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JC - Legal Updates - Decree for money or recovery certificate gives rise to a fresh cause of action under IBC: Supreme Court

Legal Updates

11 Aug 2021

Decree for money or recovery certificate gives rise to a fresh cause of action under IBC: Supreme Court

Once the claim of a financial creditor fructifies into a judgment and/or a decree OR a recovery certificate is issued authorizing the creditor to realize its decretal dues, a fresh cause of action arise for such financial creditor under Section 7 of the I&B Code, 2016 (“Code”) to recover the unpaid amount due under the judgment/decree or specified under the recovery certificate. However, this right has to be exercised within three years from the date of the judgment and/or decree or the date of issuance of the recovery certificate.

This has been held by the Supreme Court (“Court”) vide its judgment dated 4th August 2021 in the matter of Dena Bank vs. C. Shivakumar Reddy.

The Court further observed that an application under Section 7 of the Code would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgment of the debt by the Corporate Debtor before expiry of the period of limitation. In this regard, the Court clarified that an acknowledgment may be sufficient even though it is accompanied by refusal to pay, deliver, perform or permit to enjoy or is coupled with claim to set off, or is addressed to a person other than a person entitled to the property or right.

Interestingly, on a connected issue, the Court also clarified that there is no bar in law for amending the pleadings in Section 7 application under the Code or filing of additional documents at any time until a final order either admitting or rejecting the application has been passed.


For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Mr. Dhruv Malik (dhruv.malik@jclex.com).