The Supreme Court has held that the ‘doctrine of election’, stemming out of the law of evidence that bars prosecution of the same right in two different fora based on the same cause of action, cannot be applied to prevent a financial creditor from approaching the adjudicating authority for initiation of Corporate Insolvency Resolution Process against a corporate debtor.
In the case of Tottempudi Salalith v. State Bank of India & Ors. [dated 18 October 2023], the State Bank of India had extended certain credit facilities to the corporate debtor. When the corporate debtor failed to pay the loan, SBI filed for recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) before the Debt Recovery Tribunal. The DRT issued recovery certificates against the corporate debtor in the years 2015 and 2017. However, upon defaulting on the payment towards the recovery certificates by the corporate debtor, SBI filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 which was admitted by the adjudicating authority.
Against the admission and its allowance by the adjudicating authority and the first appellate authority, the appellant filed a further appeal before the Apex Court.
In this regard, the Apex Court held that, while ‘doctrine of election’ bars prosecution of the same right in two different fora arising out of the same cause of action, in the present case the recovery proceedings had commenced even before the Insolvency and Bankruptcy Code, 2016 had come into force.
Further, while laying reliance on Kotak Mahindra Bank Limited v. A. Balakrishnan and Anr., the Apex Court observed that SBI had a right to invoke the provisions under IBC, even after the issuance of recovery certificates by the DRT, as a valid legal recourse.