and the basis of liability.

Conclusion: The applications were not barred by limitation and were not liable to be rejected merely because a separate date of default was not pleaded in express terms.

Issue (ii): Whether the existence of DRT orders and recovery certificates, together with CIRP proceedings against the principal borrower, was sufficient to sustain the Section 7 applications against the corporate guarantors.

Analysis: The principal borrower had already been admitted into CIRP and subsequently liquidation on the same underlying debt. The corporate guarantors were jointly liable under the guarantee arrangements, and the DRT orders had already determined the liability and default. In such circumstances, the Adjudicating Authority's view that there was no material to show debt or default was contrary to the record. The impugned orders proceeded on an incorrect appreciation of the Section 7 application and overlooked the legal effect of the recovery certificates and the established default.

Conclusion: The Section 7 applications were maintainable on the basis of the adjudicated debt and recovery certificates, and the dismissal orders could not be sustained.

Final Conclusion: The dismissal orders were set aside and the insolvency applications were sent back for fresh consideration on their own merits without treating limitation or the absence of a separately pleaded date of default as a ground for rejection.

Ratio Decidendi: A liability crystallised by a recovery certificate is a financial debt, and a Section 7 application based on such certificate is maintainable if filed within three years from the certificate date; the absence of a separately pleaded date of default in the application does not defeat maintainability where the record otherwise discloses the debt and default.

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