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Tottempudi Salalith vs. State Bank of India & Ors.

Civil Appeal · 2023 INSC 923Decided 18 Oct 2023
Civil Appeal No. 2348 of 2021
Aniruddha Bose · Vikram Nath

Background

The appellant was the managing director of Totem Infrastructures Limited, a corporate debtor that had defaulted on loans from a consortium of banks led by the State Bank of India, with total dues exceeding Rs. 613 crore. Before invoking the IBC, the banks had already obtained recovery certificates against the company from Debt Recovery Tribunals (in 2015 and 2017) under the earlier SARFAESI/DRT recovery mechanism. When SBI later filed a Section 7 IBC application in 2019 based on these recovery certificates, the NCLT admitted it and appointed an insolvency resolution professional; the company's managing director challenged this before the NCLAT and then the Supreme Court, primarily arguing the claim was time-barred and that the bank was improperly allowed to switch between different legal recovery mechanisms (DRT/SARFAESI and IBC) for the same debt.

Decision Breakdown

The Supreme Court held, relying on its earlier three-judge bench ruling in Kotak Mahindra Bank v. A. Balakrishnan ("Kotak Mahindra I"), that a recovery certificate itself creates a fresh cause of action and the holder becomes a "financial creditor," entitled to initiate CIRP within three years of the certificate's issuance, so the two 2017 recovery certificates were validly the basis for the 2019 IBC application. It rejected the appellate tribunal's reasoning that a 2020 settlement-request letter from the company could revive/extend the limitation period, since that letter came after the case was already filed and cannot cure a limitation defect without amended pleadings, and in any event a promise to pay a time-barred debt under Contract Act Section 25(3) creates only a separate cause of action, not a revival of the existing one. It rejected the "doctrine of election" argument, holding banks are not barred from moving to the IBC route merely because they had earlier pursued DRT/SARFAESI recovery, since the IBC serves a different purpose (company revival, not pure debt recovery). However, regarding the third, older recovery certificate from 2015 (issued more than three years before the IBC filing), the Court noted a recovery certificate is a "deemed decree" enforceable for 12 years under the Limitation Act, but since neither the NCLT nor the NCLAT had examined this specific point, it directed the Appellate Tribunal to examine whether the 2015 certificate's claim remains valid on that separate basis, and, using its Article 142 power, directed that if it is found not maintainable under IBC, that portion of the claim be segregated and treated separately by the Committee of Creditors. The overall appeal was dismissed, upholding admission of the insolvency proceedings.

Lesson Learnt

A bank or financial creditor does not lose the right to move for insolvency proceedings just because it earlier pursued recovery through the DRT/SARFAESI route: a recovery certificate itself starts a fresh three-year limitation clock (and can retain decree-like force for up to twelve years), so switching between debt-recovery mechanisms for the same underlying default is not automatically barred.

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

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