# CASE DETAILS TOTTEMPUDI SALALITH v. STATE BANK OF INDIA & ORS

- **Citation:** 2023 INSC 923
- **Court:** Supreme Court of India
- **Decided:** 2023-10-18
- **Case number:** Civil Appeal No. 2348 of 2021
- **Bench:** Aniruddha Bose, Vikram Nath
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-tottempudi-salalith-v-state-bank-of-india-ors-36673
- **Pages:** 19

## Headnote

Issue for consideration: Issues arose as to whether the debts in
connection with the recovery certifi cate issued in the year 2015,
could form subject matter of an application u/s.7 IBC; whether the
the banks having approached the DRT, were barred under the doctrine
of election from approaching the NCLT for recovery of same set of
debts; and whether the date of default should go back to the date
on which the loan account of the corporate debtor was declared
as non-performing asset.
Insolvency and Bankruptcy Code, 2016 - s. 7 - Debts in connection
with the recovery certifi cate issued in the year 2015, if could form
subject matter of an application u/s. 7 - Corporate debtor faced
insolvency proceedings due to failure to repay loans to several banks
- Issuance of recovery certifi cate by the tribunal in the year 2015 and
2017 respectively, against the corporate debtor in which the fi nancial
creditor-Banks had stake - On basis thereof, fi nancial creditor initiated
proceedings u/s. 7 seeking Corporate Insolvency Resolution ProcessCIRP against the corporate debtor in the year 2019 - Tribunal admitted
the application and declared moratorium on the ground of limitation
- Appeal thereagainst, on the ground that the application u/s. 7 was
not maintainable on the ground of limitation and doctrine of election
- Dismissed by the appellate tribunal - Correctness:
Held: Doctrine of election cannot be applied to prevent the
fi nancial creditors from approaching the NCLT for initiation of CIRP
- Date of recovery certifi cate was treated to be the date on which
[2023] 14 S.C.R. 492 : 2023 INSC 923
492
493
the time of limitation began to tick - Letter issued by the corporate
debtor to the Banks, agreeing in principle to repay the amount due to
the fi nancial creditors was a request to consider a one-time settlement
- In absence of averments or pleading, after initiation of insolvency
proceeding, any promise made to pay the debt cannot be treated to
have cured the fault of limitation in a pre-existing action - It cannot
by itself revive the debt though it could create an independent cause
of action - Proceedings initiated before the tribunal is a composite
application based on three recovery certifi cates, two of which were
instituted within the three year limitation period, but the third
recovery certifi cate was issued in 2015, beyond the limitation period
- However, a recovery certifi cate under the 1993 Act is also clothed
with the character of a deemed decree which has twelve years for
enforcement as per Art. 136 - In the event a fi nancial creditor wants to
pursue a recovery certifi cate as a deemed decree, he would get twelve
years' time - Application with respect to the two recovery certifi cates
issued in 2017 is maintainable - As regards recovery certifi cate of
2015, in case the appellate tribunal is of opinion that CIRP could
not lie, as the decree would be still alive, the claim based on the said
recovery certifi cate could be segregated from the composite claim
and the Committee of Creditors would treat the sum refl ected in the
said recovery certifi cate as part of the claims made in pursuance of
the public announcement - Limitation Act, 1963 - Art. 136 and 137
- Recovery of Debts and Bankruptcy Act, 1993. [Para 7, 9, 12, 13,15]
Insolvency and Bankruptcy - Insolvency proceedings -
Doctrine of election - Application of - Plea of corporate debtor
that the banks having approached the DRT, were barred under
the doctrine of election from approaching the NCLT for recovery
of same set of debts:
Held: Doctrine of election embodied in the law of evidence,
bars prosecution of the same right in two diff erent fora based on the
same cause of action - On facts, the recovery proceedings before the
DRT commenced in 2014, and at that point of time, the IBC had not
come into existence - Recovery certifi cate itself would give rise to
a fresh cause of action entitling a fi nancial creditor to initiate CIRP
TOTTEMPUDI SALALITH v. STATE BANK OF IN

## Text

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CASE DETAILS
TOTTEMPUDI SALALITH
v.
STATE BANK OF INDIA & ORS.
(Civil Appeal No. 2348 of 2021)
OCTOBER 18, 2023
[ANIRUDDHA BOSE AND VIKRAM NATH, JJ.]
HEADNOTES
Issue for consideration: Issues arose as to whether the debts in
connection with the recovery certifi cate issued in the year 2015,
could form subject matter of an application u/s.7 IBC; whether the
the banks having approached the DRT, were barred under the doctrine
of election from approaching the NCLT for recovery of same set of
debts; and whether the date of default should go back to the date
on which the loan account of the corporate debtor was declared
as non-performing asset.
