2019 (10) TMI 1267 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate debtor failed to make repayment of its debt - time limitation - whether the letters dated 29/1/2018 and 30/7/2018 constitute acknowledgment as per provision of Sec. 18 of the Limitation Act, 1963? - HELD THAT - It is not in dispute that these letters have been written by the corporate debtor regarding confirmation of outstanding balance of ICD as on 31/ 12/2017 and 30/6/2018 as per the books of account of Financial Creditor. The confirmation of outstanding balance is to be given to the statutory auditors of the corporate debtor. This exercise cannot be considered in a light manner because reliance on the accuracy of the books of account and financial statement is based upon such standard auditing practice. In the letter dated 29/ 1/2018 it has been clearly mentioned that such confirmation was in respect of amounts payable in respect ICD as on 31/ 12/2017 which by itself establishes the fact of acknowledgment of debt beyond any doubt. There have been catena of decisions of NCLT and NCLAT that presentation of debt in the balance sheet constitutes acknowledgment of debt. Since the corporate debtor, in the present case has asked for conformation of balance from the financial creditor as on 31st December 2017 and 30th June 2016 in respect of loan taken in 2014 which itself implies that such loan is continuously outstanding in the balance sheet of corporate debtor from earlier financial years ending on 31st March 2015, 31st March 2016 and 31st March 2017. Thus, this fact by itself goes against the corporate debtor and irrespective of these emails, there exists acknowledgment of debt due and payable which is not barred by limitation. This being so, hence, such emails also fall in the period specified for filing of suit as per provisions of Limitation Act, 1963 and, therefore, these comply with the requirements of Sec. 18 of Limitation Act, 1963. There is no merit in the claim of the corporate debtor that the said emails cannot be said to be an acknowledgment within the meaning of provision of Sec. 18 of Limitation Act, 1963 and the same is rejected - application admitted.

Summary

Issues Involved:
1. Whether the debt is barred by limitation.
2. Whether the letters dated 29/1/2018 and 30/7/2018 constitute acknowledgment as per Section 18 of the Limitation Act, 1963.

Detailed Analysis:

Issue 1: Whether the debt is barred by limitation.
The financial creditor filed an application under Section 7 of the Insolvency & Bankruptcy Code, 2016 to initiate the corporate insolvency resolution process against the corporate debtor. The amount of default stated was ?3,35,62,739.73, including the principal sum and interest. The corporate debtor contended that the debt was time-barred, arguing that the acknowledgments were not in compliance with Section 18 of the Limitation Act, 1963.

The tribunal considered whether the debt was barred by limitation and examined the letters dated 29/1/2018 and 30/7/2018, which were requests from the corporate debtor to confirm the outstanding balance of ICD as on 31/12/2017 and 30/6/2018. These letters were intended for the statutory auditors of the corporate debtor, and the tribunal emphasized the importance of such confirmations in standard auditing practices. The tribunal concluded that these letters constituted an acknowledgment of debt, thus extending the limitation period as per Section 18 of the Limitation Act, 1963.

Issue 2: Whether the letters dated 29/1/2018 and 30/7/2018 constitute acknowledgment as per Section 18 of the Limitation Act, 1963.
The tribunal reproduced Section 18 of the Limitation Act, 1963, which states that an acknowledgment of liability in writing signed by the party against whom the property or right is claimed extends the limitation period. The tribunal noted that the letters from the corporate debtor confirmed the outstanding balance of ICD, which was sufficient to constitute an acknowledgment of debt. It was further noted that the acknowledgment does not need to be addressed to the financial creditor specifically; it can be addressed to any relevant party, including auditors.

The tribunal also referred to various decisions of NCLT and NCLAT, which held that the presentation of debt in the balance sheet constitutes an acknowledgment of debt. The corporate debtor's request for confirmation of the balance from the financial creditor implied that the loan was continuously outstanding in the balance sheet from earlier financial years. This acknowledgment was sufficient to extend the limitation period, and the tribunal concluded that the debt was not barred by limitation.

Additional Considerations:
The tribunal also considered Section 238A of the Insolvency & Bankruptcy Code, 2016, which applies the provisions of the Limitation Act, 1963 to proceedings before the Adjudicating Authority, NCLAT, DRT, or DRAT. The tribunal emphasized that the Insolvency & Bankruptcy Code, 2016 is not a recovery mechanism but a comprehensive code for insolvency resolution, and stale claims cannot be revived through it. The flexibility provided by Section 18 of the Limitation Act, 1963 was noted, and it was concluded that the emails constituted an acknowledgment of debt within the meaning of the provision.

Conclusion:
The tribunal found no merit in the corporate debtor's claim that the emails did not constitute an acknowledgment of debt. The petition was complete in all respects, and the financial creditor proposed the name of the Interim Resolution Professional (IRP), who was qualified and had no disciplinary proceedings pending against him. The tribunal admitted the application and ordered the initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. A moratorium was declared, and the IRP was directed to make a public announcement and call for the submission of claims. The tribunal also provided for the payment of an advance fee to the IRP and directed the registry to communicate the order to all concerned parties.

The matter was listed for the filing of the progress report on 26/11/2019, and a certified copy of the order was to be issued to all concerned parties upon compliance with requisite formalities.