SC: Recovery Certificate Holder Can Initiate CIRP as Financial Creditor under IBC


Paridhi Arya

Published on May 31, 2022 at 18:22 IST

The three Judge Bench of Justices L. Nageswara Rao, B.R. Gavai and A.S. Bopanna affirmed the Judgment of Apex Court in Dena Bank Vs. C. Shivakumar Reddy And Anr.

The Appeal was filed against the decision of National Company Law Tribunal (NCLT) by Kotak Mahindra Bank Ltd. (KMBL). It was held that within three years of issuance of Recovery Certificate the application was filed and so it is not barred by limitation.

Ind Bank Housing Ltd (IBHL) issued credit to three companies and all made a default and considered Non-Performing Asset (NPA). In Madras High Court three recovery suits are filed, meanwhile KMBL entered into a Deed of Assignment with IBHL the compromised initiated by KMBL but borrowers failed to bargain. The Court issued Recovery Certificates.

The KMBL filed for initiation of Corporate Insolvency Resolution Process (CIRP) against Corporate Debtor in NCLT Chennai but this was challenged by Director of Corporate Debtor in NCLT on the ground that Recovery Certificate is barred by Limitation and NCLT allowed this appeal.

The Counsel of Appellant contended that in the Judgment of Dena Bank v. C. Shivakumar Reddy And Anr., the Court held that as Recovery Certificate issued new right to recover the said amount arise. Under Section 7 of IBC the application is filed within three years of issuance of Recovery Certificate hence it is not barred by Limitation. Earlier the opposite party failed to bargain so now they should be allowed to oppose the application.

The Counsel of Corporate Debtor contended that application under Section 7 of IBC would mean hearing the same cause of action in second Proceeding which is barred as Res Judicata and in accordance of Paramjeet Singh Patheja Vs. ICDS Ltd. Recovery Certificate cannot be termed as Decree and so KMBL is not Decree Holder.

The corporate debtor contended that the Judgment of Dena Bank Case was Per Incuriam as it overlooked the decision of larger Bench and Decree holder is not Financial Creditor and so Section 7 of IBC cannot be applied on appellant

The Court observed that Judgment of Dena Bank Case is not Per Incuriam as the provisions of IBC and Judgments were not overlooked by the Apex Court in the said case.

The Court held that under Section 5(7) of IBC the holder of Recovery Certificate will be Financial Creditor and claim arises from Recovery Certificate will be ‘Financial Debt’ under Section 5(8) of IBC.

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