Can Time-Barred Debts Be Recovered Through Remedies Other Than Civil Suits As Per Special Laws? Supreme Court Refers To 3-Judge Bench

The Supreme Court has referred to a 3-judge bench the question whether debts, which cannot be recovered by filing civil suits as they are time-barred under the Limitation Act 1963, can be recovered by invoking other remedies under special statutes for debt recovery.

The Court was hearing an appeal against a judgment of the Punjab and Haryana High Court which held that a time-barred debt can be recovered by resorting to the Haryana Public Moneys (Recovery of Dues) Act, 1979 (for short “the Recovery of Dues Act”) read with the State Financial Corporation Act, 1951.

Before the High Court, the appellants had relied upon the judgment of a three-Judge Bench of the Supreme  Court in State of Kerala and Others vs. V.R. Kalliyanikutty & Anr. (1999) 3 SCC 657 to contend that a time-barred debt under the Limitation Act cannot be recovered under the Recovery of Dues Act. However, the High Court distinguished this judgment by stating that it was rendered ignoring other Supreme Court precedents(Bombay Dyeing and Manufacturing Company Limited vs. The State of Bombay and Ors., 1958 SCR 1122) which declared that the law of limitation merely barred the remedy and did not extinguish the debt.

While hearing the appeal against the High Court's judgment, the Supreme Court noted that an authoritative pronouncement of the issue was necessary.

A bench comprising Justices Surya Kant and KV Viswanathan observed :

The questions that fall for consideration are, firstly, are the appellants right in contending that the recovery proceedings initiated against them under the Recovery of Dues Act are barred in view of the principle laid down in V.R.Kalliyanikutty (supra).

Secondly, if they are right, then is the decision in V.R. Kalliyaikutty (supra) contrary to the holding in Bombay Dyeing and Manufacturing Company Limited (supra) and if so what is the course open for this two-Judge Bench.

The Court observed that the the real question that arises is "do the State Financial Corporations Act, 1951 and the Recovery of Dues Act create a distinct right and provided an alternative mechanism of enforcement to reover the amount due, even if the amounts due were time barred."

After referring to the objectives of the statutes, the Court observed that the provisons confer a right of recovery on the financial corporation, without prejudice to any other mode of recovery which includes the right to file a suit.

Debt is not the same as the right to recovery

The judgment authored by Justice Viswanathan, after referring to the discussions in Salmond on Jurisprudence, observed that "a debt is not the same thing as the right of action for its recovery."

"While the debt is the right in the creditor with the corelative duty on the debtor the right of action for recovery is in the nature of a legal power. While the process of filing a civil suit may be barred because of the statute of limitation, the power to recover vested through Section 32-G of the State Financial Corporations Act read with Section 2(c) and Section 3 of the Recovery of Dues Act is a distinct power which continues notwithstanding that another mode of recovery through a civil suit is barred. Understood in that sense, it does appear that there is an additional right to enforce the claims of the financial corporations notwithstanding the bar of limitation."

The Court also grappled with the question whether the power to invoke remedies other than the suit should be exercised within a reasonable time. However, it left the issue open.

"No doubt, even where the statute of limitation does not apply, the power has to be exercised within a reasonable time. In that scenario the further question would be: Whether the time available would analogously be the time available for execution of decrees? Since no specific arguments have been advanced and since the Division Bench in the Impugned Order was not engaged with that issue, we refrain from dealing with the same."

The judgment also referred to the 2023 judgment in KC Ninan v. Kerala State Electricity Board 2023 LiveLaw (SC) 453, which, after noticing V.R. Kalliyanikutty, concluded that statute of limitation only barred a remedy, while the right to recover the loan through 'any other suitable manner provided' remains untouched. 

The Court stated that the matter be placed before a 3-judge bench for an authoritative pronouncement.

"In view of what has been pointed out hereinabove, we are of the opinion that, for a comprehensive consideration and an authoritative pronouncement after taking into account all aspects, including those dealt with hereinabove, the matter needs to be placed before the Hon'ble Chief Justice of India to constitute an appropriate three-judge bench.

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."

Case : KP Khemka and anr vs Haryana State Industrial and Infrastructure Corporation Limited and ors

Citation : 2024 LiveLaw (SC) 357

Click here to read the judgment