Connect with us

Hi, what are you looking for?

SLC Reads

Supreme Court Ruling: Handling Recovery Certificates in IBC Applications

Last Updated on October 26, 2023 by News Desk

Introduction:


The Supreme Court recently delivered a crucial verdict regarding composite applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), based on multiple Recovery Certificates issued by the Debt Recovery Tribunal (DRT). The ruling emphasizes the treatment of time-barred Recovery Certificates in the context of Corporate Insolvency Resolution Process (CIRP) and Public Announcement.

Issues:


The key issue at hand was whether a recovery certificate issued in 2015 could be considered in an IBC application filed in 2019. It revolved around the interpretation of Section 19(22A) of the Recovery of Debts and Bankruptcy Act, 1993, which deems a recovery certificate as a decree for various legal proceedings.

Reasoning:


The Court, referring to the Kotak Mahindra Bank Limited vs. A. Balakrishnan case, held that a liability arising from a recovery certificate qualifies as a “financial debt” under IBC. Therefore, the holder of the recovery certificate is regarded as a financial creditor and can initiate CIRP if done within three years from the issuance of the certificate. In this case, the Section 7 application was based on three recovery certificates. Two of these were within the three-year limitation period, as per Article 137 of the Limitation Act, 1963. However, the third certificate fell outside the limitation period. Nonetheless, a recovery certificate is considered a deemed decree with a twelve-year enforcement period.

Under Section 19(22A) of the 1993 Act, IBC proceedings based on a recovery certificate can be initiated against companies incorporated under the Companies Act, 2013, as well as Companies Act, 1956. The Recovery Certificate retains the status of a decree for lodging a claim under IBC.

Arguments:


The Supreme Court concluded that the Section 7 petition under IBC was valid for the two recovery certificates within the limitation period. In the event that the Appellate Tribunal decides that CIRP cannot be initiated for the third certificate due to its limitation, the decree would still be considered valid. The claim based on the time-barred recovery certificate should be segregated from the composite claim, and the Committee of Creditors must treat the amount reflected in the certificate as part of the claims made during the public announcement.

Conclusion:


The Supreme Court’s ruling clarifies the treatment of time-barred Recovery Certificates in composite IBC applications. It emphasizes the importance of understanding the nature of recovery certificates as deemed decrees and how they function within the IBC framework. This verdict provides valuable guidance for creditors and debtors alike in the insolvency resolution process.

Written — Athi Venkatesh

Written By

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Related Posts