Mohit Chaubey
Doctrine of election – IBC provisions can be invoked even after issuance of recovery Certificates by DRT
Summary: In Tottempudi Salalith vs. State Bank of India, the Supreme Court addressed whether invoking the Insolvency and Bankruptcy Code (IBC) after obtaining recovery certificates from the Debt Recovery Tribunal (DRT) is permissible. The case arose when three recovery certificates were issued against Totem Infrastructures Ltd. by two DRTs. Despite this, the State Bank of India (SBI) filed a Section 7 IBC application for initiating the Corporate Insolvency Resolution Process (CIRP) against the debtor, which was admitted by the National Company Law Tribunal (NCLT). Tottempudi Salalith, the company’s managing director, challenged the NCLT’s decision, arguing that the application was barred under the Limitation Act and that the SBI was restricted from invoking IBC after opting for DRT recovery. The Supreme Court held that the issuance of a recovery certificate provides a fresh cause of action for creditors to initiate IBC proceedings within three years of the certificate’s issuance. Citing earlier rulings like Dena Bank vs. C. Shivakumar Reddy, the court clarified that the limitation period begins from the date of the recovery certificate. It further emphasized that the doctrine of election does not bar financial creditors from seeking NCLT relief under IBC even after pursuing recovery through DRT, as both are distinct legal remedies.
In Tottempudi Salalith Vs State Bank Of India prior to bringing the action under IBC three recovery certificate issued against appellant by two different DRT against Corporate Debtor I.e Totem Infrastructures Ltd.
Hon’ble NCLT admitted the application under section 7 initiated by State Bank Of India .On against admission, appellant f ile application on Hon’ble Appellate authority, same was dismissed .
Aggrieved by the same, Mr. Tottempudi Salalith, the Managing Director of Totem Infrastructures Ltd filed Appeal before the Supreme Court of India admission with contention:
1) whether application under section 7 of IBC barred under limitation act?
2) Whether SBI having approached DRT was barred under doctrine of election to approach NCLT ? Supreme court findings:
In Limitation
Apex court clarify that fresh cause of action start on the date of recovery certificate issued by Hon’ble DRT . Apex relying on Vashdeo R. Bhojwani -vs- Abhyudaya Co-operative Bank has held that limitation would start from date of issuance of recovery certificate .
It could thus be seen that this Court in Dena Bank [Dena Bank v. C. Shivakumar Reddy, (2021) 10 SCC 330] in SCC paras 136 and 141, has in unequivocal terms held that once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of recovery is also issued authorising the creditor to realise 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. It has further been held that issuance of a certificate of recovery in favour of the financial creditor would give rise to a fresh cause of action to the financial creditor, to initiate proceedings under Section 7 IBC for initiation of the CIRP, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid.
Section 238-A of the IBC stipulates:—
“Limitation. –The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.”
In Doctrine of Election Apex court clarify that the DRT issue recovery certificate and SBI approach NCLT for The enforcement of recovery certificate is an independent course of action and the Financial Creditor can opt for proceedings under IBC rather than chasing mechanism under 1993 Act. Further, while laying reliance on Kotak Mahindra Bank Limited v. A. Balakrishnan and Anr., the Apex Court observed that SBI had a right to invoke the provisions under IBC, even after the issuance of recovery certificates by the DRT, as a valid legal recourse.
