Tottempudi Salalith vs State Bank Of India

2023 INSC 923 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2348 OF 2021

TOTTEMPUDI SALALITH …APPELLANT

VERSUS

STATE BANK OF INDIA & ORS. …RESPONDENTS

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 financial 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 Signature Not Verified

the National Company Law Tribunal (NCLT) was for a sum of Digitally signed by NIRMALA NEGI Date: 2023.10.18 17:00:33 IST Reason:

Rs.613,27,01,598.23/­. Several banks had extended these

1 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 first 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 filed the

application as financial creditor under Section 7 of the Insolvency

and Bankruptcy Code, 2016 (IBC).

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 filed 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 2 renumbered as OA No.1653 of 2017. The third application was

filed before the DRT, Bengaluru which was registered as OA

No.1930 of 2014. Three recovery certificates were issued by the

respective Tribunals covering the claims of the lending banks.

Two recovery certificates 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 filed a composite application. In OA No.1930 of

2014, the proceeding brought by State Bank of Bikaner and

Jaipur, recovery certificate was issued on 04.08.2017 for a sum

of Rs.5,22,21,750/­. In respect of the recovery certificate 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 filed on 06.09.2019 before the NCLT, founded on all the

three recovery certificates in which the first 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 3 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, inter­alia, invoking IBC in relation to

stressed assets. The NCLT had taken into consideration a letter

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 financial creditors. The same letter

requested the banks to support the corporate debtor during the

financial 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

4 acknowledgement of debt. In its decision taken on 12.01.2021

while admitting the application, it was, inter­alia, 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 first 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, inter­alia:­

5 “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 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 benefit 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 significant 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 certificates were issued, and when the Original Applications filed before the 6 Debt Recovery Tribunal(s) had attained finality, thereafter it is for the Lender/Financial Creditor/Decree Holder as matter of ‘Election’ to pursue the recovery mechanism for his/its personal benefits before a ‘competent forum’ or to initiate Insolvency Proceedings for the benefit 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 (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 Certificates’ 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 filed by the First Respondent/Bank) as Financial creditor on 12.01.2021 in CP (IB) No. 625/7/HDB/2019 does not suffer from any material irregularities and patent illegalities in the eye of Law. Resultantly, the Appeal fails. CONCLUSION: In fine, the Comp App (AT)(CH)(Ins) No. 04/2021 is dismissed. No costs. The I A No. 09/2021 and 10/2021 are closed.”

7

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 certificates 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:­

“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 fructifies into a final judgment and order/decree, upon adjudication, and a certificate 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 final judgment and/or order/decree and/or the amount specified in the recovery certificate. It has further been held that 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 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 certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid.

xxx xxx xxx

56. Insofar as the contention of the respondents with regard to clause (a) of sub­section (1) of Section 14 IBC is concerned, we do not find that the words used in clause

(a) of sub­section (1) of Section 14 IBC could be read to mean that the decree­holder 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 8 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 decree­holder is also prohibited from initiating CIRP, if he is otherwise entitled to in law. The effect would be that the applicant, who is a decree­holder, would himself be prohibited from executing the decree in his favour.

xxx xxx xxx

71. We have already hereinabove, done the exercise of considering the relevant provisions of the IBC afresh and come to a conclusion that 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 IBC and a holder of the recovery certificate would be a “financial 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 certificate is issued. We are of the considered view that the view taken by the two­Judge Bench of this Court in Dena Bank [Dena Bank v. C. Shivakumar Reddy, (2021) 10 SCC 330] is correct in law and we affirm the same.

xxx xxx xxx

86. To conclude, we hold that 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 IBC. Consequently, the holder of the recovery certificate would be a financial creditor within the meaning of clause (7) of Section 5 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.”

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 9 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

effect from 06.06.2018) stipulates application of the statute of

Limitation on IBC. Section 18 of the Limitation Act stipulates: ­

“18. Effect 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 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 sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or

10 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 set­off, 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 238­A 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 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 specific pleading

11 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, 6­3­1090/B/4/101, 1st Floor, “The Grand" Raj Bhavan Road, Somajiguda, Hyderabad­500 082.

Mail­ifbhyderabad@unionbankofindla.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

12 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 financial crisis. At this 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 notification 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 notifications 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 07 th 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, 13 Yours Faithfully

(Salalith Tottempudi) Managing Director”

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 effect of creating a fresh starting of limitation. The difference 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 time­barred 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 one­time settlement. But again, in absence

of averments or pleading, after initiation of insolvency proceeding, 14 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 non­performing

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 three­Judge Bench judgment of

this Court in the case of Kotak Mahindra I (supra). This Court, in

the case of Vashdeo R. Bhojwani ­vs­ Abhyudaya Co­operative

Bank Limited and Another [(2019) 9 SCC 158], on considering

the facts involved in that case, came to the finding that when the

recovery certificate was issued, the said certificate injured

15 effectively and completely the appellant's rights, as a result of

which limitation would have begun ticking. The recovery certificate

there was issued on 24.12.2001 and the financial creditor filed 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

certificate 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 different

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 certificate itself

would give rise to a fresh cause of action entitling a financial

creditor to initiate Corporate Insolvency Resolution Process (CIRP).

