Under the IBC, 'Decree Holders' Can't Be Treated At Par With 'Financial Creditors': Supreme Court Upholds HC Verdict

Team SoOLEGAL 13 Apr 2022 2:27pm

Under the IBC, 'Decree Holders' Can't Be Treated At Par With 'Financial Creditors': Supreme Court Upholds HC Verdict

New Delhi: The Supreme Court upheld a Tripura High Court decision, holding that under the Insolvency and Bankruptcy Code, "decree-holders" cannot be treated at par with "financial creditors."

While dismissing a Special Leave Petition (SLP) filed against the High Court judgment, a bench of Justices SK Kaul and MM Sundresh noted, "We are not inclined to interfere with the impugned judgment. The special leave petition is dismissed. Pending applications stand disposed of."

Subhankar Bhowmik filed a petition in the High Court seeking to have Section 3(10) of the Insolvency and Bankruptcy Code 2016 r/w Regulations 9A declared ultra vires for failing to define the terms "other creditors" and to have them struck down. Relief was also sought for bringing the phrase "decree holder" from Section 3(10) into line with "financial creditors" as defined by Regulation 9 (a).

Petitioner also requested that claims filed underneath a CIRP by "decree holder" under Regulation 9(a) of the CIRP Regulations be treated at par with claims filed by "financial creditors" and be subject to all consequential rights available to financial creditors.

"Any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor, and a decree-holder," according to Section 3(10) of the IBC.

According to the High Court, in terms of the definition in Section 3 (10) of the IBC, a decree-holder is correctly classified as a creditor. Execution of such a decree, however, is subject to the IBC's express limitations (in addition to and beyond the requirements and limitations of the CPC's execution process), which cannot be avoided.

The Court observed, "The nature of the dispute that resulted in the quantification vanishes once a decree quantifies a debt due. It will appear only as a liability in the books of a corporate debtor, not as financial or operational debt. It cannot be said that the same is arbitrary or unreasonable.”

Another assertion was that decree holders as a class of creditors have been discriminated against because, under Section 21 of the IBC and Regulation 16 of the CIRP Regulations, they are not allowed to serve on the Committee of Creditors. It was also turned down.

The bench had said, while dismissing the writ, "to put the steering wheel of a non-adversarial process to revive a corporate debtor, in the hands of an adversarial claimant, would defeat the very purpose of the IBC. As such, we find no merit in the contentions raised by the petitioner. The writ petition stands dismissed."

Tagged: Decree Holders   SC   Section 3 (10)  
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