Insolvency and Bankruptcy Code, 2016 - s. 7 - Debts in connection
with the recovery certifi cate issued in the year 2015, if could form
subject matter of an application u/s. 7 - Corporate debtor faced
insolvency proceedings due to failure to repay loans to several banks
- Issuance of recovery certifi cate by the tribunal in the year 2015 and
2017 respectively, against the corporate debtor in which the fi nancial
creditor-Banks had stake - On basis thereof, fi nancial creditor initiated
proceedings u/s. 7 seeking Corporate Insolvency Resolution ProcessCIRP against the corporate debtor in the year 2019 - Tribunal admitted
the application and declared moratorium on the ground of limitation
- Appeal thereagainst, on the ground that the application u/s. 7 was
not maintainable on the ground of limitation and doctrine of election
- Dismissed by the appellate tribunal - Correctness:
Held: Doctrine of election cannot be applied to prevent the
fi nancial creditors from approaching the NCLT for initiation of CIRP
- Date of recovery certifi cate was treated to be the date on which
[2023] 14 S.C.R. 492 : 2023 INSC 923
492
493
the time of limitation began to tick - Letter issued by the corporate
debtor to the Banks, agreeing in principle to repay the amount due to
the fi nancial creditors was a request to consider a one-time settlement
- In absence of averments or pleading, after initiation of insolvency
proceeding, any promise made to pay the debt cannot be treated to
have cured the fault of limitation in a pre-existing action - It cannot
by itself revive the debt though it could create an independent cause
of action - Proceedings initiated before the tribunal is a composite
application based on three recovery certifi cates, two of which were
instituted within the three year limitation period, but the third
recovery certifi cate was issued in 2015, beyond the limitation period
- However, a recovery certifi cate under the 1993 Act is also clothed
with the character of a deemed decree which has twelve years for
enforcement as per Art. 136 - In the event a fi nancial creditor wants to
pursue a recovery certifi cate as a deemed decree, he would get twelve
years' time - Application with respect to the two recovery certifi cates
issued in 2017 is maintainable - As regards recovery certifi cate of
2015, in case the appellate tribunal is of opinion that CIRP could
not lie, as the decree would be still alive, the claim based on the said
recovery certifi cate could be segregated from the composite claim
and the Committee of Creditors would treat the sum refl ected in the
said recovery certifi cate as part of the claims made in pursuance of
the public announcement - Limitation Act, 1963 - Art. 136 and 137
- Recovery of Debts and Bankruptcy Act, 1993. [Para 7, 9, 12, 13,15]
Insolvency and Bankruptcy - Insolvency proceedings -
Doctrine of election - Application of - Plea of corporate debtor
that the banks having approached the DRT, were barred under
the doctrine of election from approaching the NCLT for recovery
of same set of debts:
Held: Doctrine of election embodied in the law of evidence,
bars prosecution of the same right in two diff erent fora based on the
same cause of action - On facts, the recovery proceedings before the
DRT commenced in 2014, and at that point of time, the IBC had not
come into existence - Recovery certifi cate itself would give rise to
a fresh cause of action entitling a fi nancial creditor to initiate CIRP
TOTTEMPUDI SALALITH v. STATE BANK OF INDIA &
ORS.
494
SUPREME COURT REPORTS
[2023] 14 S.C.R.
- Such recovery certifi cate arose out of a proceeding from the DRT -
Enforcement mechanism for a recovery certifi cate is an independent
course, which a fi nancial creditor may opt for realisation of its dues
crystalised under the 1993 Act, instead of chasing the mechanism
under the 1993 Act - Question of election between the fora for
enforcement of debt under the 1993 Act and initiation of CIRP under
the IBC arises only after a recovery certifi cate is issued - Reliefs under
the two statutes are diff erent and once CIRP results in declaration of
moratorium, the enforcement mechanism under the 1993 Act or the
SARFAESI Act gets suspended - In such circumstances, after issue
of recovery certifi cate, the fi nancial creditor ought to have option
for enforcing recovery through a new forum instead of sticking on
to the mechanism through which recovery certifi cate was issued -
Thus, the doctrine of election cannot be applied to prevent the
fi nancial creditors from approaching the NCLT for initiation of
CIRP - Doctrines. [Para 11]
LIST OF CITATIONS AND OTHER REFERENCES
Kotak Mahindra Bank Limited v. A. Balakrishnan and Another (2022)
9 SCC 186 - relied on.
Dharani Sugars and Chemicals Ltd.v. Union of India and Others
(2019) 5 SCC 480 : [2019] 6 SCR 307; Jignesh Shah and Another v. Union of
India and Another (2019) 10 SCC 750 : [2019] 12 SCR 678; Reliance Asset
Reconstruction Company Limited v. Hotel Poonja International Private
Limited (2021) 7 SCC 352 : [2021] 1 SCR 495; Babulal Vardharji Gurjar
v. Veer Gurjar Aluminium Industries Private Limited and Another (2020) 15
SCC 1 : [2020] 13 SCR 368; Kotak Mahindra Bank Ltd. v. Kew Precision
Parts Private Limited and Others (2022) 9 SCC 364; B.K. Educational
Services Private Limited v. Parag Gupta & Associates (2019) 11 SCC 633
: [2018] 12 SCR 794; Gaurav Hargovindbhai Dave v. Asset Reconstruction
Company (India) Limited and Another (2019) 10 SCC 572 : [2019] 13 SCR
224; Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Limited and
Another (2019) 9 SCC 158 : [2019] 12 SCR 75; Transcore v. Union of India
and Another (2008) 1 SCC 125 : [2006] 9 Suppl. SCR 785 - referred to.
