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2021 (10) TMI 1313 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time limitation - HELD THAT - It is on record that the Corporate Debtor was referred to BIFR under Sick Industrial Companies (Special Provisions) Act, 1986 (SICA). The reference of the Corporate Debtor to BIFR was pending until 19th June, 2008. When, as mentioned by the Petitioner, the reference to BIFR in SICA was abated and accordingly ordered by BIFR. Therefore, the Bench is of the view that as per Section 22 of the SICA, 2003, the Petitioner could not have instituted or prosecuted any proceedings against Corporate Debtor from 2003, when the company was referred to BIFR and till June, 2008 when the said reference was abated by BIFR. Thus, the time period between 2003 to 19th June, 2008 as per law would stand excluded while computing the period of limitation for filing the petition - Similarly, for the financial year 1st April, 2018 to 31st March, 2019, the details of debentures issued by UTI is mentioned along with the fact that the same was recalled in the Financial Year 2002-2003. Here, the Bench would like to reiterate that the Petition was filed on 6th November, 2018. Thus, it is clear that there has been acknowledgement of debt as per the financial filings of the Corporate Debtor with RoC regularly and year after year and thus it would fairly constitute as the acknowledgement under Section 18 of the Limitation Act, 1963. Petition admitted - moratorium declared.
Issues Involved:
1. Default in payment by the Corporate Debtor. 2. Assignment of debt to the Petitioner. 3. Time-barred debt and limitation period. 4. Acknowledgment of debt in financial documents. 5. Applicability of Section 18 of the Limitation Act. 6. Initiation of Corporate Insolvency Resolution Process (CIRP). Issue-wise Analysis: 1. Default in Payment by the Corporate Debtor: The Petitioner, Phoenix ARC Private Limited, filed a petition alleging that the Corporate Debtor defaulted on 30.09.2002 in making a payment of ?96,01,67,024/-. The financial assistance was initially advanced by Unit Trust of India (UTI) through a subscription of 5,00,000 Secured Redeemable Non-Convertible Debentures of ?100 each. Despite multiple agreements and modifications, including a reduction in interest rates from 19% to 17.5%, the Corporate Debtor failed to repay the financial facility as per the agreed terms. UTI issued a Recall Notice on 10.10.2002, but the Corporate Debtor did not repay the outstanding amounts, prompting the Petitioner to seek the commencement of CIRP. 2. Assignment of Debt to the Petitioner: The rights, title, and interest in the financial facility were assigned to Phoenix ARC Private Limited by UTI through an Assignment Agreement dated 04.12.2014. This allowed the Petitioner to act in favor of UTI regarding the debt owed by the Corporate Debtor. The Corporate Debtor was initially liable to repay the financial facility in six annual installments after the second year from the respective dates of allotments. 3. Time-barred Debt and Limitation Period: The Corporate Debtor contended that the petition was based on a time-barred debt, as the right to sue accrued in 2004 with the issuance of the Recall Notice, but the petition was filed only on 06.11.2018. The Corporate Debtor argued that the Petitioner could not revive a time-barred debt under Section 18 of the Limitation Act without a written acknowledgment of the debt before the expiration of the limitation period. 4. Acknowledgment of Debt in Financial Documents: The Petitioner submitted financial documents showing clear-cut admission of liability by the Corporate Debtor from time to time since 2003. The Bench examined whether the Corporate Debtor had acknowledged its liability towards the financial facility within every three years since the date of default. The Corporate Debtor's balance sheets and annual returns filed with the Registrar of Companies (RoC) for various years, including 2009, 2012, 2015, 2017, and 2019, showed mentions of the outstanding debentures and the recall of the loans. 5. Applicability of Section 18 of the Limitation Act: The Bench referred to recent judgments by the Hon'ble Supreme Court, including Dena Bank vs. C. Shivakumar Reddy (2021) and Asset Reconstruction Company vs. Bishal Jaiswal (2021), which clarified that entries in balance sheets and financial statements can amount to an acknowledgment of liability under Section 18 of the Limitation Act. The Bench concluded that the Corporate Debtor's financial filings constituted an acknowledgment of debt, thereby extending the limitation period. 6. Initiation of Corporate Insolvency Resolution Process (CIRP): The Bench found that the petition was not time-barred due to the acknowledgment of debt in the Corporate Debtor's financial documents. Consequently, the petition was admitted, and the initiation of CIRP against the Corporate Debtor was ordered. An Interim Resolution Professional (IRP) was appointed, and the Financial Creditor was directed to deposit ?5 Lakh towards the initial CIRP cost. The order also included a moratorium on suits, proceedings, and actions against the Corporate Debtor, ensuring the continuation of essential goods or services during the CIRP period. Order: The Company Petition No. (IB) -4277(MB)/2018 was allowed, and the CIRP was ordered against Ajanta Paper and General Products Limited. An IRP was appointed, and the Financial Creditor was directed to deposit the initial CIRP cost. A moratorium was imposed, prohibiting suits, proceedings, and actions against the Corporate Debtor, and ensuring the continuation of essential services during the CIRP period. The Registry was directed to communicate the order to all relevant parties and update the Corporate Debtor's Master Data.
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