By this judgment, the right of the financial creditor to invoke the

mechanism under the IBC after issue of recovery certificate stood 16 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 certificate. Needless to add, such recovery certificate arose

out of a proceeding from the DRT. The 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.

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 certificate is issued. The 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. In the

case of Transcore ­vs­ Union of India and Another [(2008) 1 SCC

17 125], 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 financial 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 certificates 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 certificate issued in the year 2015

could form subject matter of an application under Section 7 of the

IBC filed 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 certificate.

13. What has been filed before the NCLT is a composite

application based on three recovery certificates, two of which have

been instituted within the three­year period as postulated in

Article 137 of the Limitation Act. The third recovery certificate was

issued in the year 2015. Thus, there is more than three years gap

between the date of issue thereof and the date of filing of the 18 application before the NCLT. But a recovery certificate under the

1993 Act is also clothed with the character of a deemed decree.

The provisions of Section 19 (22A) of the 1993 Act specifies :­

“Section 19 Application to the Tribunal: ­ ………..

(22A) Any recovery certificate issued by the Presiding Officer under sub­section (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 any individual or partnership firm 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 Period of Time from which period application limitation begins to run

136. For the execution Twelve years. [When] the decree or of any decree order becomes (other than a enforceable or where decree granting a the decree or any mandatory subsequent order injunction) or directs any payment of order of any civil money or the delivery court. 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 19 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 filing 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 certificate as a deemed decree. It has been, inter­alia,

held in this judgment:­

“79. From the plain and simple interpretation of the words used in sub­section (22­A) of Section 19 of the Debts Recovery Act, it would be amply clear that the legislature provided that for the purposes of winding­up proceedings against a company, etc. a recovery certificate issued by the Presiding Officer under sub­section (22) of Section 19 of the Debts 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 Debts Recovery Act, in view of sub­section (22­A) 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 winding­up proceedings of a company, etc. However, there is nothing in sub­section (22­A) of Section 19 of the Debts Recovery Act to imply that the legislature intended to restrict the use of the recovery certificate limited for the purpose of winding­up proceedings. The contention of the respondents, if accepted, would be to provide something

20 which is not there in sub­section (22­A) of Section 19 of the Debts Recovery Act.

80. In any case, when the legislature itself has provided that any recovery certificate issued under sub­section (22) of Section 19 of the Debts Recovery Act will be deemed to be a decree or order of the court for initiation of winding­up proceedings, which proceedings are much severe in nature, it will 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 on­going concern and, at the same time, pay the dues of the creditors to the maximum. We, therefore, find 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 winding­up action is

concerned, the right of a recovery certificate­holder as a

deemed­decree holder has been confined 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 confined to the Companies Act,

2013. The corporate debtor in this proceeding was incorporated

under the Companies Act, 1956. In the case of Kotak Mahindra I

(supra), credit facilities were extended to the borrower entities in 21 the years 1993­94. It is obvious that the three corporate entities

involved in that case were incorporated under the Companies Act

that prevailed prior to coming into operation of 2013 Act. The

position of law to guide the subject proceeding should be the same.

In the event a financial creditor wants to pursue a recovery

certificate as a deemed decree, he would get twelve years’ time. We

are of this view as the extent of operation of a recovery certificate

has been construed by this Court in Kotak Mahindra I (supra) to

go beyond filing of winding­up petition alone. It would retain the

character of a decree to lodge a claim in an IBC proceeding. But

this point has not been examined by the Appellate Tribunal. We

have already expressed our opinion on the reasons that weighed

with the Appellate Tribunal as also the NCLT in entertaining the

application. But since the first two fora did not test the legality of

the 2015 certificate as a deemed decree, we are of the opinion that

this question also ought to be addressed by the Appellate Tribunal.

We are otherwise not satisfied with the argument of the appellant

about maintainability of the application out of which this appeal

arises on the ground of the application being barred under

limitation. The application with respect to the two recovery

certificates issued in the year 2017 is maintainable. In the event

22 the Appellate Tribunal is of opinion that the CIRP could not lie so

far as the recovery certificate of 2015 is concerned, 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 shall, in that event, treat the sum reflected in the said

recovery certificate as part of the claims made in pursuance of the

public announcement. This direction we are issuing in exercise of

our jurisdiction under Article 142 of the Constitution of India.

16. With these observations and directions, the appeal is

dismissed. Interim orders, if any, shall stand dissolved.

17. Pending application(s), if any, shall stand disposed of.

18. There shall be no order as to costs.

.................................J. (ANIRUDDHA BOSE)

...............................J. (VIKRAM NATH)

NEW DELHI;

OCTOBER 18, 2023

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