# KOTAK MAHINDRA BANK LIMITED v. A. BALAKRISHNAN & ANR

- **Citation:** [2022] 5 S.C.R. 1072
- **Court:** Supreme Court of India
- **Decided:** 2022-05-30
- **Case number:** Civil Appeal No. 689 of 2021
- **Bench:** L. Nageswara Rao, B. R. Gavai, A. S. Bopanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kotak-mahindra-bank-limited-v-a-balakrishnan-anr-36381
- **Pages:** 40

## Headnote

Insolvency and Bankruptcy Code, 2016 : ss. 3, 5, 6, 7 and 14
- Corporate Insolvency Resolution Process (CIRP) - Initiation of -
Issuance of Recovery Certificate, if would trigger the right to sue -
On facts, respondent No.2-corporate debtor stood as the corporate
guarantor in respect of credit facilities sanctioned to the borrower
entities by the appellant Bank - Default in payment of dues by the
borrower entities - Compromise between the parties that the
corporate debtor liable to pay the amount due from the borrower
entities to the Bank, however failure to make payment - In terms of
the compromise entered into between the parties, issuance of
Recovery Certificates by the Debt Recovery Tribunal against the
borrower entities and the corporate debtor - On basis of the
Recovery Certificates, the Bank filed application u/s. 7 before NCLT
seeking initiation of CIRP against the Corporate Debtor -
Application admitted - However, the NCLAT held the application to
betime-barred and issuance of Recovery Certificates did not trigger
right to sue - On appeal, held : 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 - Issuance of a certificate of recovery
in favour of the financial creditor would give rise to a fresh cause
of action to the the financial creditor, to initiate proceedings u/s 7
for initiation of the CIRP, within three years from the date of the
judgment and/or decree - Liability in respect of a claim arising out
of a Recovery Certificate would be a "financial debt" within the
meaning of clause (8) of s. 5 and a holder of the Recovery Certificate
would be a "financial creditor" within the meaning of clause (7) of
s. 5 - A person would be entitled to initiate CIRP within a period of
[2022] 5 S.C.R. 1072
1072
A
B
C
D
E
F
G
H
1073
three years from the date on which the Recovery Certificate is issued
- On facts, the application u/s. 7 was filed within a period of three
years from the date on which the Recovery Certificate was issued -
Application u/s. 7 was within limitation - Thus, the judgment and
order passed by NCLAT is quashed and set aside - Securitization
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 - s.13(2) - Companies Act, 1956 - ss. 433, 434 -
Recovery of Debts Due to Banks and Financial Institutions Act,
1993 - s.31A - Recovery of Debts and Bankruptcy Act, 1993 -
s.19(22A).
Scheme of Insolvency and Bankruptcy Code, 2016Discussed.
Interpretation of Statutes:
Purposive Interpretation - Held: Provisions of a statue ought
to be interpreted in such a manner which would advance the object
and purpose of the enactment - All the provisions in the Statute
should be construed in context with each other and no provision
can be read in isolation.
Literal rule of Interpretation - Held: When the language of a
statutory provision is plain and unambiguous, it is not permissible
for the Court to add or subtract words to a statute or read something
into it which is not there - Court cannot rewrite or recast legislation.
Judgment/order: Per incuriam, when - Held: 'Incuria' literally
means 'carelessness' - A decision or judgment can be per incuriam
any provision in a statute, rule or regulation, which was not brought
to the notice of the Court - It can also be per incuriam if it is not
possible to reconcile its ratio with that of a previously pronounced
judgment of a co-equal or larger Bench.
Words and Phrases: 'Include' - Meaning of - Held: Word
'include' is used in interpretation clauses to enlarge the meaning of
the words or phrases occurring in the body of the statute.
Allowing the appeal, the Court
HELD : 1.1 From the scheme of the Insolvency and
Bankruptcy Code, 2016, it could be seen that where any
Corpo

## Text

_Characters 0–39,916 of 92,554. This is a partial read: ask again with offset=39916 for what follows._

A
B
C
D
E
F
G
H
1072
SUPREME COURT REPORTS
[2022] 5 S.C.R.
KOTAK MAHINDRA BANK LIMITED
v.
