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. 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 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, 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 3 (1965) 2 SCR 547 2016), which was enacted on 16th August, 2016 and brought into force from 4th November, 2016. He 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 5 2022 SCC OnLine Tri 208 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 sub-Sections (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.
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 9 2022 SCC OnLine SC 545 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. 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 10 The Law Weekly, Vol. XCVII (97) dated 28th January, 1984 Part 1 11 Company Appeal (AT) (Insolvency) No.777 of 2020 dated 30.03.2022 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 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: “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. … The present case being “an application” which is filed under Section 7, would fall only within the residuary Article 137.” 100. In B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates [B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528] , this Court speaking through Nariman, J. held : (SCC p. 664, para 42) “42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.” 101. In Jignesh Shah v. Union of India [Jignesh Shah v. Union of India, (2019) 10 SCC 750 : (2020) 1 SCC (Civ) 48] this Court speaking through Nariman, J. reiterated the proposition that the period of limitation for making an application under Section 7 or 9 IBC was three years from the date of accrual of the right to sue, that is, the date of default. 102. In Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank Ltd. [Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC 158 : (2019) 4 SCC (Civ) 308] this Court rejected the contention that the default was a continuing wrong and Section 23 of the Limitation Act, 1963 would apply, relying upon Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan [Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan, 1959 Supp (2) SCR 476 : AIR 1959 SC 798].”
25.This Court further went on to observe thus: “136. A final judgment and order/decree is binding on the judgment debtor. 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. 141. Moreover, a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor, to initiate proceedings under Section 7 IBC for initiation of the corporate insolvency resolution process, 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.”
26.It could thus be seen that this Court in the case of Dena Bank (supra) in paragraphs 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 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. 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 of the 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.
27.With these findings, we could have very well allowed the present appeal and set aside the judgment and order of the learned NCLAT. Undisputedly, the application for initiation of CIRP under Section 7 of the IBC has been filed by KMBL within a period of three years from the date of issuance of the Recovery Certificate. However, since it has been argued by Shri K.V. Viswanathan, learned Senior Counsel that the judgment rendered by the two-Judge Bench of this Court in the case of Dena Bank (supra) is per incuriam the provisions of the relevant statutes and the judgments of the three-Judge Bench of this Court in the cases of Jignesh Shah (supra) and Gaurav Hargovindbhai Dave (supra) and since the issue is of seminal importance, we would proceed to consider the rival submissions.
28.It will be relevant to refer to clauses (6), (10), (11) and (12) of Section 3, clauses (7) and (8) of Section 5, Section 6 and clause (a) of sub-section (1) of Section 14 of the IBC, which are as under: “3. Definitions.—In this Code, unless the context otherwise requires,-(6) “claim” means— (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; (10) “creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder; (11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; (12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not 5[paid] by the debtor or the corporate debtor, as the case may be; 5. Definitions.- In this Part, unless the context otherwise requires, (7) “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; (8) “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes— (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation.—For the purposes of this sub-clause,— (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of Section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016); (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; 6. Persons who may initiate corporate insolvency resolution process.—Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. 14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely— (a) 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;”
29.Clause (6) of Section 3 of the IBC defines the term “claim” in two parts. Sub-clause (a) of clause (6) of Section 3 of the IBC defines the term to mean, a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. Sub-clause (b) of clause (6) of Section 3 of the IBC would show that a claim would also mean a right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured. “creditor”, to mean any person to whom a debt is owed and incudes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.
31.Clause (11) of Section 3 of the IBC defines the term “debt”
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.
“default” to mean non-payment of debt when whole or any part
or instalment of the amount of debt has become due and
payable and is not paid by the debtor or the corporate debtor,
as the case may be.
“financial creditor” to mean any person to whom a financial
debt is owed and includes a person to whom such debt has
been legally assigned or transferred to.
