Insolvency and Bankruptcy Code, 2016 – s. 7 – Debts in connection with the recovery certificate 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 certificate by the tribunal in the year 2015 and 2017 respectively, against the corporate debtor in which the financial creditor-Banks had stake – On basis thereof, financial 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 financial creditors from approaching the NCLT for initiation of CIRP – Date of recovery certificate was treated to be the date on which ORS.
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 financial 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 certificates, two of which were instituted within the three year limitation period, but the third recovery certificate was issued in 2015, beyond the limitation period – However, a recovery certificate 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 financial creditor wants to pursue a recovery certificate as a deemed decree, he would get twelve years’ time – Application with respect to the two recovery certificates issued in 2017 is maintainable – As regards recovery certificate 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 certificate could be segregated from the composite claim and the Committee of Creditors would treat the sum reflected in the said recovery certificate 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 different 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 certificate itself would give rise to a fresh cause of action entitling a financial creditor to initiate CIRP – Such recovery certificate arose out of a proceeding from the DRT – Enforcement mechanism for a recovery certificate is an independent course, which a financial 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 certificate is issued – Reliefs under the two statutes are different 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 certificate, the financial creditor ought to have option for enforcing recovery through a new forum instead of sticking on to the mechanism through which recovery certificate was issued – Thus, the doctrine of election cannot be applied to prevent the financial 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. ORS.
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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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