Certificate of recovery constitutes fresh cause of action

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Certificate of recovery constitutes fresh cause of action

The Supreme Court, in its judgment dated 4 August in the matter of Dena Bank (now Bank of Baroda) v C Shivkumar Reddy and Anr, has held that a certificate of recovery, if not satisfied, will constitute a fresh cause of action for recovery of debt, and an application filed under section 7 of the Insolvency and Bankruptcy Code, 2016 is maintainable.

The court held that a judgment and/or decree for money in favour of the financial creditor, passed by the debt recovery tribunal 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 Insolvency and Bankruptcy Code, 2016 (IBC).

The corporate insolvency resolution process can be initiated 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 remained unpaid.

Therefore, a financial creditor is entitled to initiate proceedings under section 7 of the IBC within three years from the date of issuance of the recovery certificate.

The court also delivered its findings with regard to the applicability of section 18 of the Limitation Act to proceedings under the IBC. The judgment held that as per section 18 of Limitation Act, an acknowledgement of present subsisting liability made in writing in respect of any right claimed by the opposite party, and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such an acknowledgement need not be accompanied by a promise to pay, expressly, or even by implication. However, the acknowledgement must be made before the relevant period of limitation has expired.

The court further held that section 18 of the Limitation Act cannot also be construed with pedantic rigidity in relation to proceedings under the IBC. The court also held that an offer of a one-time settlement of a live claim, made within the period of limitation, should also be construed as an acknowledgement to attract section 18 of the Limitation Act.


The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai.

The authors can be contacted at support@numenlaw.com.

Readers should not act on the basis of this information without seeking professional legal advice.