“financial debt”, to mean a debt along with interest, if any,
which is disbursed against the consideration for the time value
of money and specifies various categories of debts in sub
clauses (a) to (h), which would be included in the definition of
term “financial debt”. Sub-clause (i) of clause (8) of Section 5 of
the IBC provides that the amount of any liability in respect of
any of the guarantee or indemnity for any of the items referred
to in sub-clauses (a) to (h) of this clause would also be included
in the definition of the term “financial debt”.
35. It could thus be seen that whereas sub-clauses (a) to (h) of
clause (8) of Section 5 of the IBC deal with specific categories,
which would come in the definition of the term “financial debt”,
sub-clause (i) of clause (8) of Section 5 of the IBC would include
the amount of any liability in respect of any of the guarantee or
indemnity for any of the items referred to in sub-clauses (a) to
(h) of the said clause within the meaning of the term “financial
debt”.
36. Section 6 of the IBC provides as to who may initiate CIRP.
It provides that where any Corporate Debtor commits a default,
a financial creditor, an operational creditor or the Corporate
Debtor itself may initiate CIRP in respect of such Corporate
Debtor in the manner as provided under the said Chapter.
37. Section 14 of the IBC provides “Moratorium”, consequent
upon the admission of the application under Section 7 or
Section 9 or Section 10 of the IBC, on an order passed by the
Adjudicating Authority. Clause (a) of sub-section (1) of Section
14 of the IBC prohibits 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.
38. From the scheme of the IBC, 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.
39. 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.
40. This Court in the case of Swiss Ribbons Private Limited
and another vs. Union of India and others12 has held that
preserving the Corporate Debtor as an on-going concern, while
ensuring maximum recovery for all creditors is the objective of
the IBC.
41. 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.
42. In this background, we will have to consider, as to
whether a person, who holds a Recovery Certificate would be a
financial creditor within the meaning of clause (7) of Section 5
of the IBC.
43. 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.
44. It will 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”.
45. At this juncture, we may rely on the following observations
in the case of Dilworth vs. Commissioner of Stamps13, which
have been consistently followed by this Court:
“The word ‘include’ is very generally used
in interpretation clauses in order to
enlarge the meaning of words or phrases
occurring in the body of the statute; and
when it is so used these words or phrases
must be construed as comprehending, not
only such things as they signify according
to their natural import, but also those
things which the interpretation clause
declares that they shall include. But the
word ‘include’ is susceptible of another
construction, which may become
imperative, if the context of the Act is
sufficient to shew that it was not merely
employed for the purpose of adding to the
natural significance of the words or
expressions defined. It may be equivalent
to ‘mean and include’, and in that case it
may afford an exhaustive explanation of
the meaning which, for the purposes of the
Act, must invariably be attached to these
words or expressions.”
13 (1899) AC 99
46. This Court in the case of Associated Indem Mechanical
(P) Ltd. vs. W.B. Small Industries Development Corpn. Ltd.
and others14 while construing the definition of the term
“premises” as provided under Section 2(c) of the W.B.
Government Premises (Tenancy Regulation) Act, 1976, observed
thus:
“13. ……..The definition of premises in
Section 2(c) uses the word “includes” at
two places. It is well settled that the
word “include” is generally used in
interpretation clauses in order to
enlarge the meaning of the words or
phrases occurring in the body of the
statute; and when it is so used those
words or phrases must be construed as
comprehending, not only such things,
as they signify according to their
natural import, but also those things
which the interpretation clause
declares that they shall include.
(See Dadaji v. Sukhdeobabu [(1980) 1 SCC
621: AIR 1980 SC 150]; Reserve Bank of
India v. Peerless General Finance and
Investment Co. Ltd. [(1987) 1 SCC 424 :
AIR 1987 SC 1023] and Mahalakshmi Oil
Mills v. State of A.P. [(1989) 1 SCC 164 :
The inclusive definition of “District Judge”
in Article 236(a) of the Constitution has
been very widely construed to include
hierarchy of specialised civil courts viz.
