DENA BANK (NOW BANK OF BARODA) VS. C SHIVAKUMAR REDDY AND ANR. : CASE SUMMARY
The Supreme Court in Dena Bank (Now Bank of Baroda ) Vs. C. Shivakumar Reddy and Anr. (2021) 10 SCC 330 held that a judgment/decree in favor of Financial Creditor would give rise to fresh cause of action to initiate proceedings under Section 7 IBC.
FACTS OF THE CASE
Appellant Bank has sanctioned term loan and letter of credit cum buyer’s credit in favour of the Corporate Debtor with an upper limit of Rs. 45 Crore. The Corporate Debtor defaulted in payment of its dues and loan amount of Corporate Debtor was declared NPA on 31st December, 2013. On 22nd December, 2014, the Appellant Bank issued legal notice to the Corporate Debtor calling upon them to make payment of Rs. 52.12 Crore. On 1st January, 2015 the Appellant Bank filed an application being O.A. No. 16/2015 under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for recovery of Rs. 51.12 Crore.
On 27th March, 2017 the DRT passed final judgment and order against the Corporate Debtor for recovery of Rs. 52.12 Crore with 16.55% interest. On 25th May, 2017, DRT issued a recovery certificate of Rs. 52.12 Crore. The Corporate Debtor in its annual report for FY 2016-17 and 2017-18 acknowledged its liability in respect of the loan taken by it from the Appellant Bank.
On 1st October, 2018, the Appellant Bank issued demand notice and thereafter on 12th October, 2018 filed Application under Section 7 of IBC. On 2nd January, 2019, Vijaya Bank, Dena Bank and Bank of Baroda were amalgamated. On 9th January, 2019, the Appellant filed application for placing on record additional documents including final judgment and order of DRT and Recovery Certificate. By order dated 4th February, 2019 the NCLAT directed Appellant to file amended Application. On 5th March, 2019 the Appellant Bank filed an application to place on record one time settlement and annual statements, which was allowed by the NCLT.
NCLT admitted the application vide order dated 21st March, 2019 and initiated CIRP. An appeal was filed before NCLAT which set aside the order of NCLT.
FINDINGS OF THE SUPREME COURT
Three issues were involved in this matter – (i) Whether the Section 7 Application was barred by limitation ? (ii) Whether final judgment and decree of the DRT will give fresh cause of action to the Financial Creditor to initiate proceedings under Section 7 IBC ? (iii) Whether there is bar on amendment of pleadings or producing additional documents under Section 7 IBC ?
The Supreme Court noted that Application under Section 7 IBC has to be made in prescribed form 1 of Application of Adjudicating Authority Rules alongwith documents and records required therein. The Financial Creditor can only fill in particulars as specified in the various columns of the Form. There is no scope for elaborate pleadings. Application under Section 7 IBC cannot be compared with plaint in suit. Such application cannot be judged by the same standards as a plaint in the suit.
The Supreme Court observed that IBC is not just another statute for recovery of debts. It is essentially a statute which works towards revival of corporate body, which is unable to pay its debts.
IBC has overriding effect on other acts. Unlike coercive recovery litigation, CIRP under IBC is not adversarial to the interests of the Corporate Debtor. Relegation of creditors to the remedy of coercive litigation against the Corporate Debtors could be detrimental to the interests of the Corporate Debtor and its creditors alike. Provisions of IBC and Rules and Regulations made thereunder have to be construed liberally in a purposive manner to further the objects of enactment of the statute and not be given a narrow, pedantic interpretation which defeats purposes of the Act.
The Supreme Court held that on careful reading of the provisions of IBC, it is evident that there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed. The time stipulation of 14 days in Section 7 (4) to ascertain existence of a default is apparently directory and not mandatory. There is no penalty except recording of reasons by the Adjudicating Authority. Section 7 (5) (b) obliges Adjudicating Authority to give notice to the applicant to rectify any defect in applicant within seven days, but there is no penalty for not curing defects within seven days. Even in case of Section 12 , the Supreme Court in Arcelormittal (India) Pvt. Ltd. Vs. Satish Kumar Gupta & Ors (2019) 2 SCC 1 held that time stipulation was directory. Failure to complete Resolution Process within stipulated time should not result in corporate death by shelving an otherwise good resolution plan.
On aspect of limitation the Supreme Court observed that the view of the NCLAT , that there was nothing on record show that there was acknowledgment of debt within three years, is not sustainable in view of statement of accounts/balance sheets/Financial Statements for years 2016-17 and 2017-18 and offer of one time settlement.
The Supreme Court observed that 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 Certificate of recovery itself gives a fresh cause of action to the Appellant Bank to institute a Petition under Section 7 IBC. The petition under Section 7 IBC was well within three years from 28th March, 2014.
The Supreme Court held that final judgment or decree of any Court or Tribunal or Arbitral Award for payment of money, if not satisfied, would fall within ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7 IBC.
The Supreme Court allowed the appeal and set aside judgment of NCLAT.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.