A. BALAKRISHNAN & ANR.
(Civil Appeal No. 689 of 2021)
MAY 30, 2022
[L. NAGESWARA RAO, B. R. GAVAI AND
A. S. BOPANNA, JJ.]
Insolvency and Bankruptcy Code, 2016 : ss. 3, 5, 6, 7 and 14
- Corporate Insolvency Resolution Process (CIRP) - Initiation of -
Issuance of Recovery Certificate, if would trigger the right to sue -
On facts, respondent No.2-corporate debtor stood as the corporate
guarantor in respect of credit facilities sanctioned to the borrower
entities by the appellant Bank - Default in payment of dues by the
borrower entities - Compromise between the parties that the
corporate debtor liable to pay the amount due from the borrower
entities to the Bank, however failure to make payment - In terms of
the compromise entered into between the parties, issuance of
Recovery Certificates by the Debt Recovery Tribunal against the
borrower entities and the corporate debtor - On basis of the
Recovery Certificates, the Bank filed application u/s. 7 before NCLT
seeking initiation of CIRP against the Corporate Debtor -
Application admitted - However, the NCLAT held the application to
betime-barred and issuance of Recovery Certificates did not trigger
right to sue - On appeal, held : 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 - Issuance of a certificate of recovery
in favour of the financial creditor would give rise to a fresh cause
of action to the the financial creditor, to initiate proceedings u/s 7
for initiation of the CIRP, within three years from the date of the
judgment and/or decree - Liability in respect of a claim arising out
of a Recovery Certificate would be a "financial debt" within the
meaning of clause (8) of s. 5 and a holder of the Recovery Certificate
would be a "financial creditor" within the meaning of clause (7) of
s. 5 - A person would be entitled to initiate CIRP within a period of
[2022] 5 S.C.R. 1072
1072
A
B
C
D
E
F
G
H
1073
three years from the date on which the Recovery Certificate is issued
- On facts, the application u/s. 7 was filed within a period of three
years from the date on which the Recovery Certificate was issued -
Application u/s. 7 was within limitation - Thus, the judgment and
order passed by NCLAT is quashed and set aside - Securitization
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 - s.13(2) - Companies Act, 1956 - ss. 433, 434 -
Recovery of Debts Due to Banks and Financial Institutions Act,
1993 - s.31A - Recovery of Debts and Bankruptcy Act, 1993 -
s.19(22A).
Scheme of Insolvency and Bankruptcy Code, 2016Discussed.
Interpretation of Statutes:
Purposive Interpretation - Held: Provisions of a statue ought
to be interpreted in such a manner which would advance the object
and purpose of the enactment - All the provisions in the Statute
should be construed in context with each other and no provision
can be read in isolation.
Literal rule of Interpretation - Held: When the language of a
statutory provision is plain and unambiguous, it is not permissible
for the Court to add or subtract words to a statute or read something
into it which is not there - Court cannot rewrite or recast legislation.
Judgment/order: Per incuriam, when - Held: 'Incuria' literally
means 'carelessness' - A decision or judgment can be per incuriam
any provision in a statute, rule or regulation, which was not brought
to the notice of the Court - It can also be per incuriam if it is not
possible to reconcile its ratio with that of a previously pronounced
judgment of a co-equal or larger Bench.
Words and Phrases: 'Include' - Meaning of - Held: Word
'include' is used in interpretation clauses to enlarge the meaning of
the words or phrases occurring in the body of the statute.
Allowing the appeal, the Court
HELD : 1.1 From the scheme of the Insolvency and
Bankruptcy Code, 2016, it could be seen that where any
Corporate Debtor commits a default, a financial creditor, an
KOTAK MAHINDRA BANK LIMITED v. A. BALAKRISHNAN
& ANR.
A
B
C
D
E
F
G
H
1074
SUPREME COURT REPORTS
[2022] 5 S.C.R.
operational creditor or the Corporate Debtor itself is entitled to
initiate CIRP in respect of such Corporate Debtor in the manner
as provided under the said Chapter. The default has been defined
to mean non-payment of debt. The debt has been defined 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. A claim
means a right to payment, whether or not such right is reduced
to judgment, fixed, disputed, etc. It is more than settled that the
trigger point 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. [Para 38][1095-D-F]
1.2 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. 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. [Paras 39 and 41][1095-F-G; 1096-A]
1.3 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 has been legally assigned or transferred to.