495
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION : Civil Appeal No.2348 of 2021.
From the Judgment and Order dated 25.06.2021 of the National
Company Law Appellate Tribunal, Chennai in Company Appeal (AT) (CH)
(Ins) No.04 of 2021
Appearances:
K. Parameshwar, Ms. A. Sregurupriya, Ms. Arti Gupta, Advs. for the
Appellant.
Ms. Avrojyoti Chatterjee, Rajiv S Roy, Siddharth Dhingra, Ms.
Jayasree Saha, Advs. for the Respondents.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
ANIRUDDHA BOSE, J.
The appellant before us has described himself as the managing director
of the Respondent No.2, Totem Infrastructures Limited (corporate debtor)
against whom proceedings have been initiated on account of default in
repaying fi nancial facilities extended to them by several banks in the form
of loans and bank guarantees. The total claim on account of default as
made before the National Company Law Tribunal (NCLT) was for a sum
of Rs.613,27,01,598.23/-. Several banks had extended these facilities, being
(i) Union Bank of India, (ii) IDBI, (iii) Oriental Bank of Commerce, (iv)
Bank of Baroda, (v) Karnataka Bank, (vi) Syndicate Bank and (vii) Punjab
National Bank as also the State Bank of India, who is the fi rst respondent
in this appeal. The State Bank of Hyderabad, State Bank of Mysore, State
Bank of Travancore, State Bank of Bikaner and Jaipur and State Bank of
Patiala, had also extended such facilities, but they had merged with the
State Bank of India on 01.04.2017. Hence, the State Bank of India is now
prosecuting the composite claims of these banks. In the proceeding before
the NCLT, out of which this appeal arises, it was the State Bank of India
who had fi led the application as fi nancial creditor under Section 7 of the
Insolvency and Bankruptcy Code, 2016 (IBC).
TOTTEMPUDI SALALITH v. STATE BANK OF INDIA &
ORS.
496
SUPREME COURT REPORTS
[2023] 14 S.C.R.
2. Prior to bringing the action under the IBC, notice under Section
13(2) of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI) was issued to the
corporate debtor and recovery proceedings were instituted against them
before the Debt Recovery Tribunal (DRT). Three applications were fi led
by the exposed lending banks, two before the DRT, Hyderabad being OA
No.154 of 2014 and OA No.221 of 2014, the former having been renumbered
as OA No.1653 of 2017. The third application was fi led before the DRT,
Bengaluru which was registered as OA No.1930 of 2014. Three recovery
certifi cates were issued by the respective Tribunals covering the claims of
the lending banks. Two recovery certifi cates by the Hyderabad Tribunal were
issued on 08.09.2015 and 17.10.2017 for a sum of Rs.14,50,06,349.23/- and
Rs.1408,03,14,857.40/- respectively. In the case registered as OA No.221 of
2014, the State Bank of Hyderabad was the applicant bank. In OA No. 154
of 2014, all these banks fi led a composite application. In OA No.1930 of
2014, the proceeding brought by State Bank of Bikaner and Jaipur, recovery
certifi cate was issued on 04.08.2017 for a sum of Rs.5,22,21,750/-. In respect
of the recovery certifi cate issued on 17.10.2017, the State Bank of India
claimed to be entitled to Rs.368,22,13,348.59/-.
3. The State Bank of India's application under Section 7 of the IBC
was fi led on 06.09.2019 before the NCLT, founded on all the three recovery
certifi cates in which the fi rst respondent had substantial stake. In its order
passed on 12.01.2021, the adjudicating authority admitted the application and
declared moratorium in terms of Section 14 of the IBC. By this order, one
G. Satyanarayana Murty was appointed as Interim Resolution Professional
(IRP). The appellant, who was the managing director of the corporate debtor,
appealed against the said decision of the NCLT admitting the application
and declaring moratorium primarily on the ground of limitation. Before the
National Company Law Appellate Tribunal (the Appellate Tribunal), a point
was urged, apart from the issue of limitation, that the application had been
initiated as per the Reserve Bank of India circular dated 12.02.2018 which
was held to be ultra vires the provision of Section 35AA of the Banking
Regulation Act, 1949 by this Court in the case of Dharani Sugars and
Chemicals Ltd. -vs- Union of India and Others [(2019) 5 SCC 480].
This circular essentially laid down norms for, inter-alia, invoking IBC in
relation to stressed assets. The NCLT had taken into consideration a letter
497
issued by the corporate debtor on 29.01.2020 addressed to the Union Bank
and the State Bank of India, agreeing in principle to repay the amount due
to the fi nancial creditors. The same letter requested the banks to support
the corporate debtor during the fi nancial crises being faced by them and
sought waiver of penal interest levied. A request for one time settlement
was also made in this communication. The NCLT treated this letter to be
an acknowledgement of debt. In its decision taken on 12.01.2021 while
admitting the application, it was, inter-alia, observed:-
"....We, are therefore, of the view that by accepting liability vide their
letter dated 29.01.2020, agreeing to repay the debt, the Corporate
Debtor now cannot take a stand that the debt is barred by limitation.
