2023 (10) TMI 895 - SC - Insolvency and Bankruptcy

Initiation of CIRP u/s 7 - NCLT / NCLAT admitted the application - time limitation - A request for one time settlement (OTC) was made - The NCLT treated this letter to be an acknowledgement of debt - composite claims of the banks - NPA - long history of litigation before DRT - non-revival of right to sue - HELD THAT - This Court has construed the purpose of the said provision to include bringing an action under the IBC on the strength of Section 19(22) and (22A) of the 1993 Act. In the said provision, however, so far as bringing a winding-up action is concerned, the right of a recovery certificate-holder as a deemed-decree holder has been confined to companies registered under the Companies Act, 2013 and certain other entities with which we are not concerned here. But in relation to initiating proceeding under the IBC or making a claim under the said Code, the restriction does not remain confined to the Companies Act, 2013. The corporate debtor in this proceeding was incorporated under the Companies Act, 1956. In the case of Kotak Mahindra 2022 (8) TMI 329 - SUPREME COURT , credit facilities were extended to the borrower entities in the years 199394. It is obvious that the three corporate entities involved in that case were incorporated under the Companies Act that prevailed prior to coming into operation of 2013 Act. The position of law to guide the subject proceeding should be the same. In the event a financial creditor wants to pursue a recovery certificate as a deemed decree, he would get twelve years time. The argument of the appellant about maintainability of the application out of which this appeal arises on the ground of the application being barred under limitation, is not satisfying. The application with respect to the two recovery certificates issued in the year 2017 is maintainable. In the event the Appellate Tribunal is of opinion that the CIRP could not lie so far as the recovery certificate of 2015 is concerned, as the decree would be still alive, the claim based on the said recovery certificate could be segregated from the composite claim and the Committee of Creditors shall, in that event, treat the sum reflected in the said recovery certificate as part of the claims made in pursuance of the public announcement. This direction issued in exercise of our jurisdiction under Article 142 of the Constitution of India. Appeal dismissed.

Issues Involved:
1. Limitation period for initiating proceedings under the IBC.
2. Applicability of the doctrine of election.
3. Validity of the RBI Circular dated 12.02.2018.
4. Treatment of recovery certificates as deemed decrees.
5. Acknowledgment of debt and its effect on limitation.

Summary:

1. Limitation Period for Initiating Proceedings under the IBC:
The appellant challenged the NCLT's decision to admit the application under Section 7 of the IBC on the ground of limitation. The NCLT and the Appellate Tribunal treated a letter dated 29.01.2020 as an acknowledgment of debt, which extended the limitation period. However, the Supreme Court found this reasoning procedurally wrong, stating that acknowledgment beyond the period of limitation does not revive the right to sue. The Court reiterated that the limitation period for initiating CIRP starts from the date of default and is three years as per Article 137 of the Limitation Act. The Court cited the judgment in Kotak Mahindra Bank Limited vs A. Balakrishnan and Another [(2022) 9 SCC 186], affirming that a recovery certificate gives rise to a fresh cause of action to initiate CIRP within three years from its issuance.

2. Applicability of the Doctrine of Election:
The appellant argued that the banks were barred under the doctrine of election from approaching the NCLT after having initiated proceedings under the SARFAESI Act and before the DRT. The Supreme Court rejected this argument, stating that the recovery proceedings before the DRT had commenced before the IBC came into existence. The Court held that a financial creditor has the right to initiate CIRP even after obtaining a recovery certificate, as the reliefs under the two statutes are different.

3. Validity of the RBI Circular Dated 12.02.2018:
The appellant contended that the application under the IBC was initiated based on an RBI Circular dated 12.02.2018, which was later held ultra vires by the Supreme Court in Dharani Sugars and Chemicals Ltd. vs Union of India and Others [(2019) 5 SCC 480]. The Appellate Tribunal noted that the NCLT did not provide reasons for considering this issue. However, the Tribunal itself addressed and dismissed this contention, affirming the NCLT's decision.

4. Treatment of Recovery Certificates as Deemed Decrees:
The Supreme Court discussed the treatment of recovery certificates as deemed decrees under Section 19(22A) of the Recovery of Debts and Bankruptcy Act, 1993. The Court held that a recovery certificate is deemed to be a decree for the purpose of initiating CIRP and is enforceable for twelve years as per Article 136 of the Limitation Act. The Court directed the Appellate Tribunal to examine whether the debts related to the recovery certificate issued in 2015 could form the subject matter of the application filed in 2019.

5. Acknowledgment of Debt and Its Effect on Limitation:
The appellant argued that the letter dated 29.01.2020 was a request for a one-time settlement and not an acknowledgment of debt. The Supreme Court agreed, stating that any promise to pay made after the initiation of insolvency proceedings cannot revive the limitation period for a pre-existing action. The Court emphasized that a promise of this nature would constitute an independent cause of action.

Conclusion:
The Supreme Court dismissed the appeal, affirming the maintainability of the application with respect to the two recovery certificates issued in 2017. The Court directed the Appellate Tribunal to address the legality of the 2015 recovery certificate as a deemed decree and consider segregating the claim based on this certificate if necessary. The appeal was dismissed with no order as to costs.

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