Date: 17th Sept, 2020
by Varun Litoriya, NLU Odisha
WHO IS A DECREE HOLDER?
A decree-holder means any person in whose favour a decree has been passed or an order capable of execution has been made by a civil court or any adjudicating authority. Decree holders have been defined or given the status of creditors under Section 3 (10) of the Insolvency Bankruptcy Code(IBC).
There have been conflicting decisions of National Company Law Appellate Tribunal (NCLAT) and Supreme Court on the issue of whether decree holders can execute their decree under IBC.
CASES SUPPORTING DECREE HOLDERS
● The NCLAT has supported that the decree holder can file for insolvency proceeding as the word decree is mentioned under section 3(10) of IBC, the tribunal also stated that the application for execution of decree cannot be denied on a mere fact that the holder should execute it before a civil court first (Urgo Capital Limited v. Bangalore Dehydration and Drying)
● In the case of Kirusa Software Private Ltd The NCLAT stated that in cases where award or decree is decided but pending for execution, A decree should be allowed to execute under the IBC.
● The Supreme Court in the cases of Sundaram Finance Ltd and K. Kishan stated that an arbitral award or decree can be executed under the code if the award falls under the category of financial or operational debt and condition specified by the court in the former case.
CASES AGAINST DECREE HOLDERS
● Interestingly, the NCLAT denied an application for initiation of insolvency proceeding stating that the code can’t be used when the execution of a decree is pending before another civil court or to execute an arbitral award in the case of Jayant Vitamins Ltd and HDFC Bank Ltd respectively.
● In the case of Digamber Bhondwen v. JM Financial Asset Reconstruction Company NCLAT stated that even though the Section 3(10) of the code includes financial creditor, operational creditor and decree holder but, the Section 7 and the Section 9 of the code does not include decree holder, therefore, decree holders are not allowed to initiate insolvency proceedings.
● In Sh. Sushil Ansal v Ashok Tripathi and Ors the tribunal reiterated that the decree- 3(10) of the Insolvency and Bankruptcy Code (IBC) would not fall within the class of financial creditors and therefore, a decree holder cannot initiate a CIRP against a corporate debtor with an object to execute a decree.
The NCLAT or NCLT would dismiss an application if filed with a motive to increase chances of recovering benefit rather than executing it as per the civil procedure. The act of a creditor approaching civil suit, arbitration, DRT for securing a decree against corporate debtor rather than NCLT for corporate debtor resolution itself shows that the creditor is concerned in redemption and not in corporate debtor resolution. In cases where debt exists before the decree is not decided but only validated by court or tribunal or DRT, in such situations, decrees may be accepted by NCLT. The status quo of financial or operational creditors as decree holders is not fully resolved under the IBC, the tribunal is required to provide clarity on this.
1. Section 2(3), the Civil Procedure Code, 1908 (Act No. V of 1908)
2. The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016.
3. (Company Appeal (AT) (Insolvency) No. 984 of 2019
4. Kirusa Software Private Ltd. v. Mobilox Innovations Private Ltd, Company Appeal (AT) (Insolvency) 6 of 2017
5. Sundaram Finance Ltd. v Abdul Samad, (2018) 3 SCC 622
6. K. Kishan v M/S Vijay Nirman Company Pvt. Ltd, 2017 SCC OnLine SC 1665
7. International Asset Reconstruction Co. Pvt. Ltd. v. Jayant Vitamins Ltd Company Appeal (AT) (Insolvency) 6 of 2017
8. HDFC Bank Ltd. v. Bhagwan Das Auto Finance Ltd Company Appeal (AT) (Insolvency) No. 1329 of 2019
9. (165(IBC) 130/2020)
10. Company Appeal (AT) (Insolvency) No. 452 of 2020