Home Case Index All Cases Insolvency and Bankruptcy Insolvency and Bankruptcy + SC Insolvency and Bankruptcy - 2022 (8) TMI SC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (8) TMI 70 - SC - Insolvency and BankruptcyInitiation of CIRP - Period of limitation - to be recognized from the date of NPA or Balance Sheet recognizing the debt - Respondents argued that the Appellant was relying on the Financial Statements from 2014-15 onwards as acknowledgments to save limitation - whether Corporate Insolvency Resolution Process (CIRP) initiated by the Appellant against the Corporate Debtor, V. Hotels Ltd. was barred by limitation? - HELD THAT - On a careful reading of the provisions of the IBC and in particular the provisions of Section 7(2) to (5) of the IBC read with the 2016 Adjudicating Authority Rules, there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed - The time stipulation of fourteen days in Section 7(4) to ascertain the existence of a default is apparently directory not mandatory. The proviso inserted by amendment with effect from 16th August 2019 provides that if the Adjudicating Authority has not ascertained the default and passed an order under sub-section (5) of Section 7 of the IBC within the aforesaid time, it shall record its reasons in writing for not doing so. No other penalty is stipulated. Furthermore, the proviso to Section 7(5)(b) of the IBC requires the Adjudicating Authority to give notice to an applicant, to rectify the defect in its application within seven days of receipt of such notice from the Adjudicating Authority, before rejecting its application under Clause (b) of sub-section (5) of Section 7 of the IBC. When the Adjudicating Authority calls upon the applicant to cure some defects, that defect has to be rectified within seven days. However, in the absence of any prescribed penalty in the IBC for inability to cure the defects in an application within seven days from the date of receipt of notice, in an appropriate case, the Adjudicating Authority may accept the cured application, even after expiry of seven days, for the ends of justice. There is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the Adjudicating Authority (NCLT). An application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the Schedule to the said Act. Under Article 137 of the Schedule to the Limitation Act, the period of limitation prescribed for such an application is three years from the date of accrual of the right to apply - There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default. As per Section 18 of Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgement must be made before the relevant period of limitation has expired - It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act. An application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years - The Corporate Debtor acknowledged its liabilities in its financial statements from 2008-09 till 2016-17. The application under Section 7(2) of the IBC was filed on 3rd April 2018, well within the extended period of limitation. The impugned judgment and order of the NCLAT is set aside - The appeals are, accordingly allowed.
Issues Involved:
1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code (IBC) filed by the Financial Creditor was barred by limitation. 2. Whether the acknowledgments in the financial statements of the Corporate Debtor extended the period of limitation. 3. The relevance and impact of the Corporate Debtor's payments and settlement proposals on the limitation period. 4. The applicability of Section 18 of the Limitation Act to the proceedings under the IBC. 5. The interpretation of financial statements and balance sheets as acknowledgments of debt. Detailed Analysis: Issue 1: Limitation Bar for Section 7 Application The primary issue revolved around whether the application under Section 7 of the IBC, filed by the Financial Creditor, was barred by limitation. The Corporate Debtor argued that the application was barred by limitation as it was filed about eight/nine years after the account was declared a non-performing asset (NPA) on 1st December 2008. The NCLAT had held that the application was barred by limitation, emphasizing that the Financial Creditor failed to bring any acknowledgment in writing by the Corporate Debtor acknowledging the liability in respect of the debt. Issue 2: Acknowledgments in Financial Statements The Financial Creditor contended that the Corporate Debtor acknowledged its liabilities in its financial statements from 2008-09 to 2016-17, which extended the period of limitation. The Supreme Court observed that the balance sheet for the financial year 2014-15, signed on 14th May 2015, acknowledged the continuance of the jural relationship of debtor and creditor between the Appellant and the Corporate Debtor and the existence of financial liability. The application under Section 7 of the IBC was filed on 3rd April 2018, within three years from the date on which the balance sheet was signed. Issue 3: Payments and Settlement Proposals The Corporate Debtor made several payments and proposals for settlement, which were considered by the Supreme Court. For instance, on 19th April 2013, the Corporate Debtor paid Rs.17,50,00,000/- towards part repayment of the aggregate assigned debt. The Supreme Court noted that any part payments made by the Corporate Debtor would first be appropriated towards the interest amount due, as held in previous judgments. Issue 4: Applicability of Section 18 of the Limitation Act The Supreme Court reiterated that Section 18 of the Limitation Act applies to proceedings under the IBC. An acknowledgment of liability in writing, signed by the party against whom such property or right is claimed, would extend the period of limitation. The Court referred to previous judgments, including Sesh Nath Singh and Bishal Jaiswal, affirming that the IBC does not exclude the application of Section 18 of the Limitation Act. Issue 5: Interpretation of Financial Statements and Balance Sheets The Court held that entries in the books of accounts and/or balance sheets of a Corporate Debtor amount to an acknowledgment under Section 18 of the Limitation Act. The Court cited various judgments, including Bengal Silk Mills and South Asia Industries, which held that statements in the balance sheet of a company could amount to an acknowledgment of liability. The balance sheets for the financial years 2014-15 and 2015-16, signed on 14th May 2015 and 29th August 2016 respectively, acknowledged the existence of the jural relationship of debtor and creditor and the financial liability of the Corporate Debtor to the Appellant. Conclusion The Supreme Court concluded that the application under Section 7 of the IBC was not barred by limitation. The acknowledgments in the financial statements extended the period of limitation, and the application was filed within the extended period. The Court set aside the impugned judgment and order of the NCLAT, allowing the appeals.
|