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Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy

Civil Appeal · 2021 INSC 380Decided 4 Aug 2021
Civil Appeal No. 1650 of 2020
Justice Indira Banerjee · Justice V. Ramasubramanian

Background

Dena Bank (later merged into Bank of Baroda) had extended a term loan to a corporate debtor, which defaulted in 2013. After obtaining a recovery decree and a Recovery Certificate from the Debt Recovery Tribunal in 2017, the bank filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) in 2018 to initiate insolvency proceedings. The National Company Law Tribunal (NCLT) admitted the application, but the National Company Law Appellate Tribunal (NCLAT) reversed this, holding the application was time-barred since it was filed more than three years after the original date of default.

Decision Breakdown

The Supreme Court held that the NCLAT was wrong to treat the application as time-barred. It ruled that a final judgment, decree, or Recovery Certificate for money in favour of a creditor gives rise to a fresh cause of action, and the creditor can initiate IBC proceedings within three years from that decree or certificate, not just from the original date of default. The Court also held that an acknowledgment of debt, including entries in balance sheets or a One Time Settlement proposal made by the debtor, extends the limitation period under Section 18 of the Limitation Act, which applies to IBC proceedings. It further held that additional documents and amendments to pleadings can be allowed before the NCLT admits a Section 7 petition. The appeal was allowed and the NCLAT's order was set aside, restoring admission of the insolvency petition.

Lesson Learnt

A creditor's right to pursue insolvency proceedings against a defaulting company is not frozen at the date of the original default: a later court decree, recovery certificate, or the debtor's own written acknowledgment of the debt (such as in financial statements) can restart the three-year limitation clock.

Official source (sci.gov.in)View Judgment (PDF)

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