Kotak Mahindra Bank Ltd. vs A. Balakrishnan - (Supreme Court) (30 May 2022)

Holder of Recovery Certificate would be entitled to initiate CIRP under IBC

MANU/SC/0736/2022

Insolvency

The present appeal challenges the judgment passed by the learned National Company Law Appellate Tribunal, New Delhi (“NCLAT”), thereby allowing the appeal filed by the Respondent no. 1 – Director and reversing the order passed by the learned National Company Law Tribunal, Chennai (“NCLT”), whereby the application filed by the Appellant under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) was admitted. The learned NCLAT held that the application filed by the Appellant was time-¬barred and that issuance of Recovery Certificate would not trigger the right to sue.

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.

From the plain and simple interpretation of the words used in sub-¬section (22A) of Section 19 of the Debt Recovery Act, 1993, 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.

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 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 on¬going concern and, at the same time, pay the dues of the creditors to the maximum.

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.

In the facts of the present case, the application under Section 7 of the IBC was filed within a period of three years from the date on which the Recovery Certificate was issued. As such, the application under Section 7 of the IBC was within limitation and the learned NCLAT has erred in holding that it is barred by limitation. The impugned judgment and order passed by the learned National Company Law Appellate Tribunal is quashed. The appeal is allowed.

Tags : CIRP INITIATION TIME LIMIT