2019 (12) TMI 1273 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - matter is pending before the Debt Recovery Appellate Tribunal against the order passed under the SARFAESI Act 2002 - Financial Creditor from initiating any coercive steps subject to deposit of money by the Corporate Debtor - time limitation - HELD THAT - In B.K. Educational Services Private Limited V. Parag Gupta and Associates 2018 (10) TMI 777 - SUPREME COURT the Hon ble Supreme Court held that the Limitation Act 1963 is applicable to applications filed under Sections 7 and 9 of the I B Code from the inception of the Code and as such Article 137 of the Limitation Act gets attracted. The Limitation Act 1963 was also made applicable by insertion of Section 238A of the I B Code . In the present case in fact the default took place much earlier. It is admitted that the debt of the Corporate Debtor was declared NPA on 1st December 2008 as has been noticed by the Adjudicating Authority - Asset Reconstruction Company (India) Ltd. - (Financial Creditor) cannot derive any benefit of the action taken under SARFAESI Act 2002 which is guided by separate provisions of limitation - Admittedly the Financial Creditor took action under the SARFAESI Act 2002 in the year 2013. Therefore the second time it become NPA in the year 2013 when action under Section 13(2) was taken. In the present case the account was declared NPA since 1st December 2008 and therefore the suit was filed. Thereafter any document or acknowledgment even after the completion of the period of limitation i.e. December 2011 cannot be relied upon. Further in absence of any record of acknowledgment the Appellant cannot derive any advantage of Section 18 of the Limitation Act. For the said reason the application under Section 7 is barred by limitation the accounts of the Corporate Debtor having declared NPA on 1st December 2008. The Adjudicating Authority having failed to appreciate the aforesaid fact the impugned order dated 1st May 2019 rejecting the objections of the Corporate Debtor and the impugned order dated 31st May 2019 passed by the Adjudicating Authority admitting the application under Section 7 are set aside - appeal allowed.

Issues Involved:
1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code) due to pending SARFAESI proceedings.
2. Applicability of the Limitation Act, 1963 to the application under Section 7 of the I&B Code.
3. Whether the application under Section 7 was barred by limitation.
4. Acknowledgment of debt by the Corporate Debtor and its impact on the limitation period.

Detailed Analysis:

1. Maintainability of the Application under Section 7 due to Pending SARFAESI Proceedings:
The Corporate Debtor argued that the application under Section 7 was not maintainable as the matter was pending before the Debt Recovery Appellate Tribunal (DRAT) under the SARFAESI Act, 2002. They cited an order from the Bombay High Court restraining the Financial Creditor from initiating coercive steps during the pendency of the appeal before DRAT. However, the Financial Creditor contended that the relief granted by the High Court was confined to SARFAESI proceedings and did not bar the initiation of insolvency proceedings. The Adjudicating Authority (NCLT) admitted the application, which was challenged by the Corporate Debtor.

2. Applicability of the Limitation Act, 1963:
The Supreme Court in "B.K. Educational Services Private Limited v. Parag Gupta and Associates" held that the Limitation Act, 1963 applies to applications filed under Sections 7 and 9 of the I&B Code from the inception of the Code. This was further reinforced by the introduction of Section 238A into the I&B Code. The Limitation Act's Article 137, which prescribes a three-year limitation period, was applicable to the present case.

3. Whether the Application under Section 7 was Barred by Limitation:
The Financial Creditor argued that the limitation period for enforcing payment of money secured by a mortgage of immovable property is twelve years under Article 62 of the Limitation Act. They claimed that the default occurred in 2008, and the application was filed within ten years. However, the Supreme Court in "Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd." clarified that Article 62 applies only to suits, not applications under Section 7, which fall under the residuary Article 137 with a three-year limitation period. Since the Corporate Debtor's account was declared NPA on 1st December 2008, the application filed in 2018 was time-barred.

4. Acknowledgment of Debt by the Corporate Debtor:
The Financial Creditor relied on Section 18 of the Limitation Act, which allows for the extension of the limitation period if there is a written acknowledgment of debt. However, the Corporate Debtor did not provide any written acknowledgment within the prescribed period. The books of account could not be treated as an acknowledgment of liability. The Supreme Court in "Sampuran Singh and Ors. v. Niranjan Kaur and Ors." emphasized that acknowledgment must be made before the expiration of the limitation period. In this case, any acknowledgment after December 2011 was irrelevant.

Conclusion:
The application under Section 7 was barred by limitation as the debt was declared NPA on 1st December 2008, and no valid acknowledgment was made within the limitation period. The Adjudicating Authority's orders rejecting the objections of the Corporate Debtor and admitting the application were set aside. The Corporate Debtor was released from the insolvency proceedings, and the management was restored to its Board of Directors. The costs of the Corporate Insolvency Resolution Process were to be borne by the Financial Creditor. Both appeals were allowed, with no costs.

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