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Punjab National Bank vs Vijay Sitaram Dandnaik

Civil Appeal · 2022 INSC 887Decided 30 Aug 2022
Civil Appeal No. 2277 of 2021
S. Abdul Nazeer · V. Ramasubramanian

Background

Punjab National Bank, as financial creditor, had sanctioned term loans to a corporate debtor which later defaulted and was declared a Non-Performing Asset (NPA) on 31 March 2013. The bank obtained a recovery certificate from the Debt Recovery Tribunal in 2016 and later filed an insolvency application under Section 7 of the Insolvency and Bankruptcy Code (IBC) in 2019. 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 because it was filed more than three years after the date of default (NPA). The bank appealed to the Supreme Court.

Decision Breakdown

The Supreme Court undertook a detailed review of the evolving case law on limitation under the IBC, including the decisions in Babulal Vardharji Gurjar, Vashdeo R. Bhojwani, Dena Bank vs. C. Shivakumar Reddy, and Kotak Mahindra Bank vs. A. Balakrishnan. It clarified that where a Debt Recovery Tribunal has issued a recovery certificate, a fresh, independent limitation period of three years runs from the date of that certificate, not merely from the original date of default, since the certificate creates its own enforceable right. Since the DRT's order was passed on 1 November 2016 and the Section 7 application was filed within three years of that date, the Court held the application was well within limitation. It set aside the NCLAT's order and restored the position that the insolvency application was validly filed.

Lesson Learnt

For a bank or financial creditor seeking to initiate insolvency proceedings against a defaulting company, the three-year limitation clock is not necessarily fixed at the original date of default, obtaining a Debt Recovery Tribunal recovery certificate can effectively give the creditor a fresh three-year window to act.

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

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