Labour Courts and Industrial Courts
which are not expressly included in the
definition. (See State of
Maharashtra v. Labour Law Practitioners'
Assn. [(1998) 2 SCC 688 : 1998 SCC (L&S)
657 : AIR 1998 SC 1233] ) Therefore,
there is no warrant or justification for
restricting the applicability of the Act
to residential buildings alone merely
on the ground that in the opening part
of the definition of the word
“premises”, the words “building or hut”
have been used.”
47. It is thus clear that it is a 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 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.
48. In the case of Karnataka Power Transmission
Corporation and another vs. Ashok Iron Works Private
Limited15, this Court, while construing the definition of the
word “person” as could be found in Section 2(1)(d) read with
Section 2(1)(m) of the Consumer Protection Act, 1986, observed
thus:
“17. It goes without saying that
interpretation of a word or expression must
depend on the text and the context. The
resort to the word “includes” by the
legislature often shows the intention of the
legislature that it wanted to give extensive
and enlarged meaning to such expression.
Sometimes, however, the context may
suggest that word “includes” may have
been designed to mean “means”. The
setting, context and object of an enactment
may provide sufficient guidance for
interpretation of the word “includes” for
the purposes of such enactment.”
18. Section 2(1)(m) which enumerates four categories, namely,
(i) a firm whether registered or not;
(ii) a Hindu Undivided Family;
(iii) a cooperative society; and
(iv) every other association of persons
whether registered under the Societies
Registration Act, 1860 (21 of 1860) or
not while defining “person” cannot be held to be restrictive and confined to these four categories as it is not said in terms that “person” shall mean one or other of the things which are enumerated, but that it shall “include” them.
19. The General Clauses Act, 1897 in Section 3(42) defines “person”:
“3. (42) ‘person’ shall include any
company or association or body of
individuals, whether incorporated or
not;”
20. Section 3 of the 1986 Act upon which reliance is placed by learned counsel for KPTC provides that the provisions of the Act are in addition to and not in derogation of any other law for the time being in force. This provision instead of helping the contention of KPTC would rather suggest that the access to the remedy provided to (sic under) the Act of 1986 is an addition to
the provisions of any other law for the time
being in force. It does not in any way give
any clue to restrict the definition of
“person”.
21. Section 2(1)(m), is beyond all questions
an interpretation clause, and must have
been intended by the legislature to be
taken into account in construing the
expression “person” as it occurs in Section
2(1)(d). While defining “person” in Section
2(1)(m), the legislature never intended to
exclude a juristic person like company. As
a matter of fact, the four categories by way
of enumeration mentioned therein is
indicative, Categories (i), (ii) and (iv) being
unincorporate and Category (iii) corporate,
of its intention to include body corporate
as well as body unincorporate. The
definition of “person” in Section 2(1)(m) is
inclusive and not exhaustive. It does not
appear to us to admit of any doubt that
company is a person within the meaning of
Section 2(1)(d) read with Section 2(1)(m)
and we hold accordingly.”
49. It could thus be seen that though the word “company” was
not specifically included in Section 2(1)(m) of the Consumer
Protection Act, 1986, this Court in the case of Karnataka
Power Transmission Corporation (supra) found that the
legislature never intended to exclude a juristic person like
company from the definition of the word “person”. It was found
that the categories (i), (ii) and (iv) mentioned therein were
unincorporate and category (iii) was corporate. As such, the
legislative intention was to include body corporate as well as
body unincorporate. It was held that the definition of “person”
in Section 2(1)(m) was inclusive and not exhaustive.
50. The three-Judge Bench of this Court in the case of
Pioneer Urban Land and Infrastructure Limited and
another vs. Union of India and others16 was considering a
challenge to the amendments made to the IBC vide which
Explanation to sub-clause (f) of clause (8) of Section 5 of the
IBC was inserted, which provides that any amount raised from
an allottee under a real estate project shall be deemed to be an
amount having the commercial effect of a borrowing. This
Court held that “the expression “and includes” speaks of
subject-matters which may not necessarily be reflected in the
main part of the definition”.
51. 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”
52. In any case, we have already discussed hereinabove that
the trigger point for initiation of CIRP is default of claim.