Acknowledgement of debt and agreeing to repay the same amounts to
liability and it automatically extends the limitation period."
The Appellate Tribunal broadly agreed with the reasoning of the NCLT
and sustained the decision delivered on 12.01.2021.
4. The pleas of the appellant before the Appellate Tribunal were mainly
on procedural grounds. Apart from the question of limitation, arguments were
advanced that the application before the NCLT was barred under the doctrine
of election, the borrower having chosen the SARFAESI mechanism fi rst
and having applied before the DRT. Point of limitation was also reiterated.
On the issue involving the RBI Circular dated 12.02.2018 the case of the
appellant was that the banks had approached the forum under the IBC, on
the basis of the aforesaid circular. The said circular was, however, quashed
in the case of Dharani Sugars and Chemicals Ltd. (supra). On this ground,
the appellant argued that the application was not maintainable. The Appellate
Tribunal held, inter-alia:-
"56. In regard to the plea of the Appellant that the Adjudicating
Authority in the impugned order even though at paragraph 12 had
mentioned that the Corporate Debtor had raised two fold contention
(1) that the petition is barred by limitation (2) the petition has been
initiated as by the RBI Circular 12.02.2018 which was held ultra
virus of section 35 AA of the Banking Regulation Act by the Hon'ble
Supreme Court, this Tribunal ongoing through the impugned order
is of the considered view that the Adjudicating Authority had not
adverted to the same and the said order in this regard has not spelt
TOTTEMPUDI SALALITH v. STATE BANK OF INDIA &
ORS. [ANIRUDDHA BOSE, J.]
498
SUPREME COURT REPORTS
[2023] 14 S.C.R.
out reasons. Therefore, this Tribunal is of the earnest opinion that it
is desirable that an 'Adjudicating Authority' is to disclose its mind in
future so that the compulsion of disclosure, guarantees consideration
apart from the fact, that the duty to assign reasons introduces clarity
and minimizes arbitrariness. Also, it will enable the superior authority
to evaluate the order so passed on legal plane. However, this Tribunal
being an 'Appellate Authority' over the Adjudicating Authority in the
present Appeal has dealt with the aspect of limitation concerning the
section 7 application and the aspect of RBI circular dated 12.02.2018
and answered the same at the relevant of this Judgment. As such,
the Appellant cannot be an aggrieved person in this regard, in the
considered opinion of this Tribunal.
57. It is to be pointed out that in our 'Justice Delivery System', 'Law' is
to be decided with reasons which carry convictions within the Codes/
Tribunals/Lawyers/Stakeholders and Litigants to make it, stable,
predictable and consistent with a view to have certainty and clarity
to the benefi t of one and all. It cannot be gainsaid that the judgment/
order of a Tribunal is to be written only after deep travail and positive
vein. Also that, the procedure for developing the law has to be one
of evolution. In this connection it is signifi cant to point out that the
exception to rule of 'Stare decisis' is that a Court/Tribunal is not bound
to follow the decision(s) reached 'per incuriam'.
58. As matter of fact, in the instant case when once the Company
has/had defaulted and after the initiation of legal proceedings as
available to the Lender on that date (Before the Debt Recovery
Tribunal) and when the Financial Creditor/Lender had obtained the
order(s) in the 'Original Applications' and later recovery certifi cates
were issued, and when the Original Applications fi led before the
Debt Recovery Tribunal(s) had attained fi nality, thereafter it is for
the Lender/Financial Creditor/Decree Holder as matter of 'Election'
to pursue the recovery mechanism for his/its personal benefi ts before
a 'competent forum' or to initiate Insolvency Proceedings for the
benefi t of 'stakeholders' and 'one and all'. In the event of the Decree
Holder/Lender/Financial Creditor has/had resorted to the initiation
of Insolvency Proceedings under relevant section of the I & B Code
499
(after coming into force of the Code) he/it cannot be found fault with,
since there is no fetter in 'Law', in this regard.
59. It is pointed out that the decisions cited on behalf of the Appellant
before this Tribunal, in the instant case are not applicable to the facts
and the circumstances of the present case, hence they are neither
considered, nor discussed.
