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A decree obtained in a recovery proceeding constitutes a financial debt; the holder of such decree is entitled to initiate CIRP against the Corporate Debtor

NCLAT held that a decree obtained in a recovery proceeding constitutes a financial debt; the holder of such decree is entitled to initiate CIRP against the Corporate Debtor.


The National Company Law Appellate Tribunal (NCLAT), Chennai Bench comprising Justice M. Venugopal (Judicial Member) and Jatindranath Swain (Technical Member) was hearing an appeal and observed that a decree obtained in a recovery proceedings constitutes a financial debt under the Insolvency and Bankruptcy Code, 2016. The NCLAT Bench noted that the holder of such a decree is entitled to initiate a Corporate Insolvency Resolution Process (CIRP) within the prescribed limitation period.


The National Company Law Appellate Tribunal (NCLAT) heard an appeal against the Order passed by the Adjudicating Authority (AA), also known as the National Company Law Tribunal (NCLT), Hyderabad, on April 11, 2022. The AA/NCLT had admitted the Corporate Debtor (CD) into the Corporate Insolvency Resolution Process (CIRP) under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), based on the application filed by M/s. Prithvi Asset Reconstruction and Securitization Company Pvt. Ltd., the Financial Creditor (FC).


The appellant, Mr. Virigineni Anjaiah, the Suspended Director of the CD, challenged this decision, asserting that the application by the FC was barred by limitation and that the FC did not qualify as a Financial Creditor under the IBC.


The AA/NCLT had ruled in favour of the FC, stating that the FC's application was not time-barred and that the FC met the criteria of a Financial Creditor under the IBC. The AA/NCLT concluded that the FC's claim arose from a decree obtained in Debt Recovery Tribunal proceedings, which constituted a financial debt under the IBC.


In response to the appellant's arguments, the NCLAT cited recent judgments by the Hon’ble Supreme Court, affirming that a decree obtained in recovery proceedings constitutes a financial debt and entitles the holder to initiate CIRP within the prescribed limitation period.


The NCLAT upheld the AA/NCLT's decision, stating that it was legally sound and dismissed the appeal. Thus, the Corporate Debtor's admission to CIRP stood, and the appeal was dismissed without costs.

 

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