2022 Supreme(SC) 509

SUPREME COURT OF INDIA
L. NAGESWARA RAO, B.R. GAVAI, A.S. BOPANNA, JJ.
Kotak Mahindra Bank Limited – Appellant
Versus
A. Balakrishnan and Another – Respondents
Civil Appeal No. 689 of 2021
Decided On : 30-05-2022

IMPORTANT POINTS
(1) Initiation of Corporate Insolvency Resolution Process (CIRP) – Liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within meaning of clause (8) of Section 5 of IBC – Consequently, holder of Recovery Certificate would be a financial creditor within meaning of clause (7) of Section 5 of IBC – As such, holder of such certificate would be entitled to initiate CIRP, if initiated within a period of three years from date of issuance of Recovery Certificate.
(2) Liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within ambit of its definition under clause (8) of Section 5 of IBC.
(3) When language of a statutory provision is plain and unambiguous, it is not permissible for Court to add or subtract words to a statute or read something into it which is not there – It cannot rewrite or recast legislation.
(4) One additional or different fact can make a world of difference between conclusions in two cases even when same principles are applied in each case to similar facts.

Headnote:

(A) Insolvency and Bankruptcy Code, 2016 – Sections 7 and 5 – Issuance of Recovery Certificate – Accrual of right to sue – Trigger point to initiate Corporate Insolvency Resolution Process (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 – 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” – Liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within ambit of its definition under clause (8) of Section 5 of IBC, as a natural corollary thereof, holder of such Recovery Certificate would be a financial creditor within meaning of clause (7) of Section 5 of IBC – As such, such a “person” would be a “person” as provided under Section 6 of IBC who would be entitled to initiate CIRP. (Paras 38, 52 and 53)

(B) Insolvency and Bankruptcy Code, 2016 – Sections 7 and 5 – Recovery of Debts and Bankruptcy Act, 1993 – Section 19(22) – Initiation of Corporate Insolvency Resolution Process (CIRP) – Accrual of right to sue – Liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within meaning of clause (8) of Section 5 of IBC – Consequently, holder of Recovery Certificate would be a financial creditor within meaning of clause (7) of Section 5 of IBC – As such, holder of such certificate would be entitled to initiate CIRP, if initiated within a period of three years from date of issuance of Recovery Certificate – Once CIRP is initiated, there shall be prohibition for institution of suits or continuation of pending suits or proceedings against corporate debtor including execution of any judgment, decree or order in any court of law, Tribunal, arbitration panel or other authority – 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 – When Legislature itself has provided that any Recovery Certificate issued under sub-section (22) of Section 19 of Debt Recovery Act will be deemed to be a decree or order of Court for initiation of winding-up proceedings, which proceedings are much severe in nature, it will be difficult to accept that Legislature intended that such a Recovery Certificate could not be used for initiation of CIRP, which would enable Corporate Debtor to continue as an ongoing concern and, at the same time, pay dues of creditors to maximum – Application under Section 7 of IBC was within limitation – Impugned judgment and order passed by National Company Law Appellate Tribunal, quashed and set aside. (Paras 54, 69, 78, 84, 85 and 86)

(C) Interpretation of Statute – Provisions of a Statue ought to be interpreted in such a manner which would advance object and purpose of enactment – Provisions in Statute have to be construed in context with each other and no provision can be read in isolation – When word “include” is used in interpretation clauses, effect would be to enlarge meaning of words or phrases occurring in body of 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 interpretation clause declares that they shall include – In such a situation, there would be no warrant or justification in giving restricted meaning to the provision – When language of a statutory provision is plain and unambiguous, it is not permissible for Court to add or subtract words to a statute or read something into it which is not there – It cannot rewrite or recast legislation. (Paras 39, 41, 47 and 75)

(D) Precedent – Ratio Decidendi – One additional or different fact can make a world of difference between conclusions in two cases even when same principles are applied in each case to similar facts – A decision or judgment can be per incuriam any provision in a statute, rule or regulation, which was not brought to notice of 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. (Paras 62 and 67)

Facts of the case:

Present appeal challenges the judgment and order dated 24th November, 2020 passed by National Company Law Appellate Tribunal, New Delhi in Company Appeal (AT) (Insolvency) No. 1406 of 2019, thereby allowing the appeal filed by respondent no. 1 – Director and reversing the order dated 20th September, 2019 passed by National Company Law Tribunal, Chennai, whereby application filed by the appellant under Section 7 of Insolvency and Bankruptcy Code, 2016 was admitted. 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.

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.

Findings of Court:

Application under Section 7 of the IBC was filed within a period of three years from the date on which Recovery Certificate was issued. As such, the application under Section 7 of the IBC was within limitation and NCLAT has erred in holding that it is barred by limitation.

Result : Appeal allowed.