60. Be that as it may, in view of the detailed upshot, this Tribunal taking
note of the respective contentions projected by the Learned Counsels
appearing for the parties, considering the facts and circumstances
of the present case in a proper perspective, comes to a resultant
conclusion that the instant case there is a 'Financial Debt' which is
due and payable by the 'Corporate Debtor'. Moreover, as against the
Corporate Debtor/Totem Infrastructure Limited, orders were passed
by the Debt Recovery Tribunal(s) and the three 'Recovery Certifi cates'
dated 17.10.2017, 04.08.2017 and 08.09.2015 clearly establish the
factum of Financial Debt, due and payable, and that default being
committed by the 'Corporate Debtor'. To put precisely, the onus of
proving the 'debt' and 'default' on the part of the First Respondent/
Bank in the instant case, has been duly discharged. Looking at from any
angle, the 'admission order' of the section 7 application as against the
'Corporate Debtor' by the Adjudicating Authority, ('National Company
Law Tribunal', Hyderabad Bench in an application fi led by the First
Respondent/Bank) as Financial creditor on 12.01.2021 in CP (IB)
No. 625/7/HDB/2019 does not suff er from any material irregularities
and patent illegalities in the eye of Law. Resultantly, the Appeal fails.
CONCLUSION: In fi ne, the Comp App (AT)(CH)(Ins) No. 04/2021 is
dismissed. No costs. The I A No. 09/2021 and 10/2021 are closed."
5. In the case of Kotak Mahindra Bank Limited -vs- A. Balakrishnan
and Another [(2022) 9 SCC 186], a three Judge Bench of this Court
had examined the question of limitation from the perspective of issue
of recovery certifi cates in terms of provision of the Recovery of Debts
and Bankruptcy Act, 1993 (1993 Act). We shall refer to this judgment
henceforth as Kotak Mahindra I. It was opined by this Court in this
judgment:-
TOTTEMPUDI SALALITH v. STATE BANK OF INDIA &
ORS. [ANIRUDDHA BOSE, J.]
500
SUPREME COURT REPORTS
[2023] 14 S.C.R.
"28. It could thus be seen that this Court in Dena Bank [Dena Bank
v. C. Shivakumar Reddy, (2021) 10 SCC 330] in SCC paras 136 and
141, has in unequivocal terms held that once a claim fructifi es into a
fi nal judgment and order/decree, upon adjudication, and a certifi cate
of recovery is also issued authorising the creditor to realise its decretal
dues, a fresh right accrues to the creditor to recover the amount of
the fi nal judgment and/or order/decree and/or the amount specifi ed
in the recovery certifi cate. It has further been held that issuance of a
certifi cate of recovery in favour of the fi nancial creditor would give
rise to a fresh cause of action to the fi nancial creditor, to initiate
proceedings under Section 7 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 certifi cate of recovery,
if the dues of the corporate debtor to the fi nancial debtor, under the
judgment and/or decree and/or in terms of the certifi cate of recovery,
or any part thereof remained unpaid.
×××
×××
×××
56. Insofar as the contention of the respondents with regard to clause
(a) of sub-section (1) of Section 14 IBC is concerned, we do not fi nd
that the words used in clause (a) of sub-section (1) of Section 14 IBC
could be read to mean that the decree-holder is not entitled to invoke the
provisions of the IBC for initiation of CIRP. A plain reading of the said
Section would clearly provide that once CIRP is initiated, there shall
be prohibition for 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. The prohibition to institution of suit or
continuation of pending suits or proceedings including execution of
decree would not mean that a decree-holder is also prohibited from
initiating CIRP, if he is otherwise entitled to in law. The eff ect would be
that the applicant, who is a decree-holder, would himself be prohibited
from executing the decree in his favour.
×××
×××
×××
71. We have already hereinabove, done the exercise of considering the
relevant provisions of the IBC afresh and come to a conclusion that a
501
liability in respect of a claim arising out of a recovery certifi cate would
be a "fi nancial debt" within the meaning of clause (8) of Section 5 IBC
and a holder of the recovery certifi cate would be a "fi nancial creditor"
within the meaning of clause (7) of Section 5 IBC. We have also held
that a person would be entitled to initiate CIRP within a period of three
years from the date on which the recovery certifi cate is issued. We are
of the considered view that the view taken by the two-Judge Bench of
this Court in Dena Bank [Dena Bank v. C. Shivakumar Reddy, (2021)
10 SCC 330] is correct in law and we affi rm the same.
×××
×××
×××
86. To conclude, we hold that a liability in respect of a claim arising
out of a recovery certifi cate would be a "fi nancial debt" within the
meaning of clause (8) of Section 5 IBC. Consequently, the holder of the
recovery certifi cate would be a fi nancial creditor within the meaning
of clause (7) of Section 5 IBC. As such, the holder of such certifi cate
would be entitled to initiate CIRP, if initiated within a period of three
years from the date of issuance of the recovery certifi cate."
6. The Appellate Tribunal, in the impugned order had also treated
the letter of the corporate debtor which was issued on 29.01.2020 to be
acknowledgement of debt and on that basis proceeded to compute the
limitation period. In our opinion, this reasoning was procedurally wrong. The
appellant's stand on this position is founded on Section 18 of the Limitation
Act, 1963 and he contends that any acknowledgment beyond the period of
limitation would not revive the right to sue. Learned counsel for the appellant
has relied upon a judgment of this Court in the case of Jignesh Shah and
Another -vs- Union of India and Another [(2019) 10 SCC 750] in which
it has been held that the limitation period provided in the Limitation Act
would apply to the applications under the IBC as well. Section 238A of
the IBC itself (introduced by way of an amendment to the Code made with
eff ect from 06.06.2018) stipulates application of the statute of Limitation
on IBC. Section 18 of the Limitation Act stipulates: -
"18. Eff ect of acknowledgment in writing.-(1) Where, before
the expiration of the prescribed period for a suit or application in
respect of any property or right, an acknowledgment of liability in
respect of such property or right has been made in writing signed
TOTTEMPUDI SALALITH v. STATE BANK OF INDIA &
ORS. [ANIRUDDHA BOSE, J.]