Therefore, the only question that would be required to be
considered is, as to whether a liability in respect of a claim arising
out of a Recovery Certificate would be included within the meaning
of the term "financial debt" as defined under clause (8) of Section
5 of the IBC. It would be pertinent to note that in clause (8) of
Section 5 of the IBC, i.e, the definition clause of the term "financial
debt", the words used are "means a debt along with interest, if
any, which is disbursed against the consideration for the time
value of money and includes". [Paras 43 and 44][1096-B-D]
1.4 It is settled position of law that when the word "include"
is used in interpretation clauses, the effect would be to enlarge
the meaning of the words or phrases occurring in the body of the
statute. Such interpretation clause is to be so used that those
words or phrases must be construed as comprehending, not only
such things, as they signify according to their natural import, but
A
B
C
D
E
F
G
H
1075
also those things which the interpretation clause declares that
they shall include. In such a situation, there would be no warrant
or justification in giving the restricted meaning to the provision.
Applying these principles to clause (8) of Section 5 of the IBC, it
could clearly be seen that the words "means a debt along with
interest, if any, which is disbursed against the consideration for
the time value of money" are followed by the words "and
includes". Thereafter various categories (a) to (i) have been
mentioned. It is clear that by employing the words "and includes",
the Legislature has only given instances, which could be included
in the term "financial debt". However, the list is not exhaustive
but inclusive. The legislative intent could not have been to
exclude a liability in respect of a "claim" arising out of a Recovery
Certificate from the definition of the term "financial debt", when
such a liability in respect of a "claim" simpliciter would be
included in the definition of the term "financial debt". The trigger
point for initiation of CIRP is default of claim. "Default" is nonpayment of debt by the debtor or the Corporate Debtor, which
has become due and payable, as the case may be, a "debt" is a
liability or obligation in respect of a claim which is due from any
person, and a "claim" means a right to payment, whether 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 non-payment of such a "debt". When the "claim"
itself means a right to payment, whether such a right is reduced
to a judgment or not, 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. 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. [Paras 47, 51 & 52][1097-G-H; 1098A-B; 1100-B-G]
1.5 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
KOTAK MAHINDRA BANK LIMITED v. A. BALAKRISHNAN
& ANR.
A
B
C
D
E
F
G
H
1076
SUPREME COURT REPORTS
[2022] 5 S.C.R.
IBC, as a natural corollary thereof, the holder of such Recovery
Certificate would be a financial creditor within the meaning of
clause (7) of Section 5 of the IBC. As such, such a "person"
would be a "person" as provided under Section 6 of the IBC who
would be entitled to initiate the CIRP. [Para 53][1100-H; 1101A]
1.6 The words used in clause (a) of sub-section (1) of Section
14 of the IBC could not 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 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 effect would be
that the applicant, who is a decree-holder, would himself be
prohibited from executing the decree in his favour. [Para 54][1101B-D]
1.7 It is a settled law that "Incuria" literally means
"carelessness". A decision or judgment can be per incuriam any
provision in a statute, rule or regulation, which was not brought
to the notice of the Court. It can also be per incuriam if it is not
possible to reconcile its ratio with that of a previously pronounced
judgment of a co-equal or larger Bench. A perusal of the judgment
of this Court in the case of Dena Bank's case would reveal that
this Court considered all the relevant provisions of the IBC and
the earlier judgments of this court. There is no inconsistency in
the judgment of this Court in the case of Dena Bank's case with
the earlier judgments of this Court on which reliance was placed.
