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Supreme Court in its judgment today, held, that an acknowledgement by a Corporate Debtor before expiry of limitation would bind him to pay the dues, despite Section 7 IBC petition being filed later, after expiry of Limitation. Further, any judgment or decree or a Certificate of Recovery in favour of Financial Creditor would give rise to a fresh cause of action to institute a Section 7 IBC petition.

A Division Bench of Justice Indira Banerjee and Justice V. Ramasubramanian, while allowing the appeal under Section 62 IBC, held,

“An Application under Section 7 IBC would not be barred by limitation – if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years

A judgment or decree for money in favour of the Financial Creditor, or the issuance of a Certificate of Recovery in favour of the Financial Creditor would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process within three years from the date of the judgment or decree or within three years from the date of issuance of the Certificate of Recovery

There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC in Form-1”

The bench added that the decision of Adjudicating Authority to allow request of the Appellant Bank for filing of additional documents with supporting pleadings, did not call for interference in appeal.

Issues

1. Whether a Section 7 IBC petition would be barred by limitation on the sole ground that it was filed beyond 3 years from the date of declaration of the loan account of the Corporate Debtor as NPA, even when the Corporate Debtor had acknowledged its liability to the Appellant Bank in its account books & balance sheets?
2. Whether a final judgment and decree of the DRT in favour of the Financial Creditor or the 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 of the IBC within three years from the date of the final judgment and decree, or within three years from the date of issuance of the Certificate of Recovery?
3. Whether there is any bar in law to the amendment of pleadings, in a Petition under Section 7 of the IBC, or to the filing of additional documents, apart from those filed initially, along with the Petition under Section 7 of the IBC in Form-1?

Placing reliance on Asset Reconstruction v. Bishal Jaiswall and other similar judgments, Court observed that entries in books of accounts or balance sheets of a Corporate Debtor would amount to acknowledgment under Section 18 of the Limitation Act.

With respect to the present case, the bench said, “Rs.111 lakhs had been paid towards outstanding interest on 28th March, 2014 and the offer of One Time Settlement was within three years thereafter. In any case, NCLAT overlooked the fact that a Certificate of Recovery has been issued in favour of Appellant Bank on 25th May 2017. The Corporate Debtor did not pay dues in terms of the Certificate of Recovery. The Certificate of Recovery in itself gives a fresh cause of action to the Appellant Bank to institute a petition under Section 7 of IBC. The petition under Section 7 IBC was well within three years from 28th March 2014.”

On second issue, Court elaborated saying that once a claim fructifies into a final judgment and a certificate of Recovery is issued authorizing the creditor to realize its dues, A fresh Right Accrues to the creditor to recover the amount of the final judgment or decree or the amount specified in the Recovery certificate.

Case Title: Dena Bank v. Shiv Kumar Reddy | CIVIL APPEAL 1650 of 202