“Default” is non-payment 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, we find
that 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. As already discussed hereinabove, 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.
53. 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.
54. Insofar as the contention of the respondents with regard
to clause (a) of sub-section (1) of Section 14 of the IBC is
concerned, we do not find that the words used in clause (a) of
sub-section (1) of Section 14 of the IBC could 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.
55. That leaves us to consider the contention, as to whether
the judgment of this Court in the case of Dena Bank (supra) is
contrary to the judgments of three-Judge Bench of this Court in
the cases of Jignesh Shah (supra) and Gaurav
Hargovindbhai Dave (supra), as contended by the
respondents, and therefore, per incuriam.
56. In the case of Jignesh Shah (supra), the cause of action
arose in the month of August, 2012. The winding-up petition,
which was transferred to the learned NCLT, was filed on 21st
October, 2016, i.e., after a period of three years from the date
on which cause of action arose. This Court in the said case
was considering a question that, if a winding up petition was
barred by limitation on the date it was filed, whether Section
238A of the IBC will give a new lease of life to such a time
barred petition. This Court held that Section 238A of the IBC
would not extend the period of limitation for filing winding-up
petition. On the facts of the said case, it was found that on the
date on which the winding-up petition was filed, it was barred
by lapse of time and Section 238A of the IBC would not give a
new lease of life to such a time-barred petition. The question
that falls for consideration in the present case is, as to whether
a claim which is fructified in a decree would give a fresh cause
of action to file an application under Section 7 of the IBC within
a period of three years from such decree or not. This issue did
not fall for consideration before this Court in the case of
Jignesh Shah (supra).
57. In the case of Gaurav Hargovindbhai Dave (supra), the
respondent therein was declared NPA on 21st July, 2011 and an
application under Section 7 of the IBC was filed in the year
2017 while IBC was brought into force on 1st December, 2016.
The three-Judge Bench of this Court in the said case held that
the time began to run from the date when the respondent was
declared NPA and as such, the application under Section 7 of
the IBC, which was filed beyond the period of three years, was
barred by limitation. The question, as to whether a person
would be entitled to file an application for initiation of CIRP
within a period of three years from the date on which the decree
was passed or a Recovery Certificate was granted did not fall for
consideration in the said case also.
58. Shri Viswanathan next contended that this Court in the
case of Jignesh Shah (supra) has approved the judgment of
the Calcutta High Court in the case of Rameswar Prasad
Kejriwal & Sons Ltd. vs. Garodia Hardware Stores17. In
17 2001 SCC OnLine Cal 586
this respect, it will be relevant to note that this Court was
considering various judgments which were relied upon by Dr.
Singhvi. Insofar as the judgment of the Calcutta High Court in
the case of Rameswar Prasad Kejriwal (supra) is concerned,
in the said case, the cause of action arose in the year 1992. The
suit was filed in 1994 and the decree was obtained in the year
1997. It is to be noted that the winding-up petition came to be
filed in the year 2001, i.e., after a period of three years. It was
sought to be argued that the limitation period would be 12
years. The same was rejected.
59. No doubt that Shri Viswanathan is justified in referring to
paragraph 21 of the judgment in the case of Jignesh Shah
(supra) to the extent that this Court observed that the suit for
recovery, which is a separate and independent proceeding
distinct from the remedy of winding-up would, in no manner,
impact the limitation within which the winding-up proceeding
is to be filed, by somehow keeping the debt alive for the purpose
of the winding-up proceeding. However, the question, as to
whether such a suit or an application which has been
culminated into a decree or a Recovery Certificate would give a
fresh cause of action to file an application under Section 7 of
the IBC did not arise for consideration in the said
judgment/case. The said judgment cannot be held to be a ratio
decidendi for a proposition that even after the suit is decreed,
or Recovery Certificate is issued, it could not give fresh cause of
action to initiate CIRP within a period of three years.
60. As to what is ratio decidendi has been succinctly observed
by this Court in the case of Union of India and others vs.