502
SUPREME COURT REPORTS
[2023] 14 S.C.R.
by the party against whom such property or right is claimed, or
by any person through whom he derives his title or liability, a
fresh period of limitation shall be computed from the time when
the acknowledgment was so signed.
(2) Where the writing containing the acknowledgment is undated,
oral evidence may be given of the time when it was signed; but
subject to the provisions of the Indian Evidence Act, 1872 (1 of
1872), oral evidence of its contents shall not be received.
Explanation.-For the purposes of this section,-
(a) an acknowledgment may be suffi cient though it omits to
specify the exact nature of the property or right, or avers that
the time for payment, delivery, performance or enjoyment has
not yet come or is accompanied by a refusal to pay, deliver,
perform or permit to enjoy, or is coupled with a claim to set-off ,
or is addressed to a person other than a person entitled to the
property or right,
(b) the word "signed" means signed either personally or by an
agent duly authorised in this behalf, and
(c) an application for the execution of a decree or order shall
not be deemed to be an application in respect of any property
or right."
Section 238-A of the IBC stipulates: -
"Limitation. --The provisions of the Limitation Act, 1963 (36 of
1963) shall, as far as may be, apply to the proceedings or appeals
before the Adjudicating Authority, the National Company Law
Appellate Tribunal, the Debt Recovery Tribunal or the Debt
Recovery Appellate Tribunal, as the case may be."
7. So far as the present proceeding is concerned, if we proceed on the
basis that the date of initial default is the starting point of limitation, then
lapse of three years from that date would have extinguished the bank's
right to initiate action under the IBC. Secondly, even if the said letter
dated 29.01.2020 is treated to be acknowledgement of debt, the same was
made after institution of the proceeding under Section 7 of the IBC. In the
503
application thus, there could be no reference to such acknowledgement. In
absence of amendment of pleadings, the Appellate Tribunal could not have
taken such purported acknowledgement of debt for the purpose of extending
the limitation period. Requirement of specifi c pleading on facts constituting
acknowledgement or admission of claim has been recognised in the judgment
of this Court in the case of Reliance Asset Reconstruction Company
Limited -vs- Hotel Poonja International Private Limited [(2021) 7
SCC 352]. Broadly a similar view has been taken by this Court in the case
of Babulal Vardharji Gurjar -vs- Veer Gurjar Aluminium Industries
Private Limited and Another [(2020) 15 SCC 1]. In this judgment also,
the necessity of averments to overcome the limitation question has been
emphasised by this Court. The argument of the appellant on the basis of
Section 25 (3) of the Contract Act, 1872 is anchored on the letter dated
29.01.2020. This letter reads:-
"To
The Assistant General Manager
Union Bank of India,
Industrial Finance Branch,
6-3-1090/B/4/101, 1st Floor,
"The Grand" Raj Bhavan Road,
Somajiguda, Hyderabad-500 082.
Mail-ifbhyderabad@unionbankofi ndla.com
(Through to the Lead Bank)
Dear Sir,
Sub:- Request for OTS with Consortium Banks
Ref:- Totem Infrastructure Limited
We thank you very much for the support that has been extended by
your bank throughout my business operations with your branch. With
reference to your letter/Notice from your branch, we have taken note
of it and we have discussed about this elaborately with our business
partners.
In principle, we have agreed among ourselves to repay the amount
due to your bank. As you are aware, we are undergoing through rough
phase in our business activities along with fi nancial crisis. At this
TOTTEMPUDI SALALITH v. STATE BANK OF INDIA &
ORS. [ANIRUDDHA BOSE, J.]
504
SUPREME COURT REPORTS
[2023] 14 S.C.R.
juncture we require your bank support to come out of these problems
and to repay the amounts due to your bank.
In this regard, we request you to inform us to the exact outstanding
amount payable to your bank as on the date of our account became Non
Performing Asset (NPA) in your bank. We also request you to waive
off all the penal interests levied by your bank on the Loan outstanding
amount from the date of account became irregular to till date of your
notifi cation to us
It would be of great relief to us, if you can waive off all the penal
interests and penalties and other charges levied on our account and
inform us to enable us to plan for repayments.
So in this regard we further request you to consider this as One Time
Settlement (OTS) option extended to us. We also request you to allow
us to repay the said amount in at least 4 to 6 Instalments spread over
a period of one year.
We are highly indebted to your bank in supporting us in all our tough
times and believing us.
We are always committed for repayment of your outstanding dues.
