Can time-barred debt be recovered? Supreme Court refers issue to three-Judge Bench

The Supreme Court on Wednesday referred to a three-judge Bench the question of whether time-barred debts (debts in respect of which civil suits cannot be filed because they are barred by limitation law) can be collected by invoking debt-recovery laws [KP Khemka and anr vs Haryana State Industrial and Infrastructure Corporation Limited and ors].

A Bench of Justices Surya Kant and KV Viswanathan reasoned that the reference is necessary since there are conflicting judgments on the issue.

"For a comprehensive consideration and an authoritative pronouncement ... the matter needs to be placed before the Hon’ble Chief Justice of India to constitute an appropriate three-judge bench," the Bench observed.

The Court made the reference while dealing with a batch of appeals against an April 2015 verdict of the Punjab and Haryana High Court.

In the 2015 judgment, the High Court had rejected an argument that debts which are time-barred under the Limitation Act, 1963 cannot be recovered by resorting to the Haryana Public Moneys (Recovery of Dues) Act, 1979 or the State Financial Corporation Act, 1951.

The High Court opined that the Limitation Act only bars the remedy (filing of civil suit) and does not extinguish the debt itself.

In other words, the High Court held that the time-barred debts can be recovered through debt-recovery laws.

This High Court verdict was challenged before the Supreme Court by way of an appeal.

The appellants relied upon the Supreme Court's decision in State of Kerala and Ors v. VR Kalliyanikutty & anr. In this 1999 judgment, a three-judge Bench of the Supreme Court held that the Kerala Revenue Recovery Act did not create any additional right for creditors to recover outstanding amounts.

It was held (in the 1999 judgment) that amounts due under the Kerala Revenue Recovery Act would only include legally recoverable debts or debts which are not time-barred.

The Punjab and Haryana High Court, however, had distinguished the said case by relying on the apex court judgments in the Bombay Dyeing case and the case of Tilokchand and Motichand and Others vs. HB Munshi and another.

The High Court noted that these two decisions (pronounced earlier) were not placed before the Supreme Court Bench that made the 1999 decision.

Against this backdrop, the Division Bench of the Supreme Court framed the following question in today's order:

"Do the State Financial Corporations Act, 1951 and the Recovery of Dues Act [of various States] create a distinct right and provide an alternative mechanism of enforcement to recover the amount due, even if the amounts due were time barred?"

The Division Bench opined that the power to recover debts under both these laws was distinct and continues even if a civil suit cannot be filed because the debt is time-barred.

The Bench concluded that financial corporations have an additional right to enforce their claims, even if they cannot file a civil suit as the debt is time-barred under the Limitation Act.

It further observed that the Bench which heard the VR Kalliyanikutty case (on which the 1999 judgment was passed) was not made aware of this aspect.

"It does appear that there is an additional right to enforce the claims of the financial corporations notwithstanding the bar of limitation. The same is the case with the provisions of the Kerala Revenue Recovery Act which fell for consideration of this Court in V.R. Kalliyanikutty (supra)," the Division Bench added.

The Court, therefore, referred the matter to a three-judge Bench for an authoritative pronouncement on the issue.

"Let the papers along with this order be placed before Hon’ble the Chief Justice of India for seeking appropriate directions from His Lordship, in this regard," the Court directed.

Advocates Rakesh Kumar, Saurabh Mishra, Preeti Kashyap, Varun Pandit, Shrimay Mishra, Abhimanyu Tewari, Eliza Bar, Siddhant Saroha, Sidhant Awasthy, Manav Bhalla, and Praveer Singh appeared for the appellants.

Senior Additional Advocate General Lokesh Sinhal with Advocates Akshay Amritanshu, Nikunj Gupta, Himanshi Shakya, Samyak Jain, Karunakar Mahalik, Manish K Bishnoi, Rajat Navet, Kushagra Pandit, and DS Mahra appeared for the Haryana State Industrial and Infrastructure Corporation Limited.

[Read order]