TMI Blog2022 (6) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... im would include a right to payment whether or not such a right is reduced to judgment. 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. 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? - HELD THAT:- A person to be entitled to be a financial creditor has to be owed a financial debt and would also include a person to whom such debt has been legally assigned or transferred to. Therefore, the only question that would be required to be considered is, as to whether a liability in respect of a claim arising out of a Recovery Certificate would be included within the meaning of the term financial debt as defined under clause (8) of Section 5 of the IBC - It 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 comprehen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc., a Recovery Certificate issued by the Presiding Officer under subsection (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 subsection (22) of Section 19 of the Debt Recovery Act, in view of subsection (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 subsection (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. 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 Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 another (2021) 10 SCC 330 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 Recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (2006) 13 SCC 322. 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 another 2022 SCC OnLine Tri 208 in support of his submission that a decreeholder cannot initiate CIRP. He submitted that the Special Leave Petition (Civil) No.6104 of 2022 challenging the judgment of the 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The Law Weekly, Vol. XCVII (97) dated 28th January, 1984 Part 1 in respect of this proposition. He also relied on the judgment of the learned NCLAT in the case of Mukul Agarwal vs. Royale R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 onetime s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 : AI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 twoJudge 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 threeJudge 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 subsection (1) of Section 14 of the IBC, which are as under: 3. Definitions.-In this Code, unless the context otherwise requires, (1) . . (6) claim means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively 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 counterindemnity 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 subclauses (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 subsections (2) and (3), on the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for any of the items referred to in subclauses (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 subclauses (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 , subclause (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 subclauses (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 subsection (1) of Section 14 of the IBC prohibits the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Stamps (1899) AC 99, 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares 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 Limited (2009) 3 SCC 240, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention was to include body corporate as well as body un-incorporate. 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 others (2019) 8 SCC 416 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 Legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (a) of subsection (1) of Section 14 of the 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 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 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. 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 threeJudge 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. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution. 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 Dubey (1976) 3 SCC 334: 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 differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Dena Bank (supra) is per incuriam. Recently, a twojudge 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 coequal 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. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 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, subsection (22A) of Section 19 of the Debt Recovery Act would have to be reframed as Any recovery certificate issued by the Presiding Officer under subsection (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 subsection (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 others (2010) 4 SCC 653: 179. Even otherwise, it is a wellsettled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 77. From the plain and simple interpretation of the words used in subsection (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 subsection (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 subsection (22) of Section 19 of the Debt Recovery Act, in view of subsection (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 subsection (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 subsection (22A) of Section 19 of the Debt Recovery Act. 78. In any case, when the Legislature itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Thoday (1964) 2 WLR 371 is concerned, the same has been considered by this Court in the case of Bhanu Kumar Jain vs. Archana Kumar and another (2005) 1 SCC 787, wherein this Court held ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
