Tottempudi Salalith V/S State Bank Of India & Ors. [Civil Appeal No.2348 Of 2021]
The Apex Court observed that in the event a financial creditor wants to pursue a recovery certificate as a deemed decree, he would get twelve years’ time.
The court was of the view that the extent of operation of a recovery certificate has been construed by this Court in Kotak Mahindra I to go beyond filing of winding up petition alone. It would retain the character of a decree to lodge a claim in an IBC proceeding. But this point has not been examined by the Appellate Tribunal.
The division bench of Justice Aniruddha Bose And Justice Vikram Nath said that if it proceeds on the basis that the date of initial default is the starting point of limitation, then a lapse of three years from that date would have extinguished the bank’s right to initiate action under the IBC. Secondly, even if the said letter dated 29.01.2020 is treated to be acknowledgement of debt, the same was made after institution of the proceeding under Section 7 of the IBC.
The court observed that in absence of amendment of pleadings, the Appellate Tribunal could not have taken such purported acknowledgement of debt for the purpose of extending the limitation period.
The bench accepted the submission of the appellant that the letter was a request to consider a one time settlement. But again, in absence of averments or pleading, after initiation of insolvency proceeding, any promise made to pay the debt cannot be treated to have cured the fault of limitation in a pre-existing action. A promise of this nature would constitute an independent cause of action.
The appellant before the court has described himself as the managing director of the Respondent No.2, Totem Infrastructures Limited (corporate debtor) against whom proceedings have been initiated on account of default in repaying financial facilities extended to them by several banks in the form of loans and bank guarantees. The total claim on account of default as made before the National Company Law Tribunal (NCLT) was for a sum of Rs.613,27,01,598.23/.
The State Bank of India is now prosecuting the composite claims of these banks. In the proceeding before the NCLT, out of which this appeal arises, it was the State Bank of India who had filed the application as financial creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The pleas of the appellant before the Appellate Tribunal were mainly on procedural grounds. Apart from the question of limitation, arguments were advanced that the application before the NCLT was barred under the doctrine of election, the borrower having chosen the SARFAESI mechanism first and having applied before the DRT.
The court noted that there is more than three years gap between the date of issue thereof and the date of filing of the application before the NCLT. But a recovery certificate under the 1993 Act is also clothed with the character of a deemed decree.
It was observed that there is authority for the proposition that the time for computing limitation period for filing an application under Section 7 of the IBC would be guided by Article 137 of the Limitation Act.
“The application with respect to the two recovery certificates issued in the year 2017 is maintainable. In the event the Appellate Tribunal is of opinion that the CIRP could not lie so far as the recovery certificate of 2015 is concerned, as the decree would be still alive, the claim based on the said recovery certificate could be segregated from the composite claim and the Committee of Creditors shall, in that event, treat the sum reflected in the said recovery certificate as part of the claims made in pursuance of the public announcement”, the court said.