The submission that the judgment of this Court in the case of
Dena Bank's case being per incuriam to the statutory provisions
and earlier judgments of this Court, is wholly unsustainable. [Paras
67 and 68][1105-F-H; 1106-A-B]
1.8 A liability in respect of a claim arising out of a Recovery
Certificate would be a "financial debt" within the meaning of clause
A
B
C
D
E
F
G
H
1077
(8) of Section 5 of the IBC and a holder of the Recovery Certificate
would be a "financial creditor" within the meaning of clause (7)
of Section 5 of the IBC. A person would be entitled to initiate
CIRP within a period of three years from the date on which the
Recovery Certificate is issued. [Para 69][1106-B-C]
1.9 Sub-section (22) of Section 19 of the Debt Recovery
Act empowers the Presiding Officer to issue a certificate of
recovery along with the final order, under sub-section (20), for
payment of debt with interest. The certificate is given for the
purposes of recovery of the amount of debt specified in the
certificate. Sub-section (22A) of Section 19 of the Debt Recovery
Act provides that any Recovery Certificate issued by the
Presiding Officer 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, etc. [Para 71][1106H; 1107-A-B]
1.10 The submission that the Recovery Certificate is for
the limited purpose of initiation of winding up proceedings, if
accepted, the word "limited" would be required to be inserted
between the words "shall be deemed to be decree or order of
the Court" and "for the purposes of initiation of winding up
proceedings". If the submission is to be accepted, sub-section
(22A) of Section 19 of the Debt Recovery Act would have to be
reframed as "Any recovery certificate issued by the Presiding
Officer under sub-section (22) shall be deemed to be decree or
order of the Court for the limited purposes of initiation of winding
up proceedings...". If the said submission is accepted, it would
result in doing violence to the provisions of sub-section (22A) of
Section 19 of the Debt Recovery Act. When the language of a
statutory provision is plain and unambiguous, it is not permissible
for the Court to add or subtract words to a statute or read
something into it which is not there. It cannot rewrite or recast
legislation. [Paras 72, 73 and 75][1107-B-D, H; 1108-A]
1.11 From the plain and simple interpretation of the words
used in sub-section (22A) of Section 19 of the Debt Recovery
Act, it would be amply clear that the Legislature provided that
for the purposes of winding-up proceedings against a Company,
KOTAK MAHINDRA BANK LIMITED v. A. BALAKRISHNAN
& ANR.
A
B
C
D
E
F
G
H
1078
SUPREME COURT REPORTS
[2022] 5 S.C.R.
etc., a Recovery Certificate issued by the Presiding Officer under
sub-section (22) of Section 19 of the Debt Recovery Act shall be
deemed to be a decree or order of the Court. It is thus clear that
once a Recovery Certificate is issued by the Presiding Officer
under sub-section (22) of Section 19 of the Debt Recovery Act,
in view of sub-section (22A) of Section 19 of the Debt 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 (22A) of Section 19
of the Debt Recovery Act to imply that the Legislature intended
to restrict the use of the Recovery Certificate limited for the
purpose of winding-up proceedings. The submission of the
respondents, if accepted, would be to provide something which
is not there in sub-section (22A) of Section 19 of the Debt
Recovery Act. In any case, when the Legislature itself has
provided that any Recovery Certificate issued under sub-section
(22) of Section 19 of the Debt 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
would be difficult to accept that the Legislature intended that
such a Recovery Certificate 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. [Paras 77 and 78][1108-G-H; 1108-AD]
1.12 A liability in respect of a claim arising out of a Recovery
Certificate would be a "financial debt" within the meaning of clause
(8) of Section 5 of the IBC. Consequently, the holder of the
Recovery Certificate would be a financial creditor within the
meaning of clause (7) of Section 5 of the IBC. As such, the holder
of such certificate would be entitled to initiate CIRP, if initiated
within a period of three years from the date of issuance of the
Recovery Certificate. On facts, the application u/s. 7 IBC was
filed within a period of three years from thedate on which the
Recovery Certificate was issued. As such, the application under
Section 7 IBC was within limitation and the NCLAT erred in
holding that it is barred by limitation. The impugned judgment
and order passed by the National Company Law Appellate Tribunal
is quashed and set aside. [Paras 84, 85 and 86][1111-A-B; C-E]
A
B
C
D
E
F
G
H
1079
Dena Bank (Now Bank of Baroda) v. C. Shivakumar
Reddy and Another (2021) 10 SCC 330 - affirmed.
Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC
322 : [2006] 8 Suppl. SCR 178 - distinguished.
Subhankar Bhowmik v. Union of India and another
2022 SCC OnLine Tri 208; Jignesh Shah and Another
v. Union of India and Another (2019) 10 SCC 750 :
[2019] 12 SCR 678; Gaurav Hargovindbhai Dave v.
Asset Reconstruction Company (India) Limited and
Another (2019) 10 SCC 572 : [2019] 13 SCR 224;
Nirmal Jeet Kaur v. State of M.P. and Another (2004) 7
SCC 558 : [2004] 3 Suppl. SCR 1006; Secretary to
Govt. of Kerala, Irrigation Department and Others v.
