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Issuance of a Decree or Recovery Certificate constitutes fresh cause of action for proceeding under IBC

Pratice Area

A Division bench of the Hon’ble Supreme Court of India (SC), comprising of Ms. Justice Indira Banerjee and Mr. Justice V. Ramasubramanian, in their order dated 04.08.2021 in Dena Bank v. C. Shivakumar Reddy, held:

  1. The balance sheets and financial statements of the corporate debtor for 2016-2017 constituted acknowledgement of liability in the present case, which extended the limitation by three years. Similarly, an OTS proposal made within the period of limitation would also be construed as an acknowledgment and attract Section 18 of the Limitation Act.
  2. Basis a conjoint reading of the relevant provisions of IBC, it is clear that a final judgment and/or decree of any court or tribunal or any arbitral award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7 of the IBC. Once a claim fructifies into a final judgment and order/decree and a recovery certificate is also issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the recovery certificate. The Appellant bank was thus found entitled to initiate proceedings under Section 7 of the IBC within three years from the date of issuance of the recovery certificate.
  3. There is no bar to the filing of documents by the applicant in a Section 7 application at any time until a final order either admitting or dismissing the application has been passed. In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant bank to file additional documents.


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