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2020 (3) TMI 1244 - AT - IBCMaintainability of application - initiation of CIRP - Non-Performing Assets (NPA) Corporate Debtor failed to make repayment of its dues - time limitation - relevant date of default - HELD THAT - The issue decided in the case of V HOTELS LIMITED TULIP STAR HOTELS LTD. ANR. VERSUS ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED 2019 (12) TMI 1273 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI where it was held that for the purpose of computing the period of limitation of application under Section 7 the date of default is NPA and hence a crucial date. In JIGNESH SHAH ANOTHER VERSUS UNION OF INDIA ANOTHER 2019 (9) TMI 1121 - SUPREME COURT the Hon ble Supreme Court noticed the decision of the Hon ble Patna High Court in FERRO ALLOYS CORPN. LTD. VERSUS RAJHANS STEEL LTD. 1999 (4) TMI 486 - HIGH COURT OF PATNA wherein the Hon ble Patna High Court held that simply because a suit for realisation of the debt of the petitioner Company against Opposite Party 1 was instituted in the Calcutta High Court on its original side such institution of the suit and the pendency thereof in that Court cannot enure for the benefit of the present winding-up proceeding. A suit for recovery of money can be filed only when there is a default of dues. Even if the decree is passed the date of default cannot be shift forward to the date of decree or date of payment for execution as a decree can be executed within specified period i.e. 12 years. If it is executable within the period of limitation one cannot allege that there is a default of decree or payment of dues - thus a Judgment or a decree passed by a Court for recovery of money by Civil Court/ Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the I B Code . In the present case as the account of the Corporate Debtor was declared NPA on 31st October 2002 and decree was passed on 19th June 2009/ 31st August 2009 the application under Section 7 filed by M/s. Stressed Assets Stabilization Fund (SASF) against M/s. Uthara Fashion Knitwear Limited - (Corporate Debtor) is barred by limitation and was not maintainable. The impugned order dated 21st November 2019 passed by the Adjudicating Authority (National Company Law Tribunal) Division Bench Chennai is set aside - appeal allowed.
Issues Involved:
1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation due to the account being declared NPA in 2009 and a decree being passed in 2013. 2. Whether the reflection of debt in the Balance Sheet of the Corporate Debtor amounts to acknowledgment of debt under Section 18 of the Limitation Act, 1963. Issue-wise Detailed Analysis: 1. Limitation Period for Application under Section 7 of I&B Code: The primary issue was whether the application under Section 7 filed by the Financial Creditor was barred by limitation. The Corporate Debtor's account was declared as a Non-Performing Asset (NPA) on 29th May 2002, and a decree was passed on 19th June 2009. The Financial Creditor filed the application under Section 7 in 2019, which the Appellant argued was beyond the limitation period. The Tribunal referred to several judgments to determine the applicability of the Limitation Act, 1963 to applications under Section 7 of the I&B Code. In "B.K. Educational Services Private Limited Vs. Parag Gupta and Associates," the Supreme Court held that Article 137 of the Limitation Act applies to applications under Section 7, and the limitation period starts from the date of default. This principle was reiterated in "Jignesh Shah and another vs. Union of India and another," where the Supreme Court emphasized that the date of default is crucial for computing the limitation period. The Tribunal concluded that the application under Section 7 was barred by limitation since the default occurred when the account was declared NPA in 2002, and the decree in 2009 did not extend the limitation period. 2. Acknowledgment of Debt in Balance Sheets: The Tribunal also examined whether the reflection of debt in the Balance Sheet of the Corporate Debtor amounts to acknowledgment of debt under Section 18 of the Limitation Act, 1963. The Appellant argued that the debt was acknowledged in the Balance Sheets for the financial years 2011-2012 and 2012-2013 onwards. The Tribunal referred to various judgments, including "G Eswara Rao v. Stressed Assets Stabilisation Fund," which held that the filing of Balance Sheets/Annual Returns under Section 92 of the Companies Act, 2013, is mandatory and cannot be treated as an acknowledgment under Section 18 of the Limitation Act. The Tribunal emphasized that if Balance Sheets were considered acknowledgments, it would imply no limitation period, as companies are required to file these documents annually. However, a separate judgment by another member of the Tribunal highlighted that several High Courts, including the Delhi High Court, have treated entries in Balance Sheets as acknowledgments of debt under Section 18 of the Limitation Act. The judgment in "The Commissioner of Income Tax-III v. Shri Vardhman Overseas Ltd." was cited, where the Delhi High Court held that entries in Balance Sheets amount to acknowledgment of debt. The Tribunal concluded that the Balance Sheets cannot be outright ignored and must be examined to determine if they constitute acknowledgment of debt. However, in the present case, the Tribunal held that the application under Section 7 was barred by limitation, and the acknowledgment in Balance Sheets did not extend the limitation period. Conclusion: The Tribunal set aside the impugned order dated 21st November 2019, passed by the Adjudicating Authority (NCLT), Division Bench, Chennai, which admitted the application under Section 7. The Tribunal declared all subsequent orders and actions taken by the Interim Resolution Professional as illegal and dismissed the application under Section 7 filed by the Financial Creditor. The Corporate Debtor was allowed to function independently through its Board of Directors. The Tribunal also directed the Adjudicating Authority to fix the fee of the Interim Resolution Professional and the corporate insolvency resolution process cost, to be paid by the Financial Creditor.
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