A three-judge Bench of the Supreme Court comprising Justices L. Nageswara Rao, B.R. Gavai and A.S. Bopanna, on Monday, held that a liability in respect of a claim arising out of a Recovery Certificate under the Recovery of Debts and Bankruptcy Act, 1993 would be a “financial debt” within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC) and a holder of such Recovery Certificate would be a “financial creditor” under Section 5(7) of the IBC.
The Apex Court held that a person would be entitled to initiate Corporate Insolvency Resolution Process (CIRP) within a period of three years from the date on which such Recovery Certificate is issued.
The bench relied on a two-Judge Bench of the Apex Court in Dena Bank v. C. Shivakumar Reddy and allowed the appeal filed by Kotak Mahindra Bank Ltd. assailing the order of the National Company Law Appellate Tribunal (NCLAT), which had set aside the order of National Company Law Tribunal, Chennai (NCLT), admitting the application filed under Section 7 of the IBC and initiated CIRP, as time-barred. It held that the application was filed within a period of three years from the date on which the Recovery Certificate was issued and was thus within limitation.
Considering the object and purpose of the statute, the Court was of the view that Section 5(8) would include a debt which has crystallised in the form of a decree. “Therefore, the 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, and the holder of such certificate would be a financial creditor under Section 5(7) of the IBC. The Court noted that a judgment is said to be per incuriam when any provision of a statute, rule or regulation is not brought to the notice of the court or it is inconsistent with previous judgments passed by co-ordinate or larger bench.”
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