Dhanwanti Devi and others18, which is as under:
“9. …… It is not everything said by a Judge
while giving judgment that constitutes a
precedent. The only thing in a Judge's
decision binding a party is the principle
upon which the case is decided and for this
reason it is important to analyse a decision
and isolate from it the ratio decidendi.
According to the well-settled theory of
precedents, every decision contains three
basic postulates—(i) findings of material
facts, direct and inferential. An inferential
finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgment. Every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there is not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. It would, therefore, be not profitable to extract a sentence here and there from the judgment and to build upon it because the essence of the decision is its ratio and not every observation found therein. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on a consideration of the judgment in relation to the subject-matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding. It is only the principle laid down in the judgment that is binding law under Article 141 of the Constitution. A deliberate judicial decision
arrived at after hearing an argument on a
question which arises in the case or is put in
issue may constitute a precedent, no matter
for what reason, and the precedent by long
recognition may mature into rule of stare
decisis. It is the rule deductible from the
application of law to the facts and
circumstances of the case which constitutes
its ratio decidendi.”
61. It will also be apposite to refer to the following
observations of this Court in the case of The Regional
Manager and another vs. Pawan Kumar Dubey19:
“7. …. Even where there appears to be
some conflict, it would, we think, vanish
when the ratio decidendi of each case is
correctly understood. It is the rule
deducible from the application of law to the
facts and circumstances of a case which
constitutes its ratio decidendi and not
some conclusion based upon facts which
may appear to be similar. One additional
or different fact can make a world of
difference between conclusions in two
cases even when the same principles are
applied in each case to similar facts.”
62. It could thus be seen that one additional or different fact
can make a world of difference between conclusions in two
cases even when the same principles are applied in each case to
similar facts.
63. It will further be relevant to note that the judgment of this
Court in the case of Jignesh Shah (supra) was authored by
R.F.Nariman, J. R.F.Nariman, J. in the case of Vashdeo R.
Bhojwani vs. Abhyudaya Co-operative Bank Limited and
another20, while relying on the judgment of three-Judge Bench
of this Court in the case of Balakrishna Savalram Pujari
Waghmare and others vs. Shree Dhyaneshwar Maharaj
Sansthan and others21 has observed thus:
“Following this judgment, it is clear that
when the recovery certificate dated 24-12
2001 was issued, this certificate injured
effectively and completely the appellant’s
rights as a result of which limitation would
have begun ticking.”
21 1959 Supp (2) SCR 476 : AIR 1959 SC 798
64. In the said case, the respondent No.2 was declared NPA
on 23rd December, 1999; the Recovery Certificate was issued on
24th December, 2001; application under Section 7 of the IBC
came to be filed on 21st July, 2017. In this factual background,
this Court found that the application under Section 7 of the
IBC, which was filed after a period of almost 16 years, i.e.,
much beyond the period of three years, was barred by
limitation.
65. It was found that the limitation period for filing a winding
up petition would be three years and since the same was filed
beyond the period of three years, it was liable to be dismissed.
In the present case, undisputedly, the application under
Section 7 of the IBC was filed within a period of three years
from the date of issuance of the Recovery Certificate.
66. It can thus be seen that this Court observed that the
issuance of Recovery Certificate injured effectively and
completely the appellant’s rights and therefore the limitation
would begin from the said date. In effect, this Court observed
that the issuance of Recovery Certificate could trigger the
limitation. As such, in our view, this Court in the case of Dena
Bank (supra) has rightly relied on Vashdeo R. Bhojwani
(supra), which, in turn, relied on the earlier three-Judge Bench
judgment of this Court in the case of Balakrishna Savalram
Pujari Waghmare (supra).
67. Shri Viswanathan, learned Senior Counsel relied on
various judgments of this Court to fortify his submission that
the judgment of two-Judge Bench of this Court in the case of
Dena Bank (supra) is per incuriam. Recently, a two-judge
Bench of this Court (consisting of L.N. Rao and B.R. Gavai, JJ.)
had an occasion to consider this doctrine in the case of James
Varghese (supra). 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.
