TaxTMI 
TaxTMI 
2022 (6) TMI 13
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.... 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 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 time barred 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 its immovable property, situated in Guttala Begampet Village in Ranga Reddy District of Andhra Pradesh, by deposit of title ....
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....tered 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. 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....
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....CIRP by KMBL would amount to filing of second proceedings for the very same cause of action and thus would 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 Hussain (1977) 2 SCC 806 and Gulabchand Chhotalal Parikh vs. State of Bombay (now Gujarat) (1965) 2 SCR 547. 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 2016), which was enacted on 16th August, 2016 and brought into force from 4....
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....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 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 ....
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....013. 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 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 1st 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 wa....
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....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) "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 inc....
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....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 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, ....
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.... ........................................ (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; (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; Explan....
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....t 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 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, which is disbursed against th....
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....int 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 others (2019) 4 SCC 17 has held that preserving the Corporate Debtor as an ongoing concern, while ensuring maximum recovery for all creditors is the objective of the IBC. 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 ....
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....nify 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 : 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, t....
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....er suggest that the access to the remedy provided to (sic under) the Act of 1986 is an addition to 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 un-incorporate and Category (iii) corporate, of its intention to include body corporate as well as body un-incorporate. 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 Prot....
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....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 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 financia....
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.... 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). 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 co....
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....f material facts, direct and inferential. An inferential 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....
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....f which limitation would have begun ticking." 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 winding-up 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 that the issuance of Recovery Certificate could trigger the limitation. As such, in our view, this Cour....
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....ith 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 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 r....
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....islation. 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. 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 Agarwal (2003) 2 SCC 577 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 le....
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....t 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. 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 sa....