Finally we request you not to issue any public notifi cations or such
actions which will spoil our reputation as well as closes all options
for us to raise funds or to make alternative arrangements to repay the
loan outstanding amounts.
Kindly organise Consortium meeting or joint Lenders Meeting at the
earliest, preferably before 07th February 2020 to discuss and to come
to an understanding.
We hope that you will consider our humble request.
Kindly do the needful and oblige.
Looking forward to your favourable response.
Thanking you,
Yours Faithfully
(Salalith Tottempudi)
Managing Director"
505
8. An argument based on Section 25(3) of the Contract Act, 1872 was
examined by this court in Kotak Mahindra Bank Ltd. -vs- Kew Precision
Parts Private Limited and Others [(2022) 9 SCC 364]. We shall refer to
this judgment henceforth as Kotak Mahindra II. Analysing the provision of
Section 25 (3) of the Contract Act, 1872 this Court has held in this judgment:-
"33. There is a distinction between acknowledgment under Section
18 of the Limitation Act, 1963 and a promise within the meaning of
Section 25 of the Contract Act. Both promise and acknowledgment in
writing, signed by a party or its agent authorised in that behalf, have
the eff ect of creating a fresh starting of limitation. The diff erence is
that an acknowledgment under Section 18 of the Limitation Act has to
be made within the period of limitation and need not be accompanied
by any promise to pay. If an acknowledgment shows existence of jural
relationship, it may extend limitation even though there may be a denial
to pay. On the other hand, Section 25(3) is only attracted when there
is an express promise to pay a debt that is time-barred or any part
thereof. Promise to pay can be inferred on scrutinising the document.
Only the promise should be clear and unconditional."
9. We accept the submission of the appellant that this letter was a
request to consider a one-time settlement. But again, in absence of averments
or pleading, after initiation of insolvency proceeding, any promise made to
pay the debt cannot be treated to have cured the fault of limitation in a preexisting action. A promise of this nature would constitute an independent
cause of action.
10. We shall now return to the point argued by the appellant that the
date of default should go back to the date on which the loan account of the
corporate debtor was declared as non-performing asset. In the cases of B.K.
Educational Services Private Limited -vs- Parag Gupta & Associates
[(2019) 11 SCC 633] and Babulal (supra), date of default has been treated
to be the date on which the limitation period starts ticking. In Gaurav
Hargovindbhai Dave -vs- Asset Reconstruction Company (India)
Limited and Another [(2019) 10 SCC 572], the provision of Article 137
to the Limitation Act was applied for computing the period of limitation.
But these authorities do not lay down a proposition of law which is contrary
to that laid down by the three-Judge Bench judgment of this Court in the
TOTTEMPUDI SALALITH v. STATE BANK OF INDIA &
ORS. [ANIRUDDHA BOSE, J.]
506
SUPREME COURT REPORTS
[2023] 14 S.C.R.
case of Kotak Mahindra I (supra). This Court, in the case of Vashdeo R.
Bhojwani -vs- Abhyudaya Co-operative Bank Limited and Another
[(2019) 9 SCC 158], on considering the facts involved in that case, came to
the fi nding that when the recovery certifi cate was issued, the said certifi cate
injured eff ectively and completely the appellant's rights, as a result of
which limitation would have begun ticking. The recovery certifi cate there
was issued on 24.12.2001 and the fi nancial creditor fi led an application
under Section 7 of the IBC before the NCLT on 21.07.2017. But in the said
judgment also the date of recovery certifi cate was treated to be the date on
which the time of limitation began to tick.
11. On behalf of the appellant, submissions have been made that the
banks having approached the DRT, were barred under the doctrine of election
from approaching the NCLT for recovery of same set of debts. This is a
doctrine embodied in the law of evidence, which bars prosecution of the
same right in two diff erent fora based on the same cause of action. But so
far as the present appeal is concerned, the recovery proceedings before the
DRT had commenced in the year 2014. At that point of time, the IBC had
not come into existence. Moreover, it has been held by this Court in Kotak
Mahindra I (supra) that the recovery certifi cate itself would give rise to
a fresh cause of action entitling a fi nancial creditor to initiate Corporate
Insolvency Resolution Process (CIRP). By this judgment, the right of the
fi nancial creditor to invoke the mechanism under the IBC after issue of
recovery certifi cate stood acknowledged as a valid legal course. This Court,
in that case also dealt with the question of instituting a CIRP on the strength
of recovery certifi cate. Needless to add, such recovery certifi cate arose out
of a proceeding from the DRT. The enforcement mechanism for a recovery
certifi cate is an independent course, which a fi nancial creditor may opt for
realisation of its dues crystalised under the 1993 Act, instead of chasing the
mechanism under the 1993 Act. The IBC itself is not really a debt recovery
mechanism but a mechanism for revival of a company fallen in debt, but the
procedure envisaged in the IBC substantially relates to ensuring recovery of
debts in the process of applying such mechanism. The question of election
between the fora for enforcement of debt under the 1993 Act and initiation
of CIRP under the IBC arises only after a recovery certifi cate is issued.