68. A perusal of the judgment of this Court in the case of
Dena Bank (supra) would reveal that this Court considered all
the relevant provisions of the IBC and the earlier judgments of
this court. As already discussed hereinabove, we do not find
any inconsistency in the judgment of this Court in the case of
Dena Bank (supra) with the earlier judgments of this Court on
which reliance is placed by Shri Viswanathan. We find that the
contention that the judgment of this Court in the case of Dena
Bank (supra) being per incuriam to the statutory provisions and
earlier judgments of this Court, is wholly unsustainable.
69. 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 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. 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 two-Judge Bench of this Court in the case of
Dena Bank (supra) is correct in law and we affirm the same.
70. That leaves us with the contention of Shri Viswanathan
with regard to sub-sections (22) and (22A) of Section 19 of the
Debt Recovery Act, which read thus:
“19. Application to the Tribunal.-(1)
(22) The Presiding Officer shall issue a
certificate of recovery along with the final
order, under sub-section (20), for payment
of debt with interest under his signature to
the Recovery Officer for recovery of the
amount of debt specified in the certificate.
(22-A) 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 registered under the Companies
Act, 2013 (18 of 2013) or Limited Liability
Partnership registered under the Limited
Liability Partnership Act, 2008 (9 of 2008)
or insolvency proceedings against any
individual or partnership firm under any
law for the time being in force, as the case
may be.”
71. It could be seen that 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.
72. It is sought to be argued by Shri Viswanathan that the
Recovery Certificate is for the limited purpose of initiation of
winding up proceedings. If we accept the contention of Shri
Viswanathan, we would be required to insert the word
“limited” 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 contention 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…”.
73. In our considered view, if we accept the said submission,
it would result in doing violence to the provisions of sub-section
(22A) of Section 19 of the Debt Recovery Act.
74. It will be apposite to refer to the following observations of
this Court in the case of Mohd. Shahabuddin vs. State of
Bihar and others22:
“179. Even otherwise, it is a well
settled principle in law that the court
cannot read anything into a statutory
provision which is plain and
unambiguous. The language employed
in a statute is a determinative factor of
the legislative intent. If the language of
the enactment is clear and
unambiguous, it would not be proper
for the courts to add any words thereto
and evolve some legislative intent, not
found in the statute. Reference in this
regard may be made to a recent decision of
this Court in Ansal Properties & Industries
Ltd. v. State of Haryana [(2009) 3 SCC
553].”
75. It is more than well settled that 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. At the cost of repetition, we observe that if
the argument as advanced by Shri Viswanathan is to be
accepted, it will completely change the texture of the fabric of
sub-section (22A) of Section 19 of the Debt Recovery Act.
76. Though there are umpteen number of authorities to
support this proposition, we do not wish to burden our
judgment with them. Suffice it to refer to the judgment of
three-Judge Bench of this Court in the case of Nasiruddin and
others vs. Sita Ram Agarwal23 wherein this Court has held as
under:
“37. The court's jurisdiction to interpret a
statute can be invoked when the same is
ambiguous. It is well known that in a given
case the court can iron out the fabric but it
cannot change the texture of the fabric. It
cannot enlarge the scope of legislation
or intention when the language of the
provision is plain and unambiguous. It
cannot add or subtract words to a
statute or read something into it which
is not there. It cannot rewrite or recast
legislation. It is also necessary to
determine that there exists a
presumption that the legislature has
not used any superfluous words. It is
well settled that the real intention of
the legislation must be gathered from
the language used. It may be true that
use of the expression “shall or may” is not
decisive for arriving at a finding as to
whether the statute is directory or
mandatory. But the intention of the
legislature must be found out from the
scheme of the Act. It is also equally well
settled that when negative words are used
the courts will presume that the intention
of the legislature was that the provisions
are mandatory in character.”
77. 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 contention 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.
78. 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
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. We, therefore, find no substance in
the said submission.
