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JC - Legal Updates - Claim arising out of Recovery Certificate obtained under the RDB Act, is a ‘financial debt’

Legal Updates

01 Jun 2022

Claim arising out of Recovery Certificate obtained under the RDB Act, is a ‘financial debt’

The Supreme Court in Kotak Mahindra Bank Limited vs A. Balakrishnan & Anr. [Civil Appeal No. 689 of 2021], has held that, a claim, which has been duly adjudicated upon, and culminated into a final judgment, pursuant to which, a recovery certificate (“Recovery Certificate”) has been issued by the Debt Recovery Tribunal (DRT) under the Recovery of Debts and Bankruptcy Act, 1993 (“RDB Act”), shall fall within the purview of a ‘financial debt’ as defined under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Referring to a catena of judgments on interpretation of the term 'includes', the Supreme Court observed that since the word 'and includes' had been used in the definition of 'financial debt' in Section 5(8) of the IBC, it is not an exhaustive but an inclusive definition.

In the present case, the Recovery Certificates were issued by the DRT on 7th June, 2017 and 20th October, 2017. Reiterating the law laid down in Dena Bank vs. C. Shivakumar Reddy and Anr. [2021 SCC OnLine SC 543], theSupreme Court held that the creditor in whose favour the Recovery Certificate has been issued by the DRT, will not only be considered as a financial creditor but the Recovery Certificate would also give rise to a fresh cause of action for such creditor, to initiate proceedings under Section 7 of the IBC. within 3 (three) years from the date of issuance of the Recovery Certificate, if the same remains unsatisfied.


For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Ms. Smriti Jha (smriti.jha@jclex.com).