The reliefs under the two statutes are diff erent and once CIRP results in
declaration of moratorium, the enforcement mechanism under the 1993 Act
507
or the SARFAESI Act gets suspended. In such circumstances, after issue of
recovery certifi cate, the fi nancial creditor ought to have option for enforcing
recovery through a new forum instead of sticking on to the mechanism
through which recovery certifi cate was issued. In the case of Transcore
-vs- Union of India and Another [(2008) 1 SCC 125], application of
SARFAESI mechanism was held permissible even though the subjectproceeding was instituted under the 1993 Act. Thus, the doctrine of election
cannot be applied to prevent the fi nancial creditors from approaching the
NCLT for initiation of CIRP.
12. One factor which has come to our notice in course of hearing is that
one of the recovery certifi cates was issued on 08.09.2015. We have already
held that the letter dated 29.01.2020 cannot by itself revive the debt though
it could create an independent cause of action. A question that arises now is
as to whether the debts in connection with the recovery certifi cate issued in
the year 2015 could form subject matter of an application under Section 7
of the IBC fi led on 06.09.2019. In the case of Kotak Mahindra I (supra),
it was held that CIRP could be brought within three years from the date of
issue of recovery certifi cate.
13. What has been fi led before the NCLT is a composite application
based on three recovery certifi cates, two of which have been instituted within
the three-year period as postulated in Article 137 of the Limitation Act. The
third recovery certifi cate was issued in the year 2015. Thus, there is more
than three years gap between the date of issue thereof and the date of fi ling
of the application before the NCLT. But a recovery certifi cate under the 1993
Act is also clothed with the character of a deemed decree. The provisions
of Section 19 (22A) of the 1993 Act specifi es :-
"Section 19 Application to the Tribunal: -
...........
(22A) Any recovery certifi cate issued by the Presiding Offi cer under
sub-section (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 (6 of 2009) or insolvency proceedings against
TOTTEMPUDI SALALITH v. STATE BANK OF INDIA &
ORS. [ANIRUDDHA BOSE, J.]
508
SUPREME COURT REPORTS
[2023] 14 S.C.R.
any individual or partnership fi rm under any law for the time being
in force, as the case may be.]"
Life of a decree is twelve years for enforcement as per Article 136 of
the schedule of Limitation Act. The said provision stipulates:-
"Description of application
Period of
limitation
Time from which period begins
to run
136. For the execution of
any decree (other than
a decree granting a
mandatory injunction)
or order of any civil
court.
Twelve
years.
[When] the decree or order
becomes enforceable or where
the decree or any subsequent
order directs any payment of
money or the delivery of any
property to be made at a certain
date or at recurring periods,
when default in making the
payment or delivery in respect
of which execution is sought,
takes place:
Provided that an application
for the enforcement or
execution of a decree granting
a perpetual injunction shall
not be subject to any period
of limitation."
14. There is authority for the proposition that the time for computing
limitation period for fi ling an application under Section 7 of the IBC would
be guided by Article 137 of the Limitation Act. That is the ratio of this
Court in the case of Kotak Mahindra I (supra). The same authority has
also analysed the position of a recovery certifi cate as a deemed decree. It
has been, inter-alia, held in this judgment:-
"79. From the plain and simple interpretation of the words used in
sub-section (22-A) of Section 19 of the Debts Recovery Act, it would
be amply clear that the legislature provided that for the purposes of
winding-up proceedings against a company, etc. a recovery certifi cate
issued by the Presiding Offi cer under sub-section (22) of Section 19
of the Debts Recovery Act shall be deemed to be a decree or order of
509
the Court. It is thus clear that once a recovery certifi cate is issued by
the Presiding Offi cer under sub-section (22) of Section 19 of the Debts
Recovery Act, in view of sub-section (22-A) of Section 19 of the Debts
Recovery Act it will be deemed to be a decree or order of the Court for
the purposes of initiation of winding-up proceedings of a company, etc.
However, there is nothing in sub-section (22-A) of Section 19 of the
Debts Recovery Act to imply that the legislature intended to restrict
the use of the recovery certifi cate limited for the purpose of windingup proceedings. The contention of the respondents, if accepted, would
be to provide something which is not there in sub-section (22-A) of
Section 19 of the Debts Recovery Act.
80. In any case, when the legislature itself has provided that any
recovery certifi cate issued under sub-section (22) of Section 19 of
the Debts Recovery Act will be deemed to be a decree or order of the
court for initiation of winding-up proceedings, which proceedings are
much severe in nature, it will be diffi cult to accept that the legislature
intended that such a recovery certifi cate could not be used for initiation
of CIRP, which would enable the corporate debtor to continue as an
on-going concern and, at the same time, pay the dues of the creditors to
the maximum. We, therefore, fi nd no substance in the said submission."
15. We have already referred to the provision of Section 19(22A) of
the 1993 Act. 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
certifi cate-holder as a deemed-decree holder has been confi ned 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 confi ned to the Companies Act, 2013.