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 & ANR.
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, 2016– Discussed.
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 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 & ANR.
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 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 & ANR.
(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, 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] & ANR.
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 28 th 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 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.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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