Books of account cannot be treated as acknowledgement of liability in respect of debt payable to a Financial Creditor: SC

By Editor4 Corporate Law Judiciary August 4, 2022

TaxGuru Citation: 2022 taxguru.in 3574
Case Name: Asset Reconstruction Company Vs Tulip Star Hotels Limited & Ors. (Supreme Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: Supreme Court of India

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Asset Reconstruction Company Vs Tulip Star Hotels Limited & Ors. (Supreme Court)

Subject: Judgment¹ dated 1^st August, 2022 of the Hon’ble Supreme Court of India in the matter of Asset Reconstruction Company (India) Limited Vs. Tulip Star Hotels Limited & Ors. [Civil Appeal Nos. 84-85 of 2020]

The Hon’ble Supreme Court in its judgment dated 1^st August, 2022 while allowing the appeal observed that the NCLAT erred in law in holding that the books of account of a company could not be treated as acknowledgement of liability in respect of debt payable to a Financial Creditor (FC), made following important observations:

Sl.
No.

Issue / Theme

Observation / Ruling

Para /
Page No.

Objective and interpretation of the Code

(a) The provisions of the Insolvency and Bankruptcy Code, 2016 (Code/IBC) are designed to ensure that the business and/or commercial activities of the Corporate Debtor (CD) are continued by a Resolution Professional (RP), upon imposition of a moratorium, to give the CD some reprieve from coercive litigation, which could drain the CD of its financial resources.

46/29

(b) The Code is not just a statute for recovery of debts. It is also not a statute which only prescribes the modalities of liquidation of a corporate body, unable to pay its debts. It is essentially a statute which works towards the revival of a corporate body, unable to pay its debts, by appointment of a RP.

55/33

(c) The Code is a beneficial legislation for equal treatment of all creditors of the CD, as also the protection of the livelihoods of its employees/workers, by revival of the CD through the entrepreneurial skills of persons other than those in its management, who failed to clear the dues of the CD to its creditors. It only segregates the interests of the CD from those of its promoters/persons in management.

59/34-35

(d) Relegation of creditors to the remedy of coercive litigation against the CD could be detrimental to the interests of the CD and its creditors alike. While multiple coercive proceedings against a CD in different forums could impede its commercial/business activities, deplete its cash reserves, dissipate its assets, moveable and immoveable and precipitate its commercial death, such proceedings might not be economically viable for the creditors as well, because of the length of time consumed in the litigations, the expenses of litigation, and the uncertainties of realisation of claims even after ultimate success in the litigation. It is, therefore, imperative that the provisions of the IBC and the Rules and