James Varghese and Others 2022 SCC OnLine SC 545;
P. S. Ramamoorthy Sastry v. Selvar Paints and Varnish
Works (Pvt.) Ltd. The Law Weekly, Vol. XCVII (97)
dated 28th January, 1984 Part 1; Mukul Agarwal v.
Royale Resinex Pvt. Ltd. Company Appeal (AT)
(Insolvency) No. 777 of 2020 dated 30.03.2022; Swiss
Ribbons Private Limited and Another v. Union of India
and Others (2019) 4 SCC 17 : [2019] 3 SCR 535;
Associated Indem Mechanical (P) Ltd. v. W.B. Small
Industries Development Corpn. Ltd. and Others (2007)
3 SCC 607 : [2007] 1 SCR 174; Karnataka Power
Transmission Corporation and another v. Ashok Iron
Works Private Limited (2009) 3 SCC 240 : [2009] 1109;
Pioneer Urban Land and Infrastructure Limited and
Another v. Union of India and Others (2019) 8 SCC
416 : [2019] 10 SCR 381; Rameswar Prasad Kejriwal
& Sons Ltd. v. Garodia Hardware Stores (2001) SCC
OnLine Cal 586; Union of India and Others v.
Dhanwanti Devi and Others (1996) 6 SCC 44 : [1996]
5 Suppl. SCR 32; The Regional Manager and Another
v. Pawan Kumar Dubey (1976) 3 SCC 334 : [1976] 3
SCR 540; Vashdeo R. Bhojwani v. Abhyudaya
Co-operative Bank Limited and Another (2019) 9 SCC
158 : [2019] 12 SCR 75; Balakrishna Savalram Pujari
Waghmare and Others v. Shree Dhyaneshwar Maharaj
KOTAK MAHINDRA BANK LIMITED v. A. BALAKRISHNAN
& ANR.
A
B
C
D
E
F
G
H
1080
SUPREME COURT REPORTS
[2022] 5 S.C.R.
Sansthan and Others [1959] 2 Suppl. SCR 476 : AIR
1959 SC 798 : [1959] 2 Suppl. SCR 476; Mohd.
Shahabuddin v. State of Bihar and Others (2010) 4 SCC
653 : [2010] 3 SCR 911; Nasiruddin and others v. Sita
Ram Agarwal (2003) 2 SCC 577 : [2003] 1 SCR 634;
Bhanu Kumar Jain v. Archana Kumar and Another
(2005) 1 SCC 787 : [2004] 6 Suppl. SCR 1104; State
of U.P. v. Nawab Hussain (1977) 2 SCC 806 : [1977] 3
SCR 428; Gulabchand Chhotalal Parikh v. State of
Bombay (now Gujarat) [1965] 2 SCR 547 - referred
to.
Dilworth v. Commissioner of Stamps (1899) AC 99;
Thoday v. Thoday (1964) 2 WLR 371 - referred to.
Case Law Reference
(2021) 10 SCC 330
affirmed
Para 9
[1977] 3 SCR 428
distinguished
Para11
[1965] 2 SCR 547
distinguished
Para 11
[2019] 12 SCR 678
referred to
Para 14
[2019] 13 SCR 224
referred to
Para 14
[2004] 3 Suppl. SCR 1006
referred to
Para 14
[2019] 3 SCR 535
referred to
Para 40
[2007] 1 SCR 174
referred to
Para 46
[2009] 1 SCR 1109
referred to
Para 48
[2019] 10 SCR 381
referred to
Para 50
[1996] 5 Suppl. SCR 32
referred to
Para 60
[1976] 3 SCR 540
referred to
Para 61
[2019] 12 SCR 75
referred to
Para 63
[1959] 2 Suppl. SCR 476
referred to
Para 63
[2010] 3 SCR 911
referred to
Para 74
[2003] 1 SCR 634
referred to
Para 76
[2006] 8 Suppl. SCR 178
distinguished
Para 79
[2004] 6 Suppl. SCR 1104
referred to
Para 83
A
B
C
D
E
F
G
H
1081
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 689 of
2021.
From the Judgment and Order dated 24.11.2020 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No. 1406 of 2019.
Guru Krishna Kumar, Sr. Adv., Mahesh Agarwal, Rishi Agrawala,
Rohan Talwar, E. C. Agrawala, Advs. for the Appellant.
