Recovery certificate as financial debt can support Section 7 action against corporate guarantors within limitation.

Section 7 applications against corporate guarantors may be supported by a Debt Recovery Tribunal order and the recovery certificate issued on that adjudication, because a liability arising from a recovery certificate can constitute a financial debt and the certificate holder may proceed as a financial creditor within three years from its issue. The absence of a separately pleaded date of default does not necessarily defeat the application where the DRT orders and recovery certificate sufficiently establish default and limitation. The principal borrower's CIRP and later liquidation on the same debt, together with the guarantors' joint liability under the guarantee, were relevant to the analysis. On this reasoning, rejection of the applications on limitation grounds was said to be unsustainable and reconsideration on merits was required.

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Issues: Whether the applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed against the corporate guarantors were barred by limitation for want of a specific date of default, and whether the recovery certificate and DRT orders furnished a valid basis to treat the debt as a financial debt and the default as arising within limitation.

Analysis: The application under Section 7 was founded on the final orders of the Debt Recovery Tribunal and the recovery certificate issued thereafter. A liability arising out of a recovery certificate constitutes a financial debt, and the holder of such certificate is a financial creditor entitled to initiate CIRP within three years from the date of issuance of the recovery certificate. The record also showed that the principal borrower had already been admitted to CIRP and later liquidation on the same debt and default, and the corporate guarantors were jointly liable under the guarantee. The absence of a separately pleaded date of default in the application did not defeat the claim, since the DRT orders and recovery certificate supplied sufficient material to establish default and limitation was to be computed from the recovery certificate or the DRT adjudication, not from the earlier NPA classification relied upon by the respondents.

Conclusion: The rejection of the Section 7 applications on limitation grounds was unsustainable, and the matters were required to be reconsidered on merits.

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