Holder of recovery certificate is financial creditor, entitled to initiate CIRP

Kotak Mahindra Bank Limited Vs A. Balakrishnan (Supreme Court)

Facts- The present appeal challenges the judgment and order passed by NCLAT, thereby allowing the appeal filed by the respondent no. 1 – Director and reversing the order passed by NCLT, whereby the application filed by the appellant under Section 7 of the Insolvency and Bankruptcy Code, 2016 was admitted. The learned NCLAT while allowing the appeal held that the application filed by the appellant was time­barred and that issuance of Recovery Certificate would not trigger the right to sue.

Conclusion- To conclude, we hold that a liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within the meaning of clause (8) of Section 5 of the IBC. Consequently, the holder of the Recovery Certificate would be a financial creditor within the meaning of clause (7) of Section 5 of the IBC. As such, the holder of such certificate would be entitled to initiate CIRP, if initiated within a period of three years from the date of issuance of the Recovery Certificate.

We further find that the view taken by the two­Judge Bench of this Court in the case of Dena Bank is correct in law and we affirm the same. We further find that in the facts of the present case, the application under Section 7 of the IBC was filed within a period of three years from the date on which the Recovery Certificate was issued. As such, the application under Section 7 of the IBC was within limitation and the learned NCLAT has erred in holding that it is barred by limitation.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

Please become a Premium member. If you are already a Premium member, login here to access the full content.