S. Prabhakaran, V. Prakash, K. V. Vishwanathan, Sr. Advs.,
Ms. Iyengar Shubharanjani Ananth, M. A. Gouthaman, Ms. R. Soumya,
Adarsh Mohandas, Abinesh S., Nishant, Rahul Sangwan, Sivagnanam
K., Advs. for the Respondents.
The Judgment of the Court was delivered by
B. R. GAVAI, J.
1. The present appeal challenges the judgment and order dated
24th November, 2020 passed by the learned National Company Law
Appellate Tribunal, New Delhi (hereinafter referred to as "NCLAT") in
Company Appeal (AT) (Insolvency) No. 1406 of 2019, thereby allowing
the appeal filed by the respondent no. 1 - Director and reversing the
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.
KOTAK MAHINDRA BANK LIMITED v. A. BALAKRISHNAN
& ANR.
A
B
C
D
E
F
G
H
1082
SUPREME COURT REPORTS
[2022] 5 S.C.R.
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 deeds to secure the aforesaid
credit facilities sanctioned to the borrower entities.
4. These borrower entities defaulted in repayment of the dues
and subsequently IBHL classified all the facilities availed by them as
Non - Performing Asset ("NPA" for short) in November 1997. Pursuant
thereto, IBHL filed three civil suits before the High Court of Madras,
against the borrower entities and the Corporate Debtor, for recovery of
the amounts due. During the pendency of the suits, the appellant - Kotak
Mahindra Bank Ltd. (hereinafter referred to as "KMBL") and IBHL
entered into a Deed of Assignment dated 13th October, 2006, wherein
IBHL assigned all its rights, title, interest, estate, claim and demand to
the debts due from borrower entities, to KMBL.
5. Pursuant to the said deed, KMBL and the borrower entities
entered into a compromise on 7th August, 2006 (hereinafter referred to
as "the said compromise"). The High Court vide a common judgment
dated 26th March, 2007, recorded the said compromise between the
parties to the effect that the Corporate Debtor was jointly and severally
liable to pay the amount of Rs. 29,00,96,918/- due from the borrower
entities to KMBL. It was claimed by KMBL that the borrower entities
failed to make payments as per the said compromise and thus, KMBL
issued a Demand Notice dated 26th September 2007 to them and the
Corporate Debtor under Section 13(2) of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (hereinafter referred to as "the SARFAESI Act"). The said
notice was followed by a Possession Notice dated 10th January, 2008
issued under Section 13(4) of the SARFAESI Act, by the KMBL due to
default in payment by the Corporate Debtor of the amount demanded.
The KMBL further issued a Winding Up Notice dated 6th May, 2008
under sections 433 and 434 of the Companies Act, 1956 to the Corporate
Debtor.
6. Aggrieved by the continuous default of payment by the
Corporate Debtor and the borrower entities, KMBL filed three applications
under Section 31(A) of the erstwhile Recovery of Debts Due to Banks
and Financial Institutions Act, 1993, now known as the Recovery of
A
B
C
D
E
F
G
H
1083
Debts and Bankruptcy Act, 1993 (hereinafter referred to as "the Debt
Recovery Act") before the Debt Recovery Tribunal ("DRT" for short)
for issuance of Debt Recovery Certificates in terms of the said
compromise entered 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 2019, against the said order of the learned
NCLT before the learned NCLAT. The grounds raised by the respondent
no. 1 in the said appeal were with regard to the application for initiating
CIRP against the Corporate Debtor being filed after the expiry of
limitation period. The said appeal filed by the respondent no. 1 came to
be allowed vide impugned judgment and order dated 24th November,
2020 in the aforementioned terms.
8. We have heard Shri Guru Krishna Kumar, learned Senior
Counsel appearing on behalf of KMBL, Shri S. Prabhakaran and Shri V.
Prakash, learned Senior Counsel appearing on behalf of the respondent
No.1 and Shri K.V. Viswanathan, learned Senior Counsel appearing on
behalf of the respondent No.2.
9. Shri Guru Krishna Kumar, learned Senior Counsel submitted
that the issue involved in the present proceedings is no more res integra.
It is submitted that this Court in the case of Dena Bank (Now Bank of
Baroda) vs. C. Shivakumar Reddy and another1 has held that once a
claim fructifies into a final judgment and order/decree, upon adjudication,
1 (2021) 10 SCC 330
KOTAK MAHINDRA BANK LIMITED v. A. BALAKRISHNAN
& ANR. [B. R. GAVAI, J.]
