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2020 (5) TMI 424 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - time limitation - Whether the order of Decree passed by the Debts Recovery Tribunal-I, Hyderabad on 17th August, 2018 can be taken into consideration to hold that application under Section 7 of the I B Code is within period of three years as prescribed under Article 137 of Limitation Act, 1963? - HELD THAT - If the period of limitation is counted from the date of default/ NPA then the period comes to an end in the year 2007. In such a case, the application under Section 7 of the I B Code is clearly barred by limitation. By filing an application under Section 7 of the I B Code, a Decree cannot be executed. In such case, it will be covered by Section 65 of the I B Code, which stipulates that the insolvency resolution process or liquidation proceedings, if filed, fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, attracts penal action - The Adjudicating Authority (National Company Law Tribunal) has failed to consider the aforesaid fact and wrongly held that the date of default took place when the judgment and Decree was passed by Debts Recovery Tribunal on 17th August, 2018. Thus, in absence of any acknowledgement under Section 18 of the Limitation Act, 1963, the date of default/ NPA was prior to 2004 and does not shift forward, therefore, the period of limitation for moving application under Section 7 of the I B Code was for three years, if counted, to be completed in the year 2007. As date of passing of Decree is not the date of default, we hold that the application under Section 7 of the I B Code was barred by limitation, though the claim may not be barred. Application dismissed - Corporate Debtor is released from all the rigors of Corporate Insolvency Resolution Process - appeal allowed.
Issues Involved:
1. Whether the application under Section 7 of the I&B Code was barred by limitation. 2. Whether the order of Decree passed by the Debts Recovery Tribunal-I, Hyderabad on 17th August, 2018, can be taken into consideration to hold that the application under Section 7 of the I&B Code is within the period of three years as prescribed under Article 137 of the Limitation Act, 1963. Issue-Wise Detailed Analysis: 1. Whether the application under Section 7 of the I&B Code was barred by limitation: The appellant challenged the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor on the ground that the application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code) was barred by limitation. The key argument was that the period of limitation should be counted from the date of default or the date the account was declared as Non-Performing Asset (NPA), which occurred in 2004. According to the appellant, if the limitation period is counted from 2004, it would end in 2007, making the application under Section 7 barred by limitation. The tribunal noted that the loans were disbursed between 1994 and 2001, and the original application (O.A. No.193 of 2004) was filed in 2004 before the Debts Recovery Tribunal (DRT). The default took place in 2004, and the account was declared NPA in the same year. Therefore, if the limitation period is counted from the date of default/NPA, the period ended in 2007, making the application under Section 7 clearly barred by limitation. 2. Whether the order of Decree passed by the Debts Recovery Tribunal-I, Hyderabad on 17th August, 2018, can be taken into consideration to hold that the application under Section 7 of the I&B Code is within the period of three years as prescribed under Article 137 of the Limitation Act, 1963: The Financial Creditor argued that the limitation period should be counted from the date when the Decree was passed by the DRT, i.e., 17th August, 2018. The tribunal examined Part-IV of Form-1, which showed the date of default as 17th August, 2018, based on the DRT order. However, the tribunal clarified that a Decree passed by the DRT cannot be considered an acknowledgment of debt by the Corporate Debtor under Section 18 of the Limitation Act, 1963. The tribunal also reviewed the balance sheets of the Corporate Debtor for the years ending 2014-15, 2015-16, and 2016-2017 but concluded that these cannot be treated as acknowledgments under Section 18 of the Limitation Act, 1963, because filing balance sheets/annual returns is mandatory under Section 92 of the Companies Act, 2013, and failing to do so attracts penal action. The tribunal referred to several judgments, including "B.K. Educational Services Private Limited vs. Parag Gupta and Associates" and "Vashdeo R. Bhojwani vs. Abhyudaya Co-operative Bank Limited," where the Supreme Court held that the Limitation Act, 1963, applies to applications filed under Sections 7 and 9 of the I&B Code from its inception. The right to sue accrues when a default occurs, and if the default occurred over three years prior to the date of filing the application, the application would be barred under Article 137 of the Limitation Act. The tribunal concluded that the date of default cannot be shifted forward by a Decree or judgment. The Decree passed by the DRT on 17th August, 2018, only suggests that the debt became due and payable, but it does not shift the date of default. Therefore, the application under Section 7 of the I&B Code was barred by limitation, as the period of limitation ended in 2007. Conclusion: The tribunal set aside the impugned order dated 1st October, 2019, and dismissed the application under Section 7 of the I&B Code filed by the Financial Creditor. The Corporate Debtor was released from all the rigors of the CIRP. The Interim Resolution Professional was directed to hand over the assets and records to the Promoters/Board of Directors immediately. The Adjudicating Authority was tasked with deciding the fee and cost incurred and payable to the Interim Resolution Professional/Resolution Professional, which would be borne by the Financial Creditor. The appeal was allowed with no costs.
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