{"id":267758,"date":"2022-06-02T12:05:26","date_gmt":"2022-06-02T06:35:26","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=267758"},"modified":"2022-06-03T10:40:23","modified_gmt":"2022-06-03T05:10:23","slug":"ibc-financial-debt-liability-recovery-certificate-section-58-claim-supreme-court-interpretation-legal-updates-research-news","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2022\/06\/02\/ibc-financial-debt-liability-recovery-certificate-section-58-claim-supreme-court-interpretation-legal-updates-research-news\/","title":{"rendered":"Liability in respect of a claim arising out of a Recovery Certificate is a \u201cfinancial debt\u201d under \u00a0Section 5(8) of the IBC: Supreme Court"},"content":{"rendered":"<p style=\"text-align: justify;\"><strong>Supreme Court<\/strong>: The 3-judge bench of L. Nageswara Rao, <strong>BR Gavai*<\/strong> and AS Bopanna, JJ has held that a liability in respect of a claim arising out of a Recovery Certificate would be a \u201cfinancial debt\u201d within the\u00a0\u00a0 meaning of clause (8) of Section 5 of the IBC. Consequently, the holder of the Recovery Certificate would be a financial creditor within the meaning of clause (7) of Section 5 of the IBC. As such, the holder of such certificate would be entitled to initiate CIRP, if initiated within a period of three years from the date of issuance of the Recovery Certificate.<\/p>\n<p style=\"text-align: justify;\">The Court explained that the words \u201cmeans a debt along with interest, if any, which is disbursed against the consideration for the time value of money\u201d are followed by the words \u201cand includes\u201d. By employing the words \u201cand includes\u201d, the Legislature has only given instances, which could be included in the term \u201cfinancial debt\u201d.\u00a0 However, the list is not exhaustive but inclusive.<\/p>\n<blockquote>\n<p style=\"text-align: justify;\">\u201cThe legislative intent could not have been to exclude a liability in respect of a \u201cclaim\u201d arising out of a Recovery Certificate from the definition of the term \u201cfinancial debt\u201d, when such a liability in respect of a \u201cclaim\u201d simpliciter would be included in the definition of the term \u201cfinancial debt\u201d.\u201d<\/p>\n<\/blockquote>\n<p style=\"text-align: justify;\">Observing that the trigger point for initiation of CIRP is default of claim, the Court further explained that \u201cdefault\u201d is non-payment of debt by the debtor or the Corporate Debtor, which has become due and payable, as the case may be, a \u201cdebt\u201d is a liability or obligation in respect of a claim which is due from any person, and a \u201cclaim\u201d means a right to payment, whether such a right is reduced to judgment or not. It could thus be seen that unless there is a \u201cclaim\u201d, which may or may not be reduced to any judgment, there would be no \u201cdebt\u201d and consequently no \u201cdefault\u201d on non-payment of such a \u201cdebt\u201d.<\/p>\n<blockquote>\n<p style=\"text-align: justify;\">\u201cWhen the \u201cclaim\u201d itself means a right to payment, whether such a right is reduced to a judgment or not, we find that if the contention of the respondents, that merely on a \u201cclaim\u201d being fructified in a decree, the same would be outside the ambit of clause (8) of Section 5 of the IBC, is accepted, then it would be inconsistent with the plain language used in the IBC.\u201d<\/p>\n<\/blockquote>\n<p style=\"text-align: justify;\">Hence, taking into consideration the object and purpose of the IBC, the legislature could never have intended to keep a debt, which is crystallized in the form of a decree, outside the ambit of clause (8) of Section 5 of the IBC.<\/p>\n<p style=\"text-align: justify;\">[Kotak Mahindra Bank Ltd. v. A. Balakrishnan, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/REJ145ck\"><b>2022 SCC OnLine SC 706<\/b><\/a>, decided on 30.05.2022]<\/p>\n<hr \/>\n<h4 style=\"text-align: justify;\">*Judgment by: Justice BR Gavai<\/h4>\n<p style=\"text-align: justify;\">\n","protected":false},"excerpt":{"rendered":"<p>Supreme Court: The 3-judge bench of L. Nageswara Rao, BR Gavai* and AS Bopanna, JJ has held that a liability in respect <\/p>\n","protected":false},"author":121,"featured_media":267786,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,9],"tags":[31346,49601,31422,30361,44583,2526,37384],"class_list":["post-267758","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-supremecourt","tag-debt","tag-debt-financial-and-monetary-laws","tag-financial-debt","tag-ibc","tag-insolvency-and-bankruptcy","tag-Interpretation","tag-recovery-certificate"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.4 (Yoast SEO v26.4) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Liability in respect of a claim arising out of a Recovery Certificate is a \u201cfinancial debt\u201d under \u00a0Section 5(8) of the IBC: Supreme Court | SCC Times<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2022\/06\/02\/ibc-financial-debt-liability-recovery-certificate-section-58-claim-supreme-court-interpretation-legal-updates-research-news\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Liability in respect of a claim arising out of a Recovery Certificate is a \u201cfinancial debt\u201d under \u00a0Section 5(8) of the IBC: Supreme Court\" \/>\n<meta property=\"og:description\" content=\"Supreme Court: The 3-judge bench of L. 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Operational Debt] SC clarifies when a \u2018debt\u2019 is considered as financial debt and operational debt under IBC","author":"Editor","date":"May 1, 2024","format":false,"excerpt":"\u201cWhile deciding that whether a debt is a financial debt or an operational debt arising out of a transaction covered by an agreement or arrangement in writing, it is necessary to ascertain what is the real nature of the transaction reflected in the writing.\u201d","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"financial debt and operational debt","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/05\/financial-debt-and-operational-debt.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/05\/financial-debt-and-operational-debt.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/05\/financial-debt-and-operational-debt.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/05\/financial-debt-and-operational-debt.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":269825,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/07\/08\/the-status-of-personal-guarantors-under-indian-insolvency-laws\/","url_meta":{"origin":267758,"position":3},"title":"Status of Personal Guarantors under Indian Insolvency Laws","author":"Bhumika Indulia","date":"July 8, 2022","format":false,"excerpt":"by Muskaan Garg\u2020","rel":"","context":"In &quot;Op Eds&quot;","block_context":{"text":"Op Eds","link":"https:\/\/www.scconline.com\/blog\/post\/category\/op-ed\/legal-analysis\/"},"img":{"alt_text":"Op Ed","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/07\/OpEd_by_Muskaan_Garg.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/07\/OpEd_by_Muskaan_Garg.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/07\/OpEd_by_Muskaan_Garg.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/07\/OpEd_by_Muskaan_Garg.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/07\/OpEd_by_Muskaan_Garg.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":259631,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/01\/06\/whether-a-decree-or-an-arbitral-award-or-a-settlement-deed-can-form-the-basis-of-a-financial-or-operational-debt-under-ib-code\/","url_meta":{"origin":267758,"position":4},"title":"Whether a Decree or an Arbitral Award or a Settlement Deed can form the Basis of a Financial or Operational Debt under IB Code","author":"Bhumika Indulia","date":"January 6, 2022","format":false,"excerpt":"by Akaant Kumar Mittal\u2020 Cite as: 2022 SCC OnLine Blog Exp 1","rel":"","context":"In &quot;Akaant Mittal&quot;","block_context":{"text":"Akaant Mittal","link":"https:\/\/www.scconline.com\/blog\/post\/category\/experts_corner\/individual\/akaant-mittal\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-212.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-212.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-212.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-212.png?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-212.png?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":243323,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/02\/03\/collusive-transactions-with-the-corporate-debtor-would-not-constitute-a-financial-debt-under-insolvency-and-bankruptcy-code-supreme-court\/","url_meta":{"origin":267758,"position":5},"title":"Collusive transactions with the Corporate Debtor would not constitute a \u2018financial debt\u2019 under Insolvency and Bankruptcy Code: Supreme Court","author":"Prachi Bhardwaj","date":"February 3, 2021","format":false,"excerpt":"Supreme Court: The 3-judge bench of Dr. DY Chandrachud*, Indu Malhotra and Indira Banerjee, JJ has held that collusive transactions with the Corporate Debtor would not constitute a \u2018financial debt\u2019 under Insolvency and Bankruptcy Code. 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