A
B
C
D
E
F
G
H
1084
SUPREME COURT REPORTS
[2022] 5 S.C.R.
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 specified in the Recovery Certificate. It is submitted that in
view of the law laid down by this Court in the case of Dena Bank
(supra), the present appeal deserves to be allowed inasmuch as, the
application under Section 7 of the IBC, filed by KMBL on 5th October,
2018 is within the period of three years from the dates of issuance of the
Recovery Certificates being 7th June, 2017 and 20th October, 2017.
10. Shri Guru Krishna Kumar further submitted that the conduct
of the respondents is that of a dishonest borrower. Having entered into
the consent terms, which are decreed by the High Court of Madras vide
order dated 26th March, 2007 and having not complied with the terms
contained in the compromise decree, it is now not open to the respondents
to oppose the admission of application under Section 7 of the IBC.
11. Shri K.V. Viswanathan, learned Senior Counsel, on the contrary,
submitted that the cause of action has merged into the order of issuance
of the Recovery Certificate by the DRT and therefore, by application of
the doctrine of merger, the debt no more survives. Shri Viswanathan
further submitted that the initiation of 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 Hussain2 and Gulabchand
Chhotalal Parikh vs. State of Bombay (now Gujarat)3.
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 decree-holder 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 sub-sections (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 4th November, 2016. He
2 (1977) 2 SCC 806
3 (1965) 2 SCR 547
A
B
C
D
E
F
G
H
1085
submits that the deeming fiction contained therein applies only for the
purposes of initiation of winding up proceedings. The deeming fiction
cannot be extended for any other purpose. In this respect, he relies on
the judgment of this Court in the case of Paramjeet Singh Patheja vs.
ICDS Ltd.4.
13. Shri Viswanathan further submitted that after 15th November,
2016, i.e., the date on which Section 255 of the IBC was brought into
force, the Recovery Certificate holders lost their right to use their
certificate as a "decree" for initiating winding-up proceedings under the
Companies Act. Shri Viswanathan relied on the judgment of the Tripura
High Court in the case of Subhankar Bhowmik vs. Union of India
and another5 in support of his submission that a decree-holder cannot
initiate CIRP. He submitted that the Special Leave Petition (Civil)
No.6104 of 2022 challenging the judgment of the Tripura High Court in
the case of Subhankar Bhowmik (supra) has been dismissed by this
Court on 11th April, 2022.
14. Shri Viswanathan submitted that the judgment of this Court in
the case of Dena Bank (supra) is per incuriam. He submitted that the
said judgment is rendered without considering the provisions of subSections (22) and (22A) of Section 19 of the Debt Recovery Act as well
as clauses (6), (10), (11) and (12) of Section 3, clauses (7) and (8) of
Section 5, Section 6 and Section 14(1)(a) of the IBC. He further submitted
that the judgment of this Court in the case of Dena Bank (supra) has
applied the judgments of this Court in the cases of Jignesh Shah and
another vs. Union of India and another6 and Gaurav Hargovindbhai
Dave vs. Asset Reconstruction Company (India) Limited and
another7 incorrectly and as such, the judgment of this Court in the case
of Dena Bank (supra) is rendered per incuriam. In this respect, he
relied on the judgment of this Court in the case of Nirmal Jeet Kaur vs.
State of M.P. and another8 so also the judgment of this Court in the
case of Secretary to Govt. of Kerala, Irrigation Department and
others vs. James Varghese and others9.
4 (2006) 13 SCC 322
5 2022 SCC OnLine Tri 208
6 (2019) 10 SCC 750
7 (2019) 10 SCC 572
8 (2004) 7 SCC 558
9 2022 SCC OnLine SC 545
KOTAK MAHINDRA BANK LIMITED v. A. BALAKRISHNAN
& ANR. [B. R. GAVAI, J.]
A
B
C
D
E
F
G
H
1086
SUPREME COURT REPORTS
[2022] 5 S.C.R.
