Extension of Limitation for filing insolvency application
It is a well-established legal principle that a decree or Recovery Certificate (RC) issued by the Debt Recovery Tribunal (DRT) triggers a fresh cause of action, thereby extending the limitation period for filing insolvency applications. The issuance of such decree or RC acts as a new event from which limitation runs afresh.
SCI (2021.08.04) in Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy and Anr. [ Civil Appeal No.1650 of 2020] held that;
# 143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, 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 and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid.
It is interesting to notice the provisions of various status
The Limitation Act. 1963
# 3. Bar of limitation.—(1) Subject to the provisions contained in sections 4 to 24 (inclusive), every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defence.
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Section 3 of the Limitation Act mandates that courts examine the limitation aspect even if it is not raised as a defense.
The Recovery of Debts and Bankruptcy Act, 1993.
# 2. Definitions. -
(g) “debt” means any liability (inclusive of interest) which is claimed as due from any person 7[or a pooled investment vehicle as defined in clause (da) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)] by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application 1[and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;
Section 2(g) of the RDB Act defines "debt" broadly to include any legally recoverable liability claimed by banks or financial institutions, secured or unsecured, including debts payable under a decree, order, arbitration award, or mortgage as of the date of the application.
Accordingly, where an application is filed under Section 19 of the RDB Act for recovery of debt, the limitation period is generally three years from the date of the default or last acknowledgment. However, if the relief sought involves enforcement of a mortgage, the applicant may invoke the longer 12-year limitation period under Article 62 of the Limitation Act.
The nature of the prayer in the Original Application (OA) determines whether it qualifies as a money suit or a mortgage suit, and the DRT must record such findings in its final orders.
Extension of Limitation and Insolvency Applications
Now the question is whether decree or recovery certificate issued based on mortgage suit will extend limitation for filing application for insolvency of Corporate Debtor, Corporate Guarantor & Personal Guarantor under the provisions of the Code (IBC, 2016). The said question has been amply clarified by the Hon’ble Supreme Court in the matter of Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy and Anr. (supra) as follows.
# 143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor . . . . . . . .
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Case law; On the question whether DRT can entertain a mortgage suit.
HC Delhi (1995.09.27) in State Bank Of India vs Samneel Engineering Company And Ors.[1995(35)DRJ485] held that;
A mortgage may be viewed in two aspects. In the first place it is a promise by the debtor to repay the loan and as such it is a contract which creates a personal obligation. Secondly, it is also a conveyance, since it passes to the creditor a real right in the property pledged to him. However, the right created in the land is only an accessory right, intended merely to secure the due payment of the debt."
The quaint essence of the definition is the existence of any liability founded on an allegation as due from any person; the creditor being a bank or a financial institute or a consortium of the two. The liability may be in cash or otherwise. It may be secured or unsecured. A decree or order of any civil court or otherwise may intervene or not; the only rider being that the liability must be legally recoverable. The definition would cover all the cases where the liability is secured by a mortgage, charge, hypothecation or in any other manner known to law. An effort at carving out a mortgage away and out of the definition of debt is futile.
Section 58(a) of the Transfer of Property Act defines a mortgage as a transfer of an interest in specified immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan and an existing or future debt or performance of an acknowledgement which may give rise to a liability.
Be that as it may, so far as the question of jurisdictional competence of the Tribunal to try a claim for recovery of debt based on a mortgage is concerned, I am clearly of the opinion that a mortgage debt is included within the meaning of the debt as defined under section 2(g) of the Act. A claim for recovery of such a debt lies within the jurisdictional competence of the Tribunal.
Moreover, if there be any conflict between the provisions of the Transfer of Property Act and the Civil Procedure Code on the one hand and provisions of the Act No. 51 of 1993 on the other, then by virtue of Section 34 of the Act the provisions contained in the Act shall have an overriding effect on any other law or instrument for the time being in force.
For all the foregoing reasons I am of the opinion that a suit for recovery of a debt based on mortgage of any nature whatsoever lies within the jurisdictional competence of the Tribunal.
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Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.
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