The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) observed that the liability for claim arising out of the recovery certificate is financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC).
In the order the Adjudicating Authority held that the Financial Creditor (FC) in the present case, M/s. Prithvi Asset Reconstruction and Securitization Company Pvt Ltd comes within the definition of ‘Financial Creditor’, for the purpose of the Code and that the application made by the said Financial Creditor is not barred by limitation laid down in section 238A of the Insolvency and Bankruptcy Code, 2016 r/w Article 137 of the Limitation Act, 1963.
Accordingly it was admitted the Corporate Debtor ( CD ) into Corporate Resolution Process (CIRP) under section 7 of the said code and declared moratorium for the purpose referred to in section 14 of the said Code Aggrieved by the order of the Adjudicating Authority (AA), the Appellant has filed the Appeal before the Tribunal, praying that the orders of AA be set aside.
The appellant contended that NCLT, Hyderabad has passed the Impugned Order without considering the submissions made before it by the CD on the points of maintainability of the Application / Company Petition based on the limitation and the submissions that the Respondent / Financial Creditor cannot assume the character of Financial Creditor under Insolvency and Bankruptcy Code, (IBC) 2016 merely on basis of an Assignment Agreement and a Recovery Certificate issued by Debt Recovery Tribunal, Hyderabad and hence the Impugned Order as above should be set aside.
The Respondent No.1 / PARAS states that it is an Asset Reconstruction Company and became the Financial Creditor of the CD by virtue of the Assignment Agreement dated 27.09.2017 entered with Andhra Bank (Assignor). Because CD’s account slipped into the category of NPA, the Assignor recalled the term loan of Rs.19.28 crores and filed an application for recovery of Rs.32,19,88.213/- (inclusive of interest as on date) against the CD and its Guarantors under SARFAESI Act 2002. During the pendency of proceedings before DRT-I, Hyderabad, Respondent –1 became FC of the CD vide Assignment Agreement under section 5 of SARFAESI Act 2002 and initiated steps to enforce the security interests.
A Two-Member Bench comprising Justice M. Venugopal, Member (Judicial) and Jatindranath Swain, Member (Technical) observed that “ The NCLAT has taken the view that a Financial Creditor does not include the Decree holder within the definition of section 5(7) of IBC, 2016 and that the claimed amount is an adjudicated amount under a decree and not against a debt disbursed.”
“It is crystal clear that a liability in respect of a claim arising out of a Recovery Certificate would be a financial debt within the meaning of section 5(8) of IBC and that the holder of such Recovery Certificate would be a financial creditor as per section 5(7) of IBC and would be entitled to initiate CIRP ” the Tribunal held.
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