15. Shri Viswanathan further submitted that if the aforesaid
provisions of the IBC and the Debt Recovery Act are considered in
correct perspective, the conclusion that would be inevitable is that a
decree-holder 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 sub-section (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 Krishna Kumar, in rejoinder, submitted that the
judgment of this Court in the case of Dena Bank (supra) correctly lays
down the position of law. He submits that if the relevant provisions of
the IBC are construed in correct perspective, the only conclusion that
would be arrived at is that KMBL is a "financial creditor". He submits
that the correct approach would be to consider the underlying transaction
forming the basis of the proceedings initiated by the creditor culminating
in a Decree/Recovery Certificate. He submitted that if the underlying
transactions are such that they constitute a financial debt and the creditor
is a financial creditor, then that would be the determining factor for
deciding the maintainability of the CIRP application. Learned Senior
Counsel further submitted that the judgment debt does not lose its legal
essence or character solely because it has fructified into a Recovery
Certificate. He relied on the judgment of the Division Bench of the
Madras High Court in the case of P.S. Ramamoorthy Sastry vs. Selvar
Paints and Varnish works (Pvt.) Ltd.10 in respect of this proposition.
10 The Law Weekly, Vol. XCVII (97) dated 28th January, 1984 Part 1
A
B
C
D
E
F
G
H
1087
He also relied on the judgment of the learned NCLAT in the case of
Mukul Agarwal vs. Royale Resinex Pvt. Ltd.11
18. Shri Kumar further submitted that the purpose of the IBC is
to preserve the Corporate Debtor as an on-going concern, while ensuring
maximum recovery for all the creditors. He submits that the provisions
of the IBC have to be interpreted in such a manner as to advance the
purpose of the IBC and not in a manner in which they defeat the object
of the IBC.
19. Shri Kumar submitted that the contention that the judgment of
this Court in the case of Dena Bank (supra) is per incuriam the
provisions of the IBC and the Debt Recovery Act is totally without
substance. He submits that the law laid down by this Court in the case
of Dena Bank (supra) is correct and warrants no interference.
20. Before we proceed to consider the rival submissions, it will be
apposite to consider the factual scenario, the issues that arose for
consideration and the conclusion arrived at in the case of Dena Bank
(supra).
21. In the case of Dena Bank (supra), the loan account of the
Corporate Debtor was declared NPA on 31st December, 2013. 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
11 Company Appeal (AT) (Insolvency) No.777 of 2020 dated 30.03.2022
KOTAK MAHINDRA BANK LIMITED v. A. BALAKRISHNAN
& ANR. [B. R. GAVAI, J.]
A
B
C
D
E
F
G
H
1088
SUPREME COURT REPORTS
[2022] 5 S.C.R.
was barred by limitation. By order dated 21st March, 2019, the Adjudicating
Authority admitted the petition under Section 7 of the IBC and appointed
an Interim Resolution Professional ("IRP" for short). The same came
to be challenged by the respondent No.1 therein before the learned
NCLAT by way of an Appeal under Section 61 of the IBC. The learned
NCLAT vide order dated 18th December, 2019 allowed the appeal and
dismissed the petition filed by the appellant Bank holding that the same
was barred by limitation.
22. The question therefore that arose for consideration before
this Court in the case of Dena Bank (supra) was, as to whether the
petition under Section 7 of the IBC was barred by limitation, on the sole
ground that it had been filed beyond a period of 3 years from the date of
declaration of the loan account of the Corporate Debtor as NPA.
23. While considering the said issue, this Court was also called
upon to consider other issues. The first one was, as to whether the
application under Section 7 of the IBC could be held to be barred by
limitation, though the Corporate Debtor had subsequently acknowledged
its liability within a period of 3 years prior to the date of filing of the
petition under Section 7 of the IBC, by making a proposal for a one-time
settlement, or by acknowledging the debt in its statutory balance sheets
and books of accounts. The second issue that was considered in the
case of Dena Bank (supra) was, as to whether a final judgment and
decree of the DRT in favour of the financial creditor, or the 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 within three years from the date
of the final judgment and decree, and/or within three years from the
date of issuance of the certificate of recovery. The third issue was, as to
whether the Adjudicating Authority had the power to permit amendment
of pleadings or to permit filing of additional documents in a petition filed
under Section 7 of the IBC.
24. Though all these issues have been elaborately considered by
this Court in the case of Dena Bank (supra), we would only be concerned
with the issue, as to whether the issuance of the Recovery Certificate in
favour of the "financial creditor" would give rise to a fresh cause of
action to initiate 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:
A
B
C
D
E
F
G
H
1089
"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. ...