79. Insofar as the judgment of this Court in the case of
Paramjeet Singh Patheja (supra) is concerned, we do not find
it necessary to refer to the same, inasmuch as the view, which
we have taken, has been taken after interpreting the provisions
of the IBC, whereas the view in the case of Paramjeet Singh
Patheja (supra) is with regard to legal fiction as provided in
Section 36 of the Arbitration and Conciliation Act, 1996.
80. Insofar as the reliance on the case of Nawab Hussain
(supra) is concerned, what has been observed by this Court is
that the doctrine of per rem judicatam is based on two theories,
viz., (i) the finality and conclusiveness of judicial decisions for
the final termination of disputes in the general interest of the
community as a matter of public policy, and (ii) the interest of
the individual that he should be protected from multiplication
of litigation. It has been held that the said doctrine serves not
only a public but also a private purpose by obstructing the
reopening of matters which have been adjudicated upon.
81. In the case of Nawab Hussain (supra), the respondent
was a confirmed Sub-Inspector of Police in Uttar Pradesh. He
challenged his dismissal in a writ petition before the Allahabad
High Court on the ground that he was not afforded a
reasonable opportunity. The said writ petition was dismissed.
After the dismissal of the said writ petition, he filed a suit in the
Court of Civil Judge, Etah, raising certain additional grounds.
The same was also dismissed. The respondent preferred a
second appeal, which was allowed by the High Court. The High
Court had held that the suit was not barred by the principle of
constructive res judicata. In this background, the aforesaid
observations were made by this Court while reversing the
judgment of the High Court and holding it to be barred by res
judicata.
82. In the case of Gulabchand Chhotalal Parikh (supra), the
appellant therein had prayed for the issuance of a writ of
mandamus and a writ of prohibition against the respondent
State in a writ petition filed in the High Court. The High Court
dismissed the petition on merits after full contest. The
appellant thereafter filed a suit against the respondent and
raised a similar plea. In this background, the Trial Court, the
First Appellate Court and the High Court held that the suit was
barred by res judicata in view of the judgment of the High Court
in the writ petition. In appeal, this Court affirming the
concurrent views held that on general principles of res judicata,
the decision of the High Court in a writ petition under Article
226 of the Constitution of India, after full contest, will operate
as res judicata in a subsequent regular suit between the same
parties with respect to the same matter.
83. Insofar as the judgment in the case of Thoday vs.
Thoday24 is concerned, the same has been considered by this
Court in the case of Bhanu Kumar Jain vs. Archana Kumar
and another25, wherein this Court held that a cause of action
estoppel arises where, in two different proceedings, identical
issues are raised, in which event, the latter proceedings
24 (1964) 2 WLR 371
between the same parties shall be dealt with similarly as was
done in the previous proceedings. In such an event, the bar is
absolute in relation to all points decided save and except
allegation of fraud and collusion. We are of the view that the
said judgment would not even remotely be applicable to the
facts of the present case. In that view of the matter, we do not
find that reliance on the said judgment would be of any
assistance to the case of the respondents.
84. 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 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.
85. We further find that the view taken by the two-Judge
Bench of this Court in the case of Dena Bank (supra) is correct
in law and we affirm the same. We further find that 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.
86. In the result, we pass the following judgment:
(i) The appeal is allowed.
(ii) The impugned judgment and order dated 24th
November, 2020 passed by the learned National
Company Law Appellate Tribunal, New Delhi in
Company Appeal (AT) (Insolvency) No.1406 of 2019 is
quashed and set aside.
87. We further clarify that though elaborate arguments have
been advanced by the rival parties upon the merits of the
matter, we have not touched the same. We have only decided
the legal issues. The parties would be at liberty to raise all the
issues, considering the merits of the matter before the learned
NCLT. The learned NCLT would decide the same in accordance
with law.
88. Pending applications, including the application(s) for ex
parte stay and disposal of the matter shall stand disposed of in
the above terms. There shall be no order as to costs.
[B.R. GAVAI]