2020 (8) TMI 424 - AT - Insolvency and Bankruptcy

Maintainability of appeal - time limitation - pendency of petition - account of Corporate Debtor declared as NPA on account of default - Appellant contends that during the pendency of the Petition Respondent Bank entered into OTS. However, the Respondent Bank did not withdraw the Petition and suddenly on 29th July 2019 issued a letter asking them to deposit the balance amount as per terms of OTS - non-compliance of the provision of Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016. HELD THAT - Admittedly, in this case, the account of corporate debtor was classified as NPA on account of default committed on 31st March 2016. As per Article 137 of the Limitation Act, the limitation period of three years was available to the applicant. But before the expiration of limitation period on 13rd March 2018, the Corporate Debtor submitted an acknowledgement of debt in writing and promised to clear the dues at the earliest possible. In addition to this, the Corporate Debtor had also submitted OTS proposal which was later on accepted on 27th December 2018 by the Bank. Thus, it is clear that a fresh period of limitation started after the acknowledgement of the debt by the Corporate Debtor and the Petition was filed within the limitation. Therefore, it is clear that the Petition is not time-barred. It is on record that on the day petition was admitted there was status quo order by the Hon ble High Court and which was in the knowledge of the Adjudicating Authority. But the Adjudicating Authority admitted the Petition by the impugned order dated 23rd August 2019. Learned Counsel for the Appellant placed reliance on the Respondent‟s letter dated 29th July 2019, which is at page 60 of the paper book. On perusal of the record, it is apparent that after acceptance of OTS for settling the dues of all the three companies in Rs. Sixty Crores, Bank has received a substantial amount from the Corporate Debtor. It is also clear that after making default in payment as per terms of OTS, the Corporate Debtor further paid rupees One Crore to the Bank for renewing the OTS. Bank even after accepting after rupees One Crore revoked the offer to renew the OTS. Considering the present/prevailing economic scenario of the country and downfall/slump in every business activity, we deem it fit and proper to provide one more opportunity to the parties for considering the OTS (One Time Proposal) in a fair, just, objective and dispassionate manner - there is no proper compliance under Section 7(5)(a) of the Insolvency and Bankruptcy Code, but this defect in the Application is a curable defect which can be rectified. The matter is remanded back to the Adjudicating Authority to pass an order afresh, after providing an opportunity to the opposite party - appeal allowed by way of remand.

Summary

Issues Involved:
1. Admission of Application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Allegation of arbitrary action by the Respondent Bank regarding the One-Time Settlement (OTS).
3. Compliance with Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016.
4. Impact of the status quo order by the Hon’ble Guwahati High Court.
5. Bar of limitation under the Limitation Act.

Issue-wise Detailed Analysis:

1. Admission of Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The appeal arises from the order dated 23rd August 2019 by the NCLT, Guwahati Bench, admitting the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, and appointing an Interim Resolution Professional. The Corporate Debtor had availed credit facilities amounting to ?35.8 crores from the Respondent Bank, which filed an application claiming ?45,33,35,395.58 due to defaults, and the account was declared NPA on 31st March 2016.

2. Allegation of arbitrary action by the Respondent Bank regarding the One-Time Settlement (OTS):
The Appellant argued that during the pendency of the petition, the Respondent Bank entered into an OTS but did not withdraw the petition, later revoking the OTS on 31st July 2019. The Appellant claimed that the Respondent Bank acted arbitrarily by not providing reasonable time and by accepting part payment of ?1 crore on 19th August 2019, which indicated a settlement. The Respondent Bank countered that the Appellant failed to adhere to the OTS terms, leading to its revocation. Despite further attempts by the Appellant to revive the OTS, the Bank did not consider it due to non-compliance with earlier terms.

3. Compliance with Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016:
The Appellant emphasized non-compliance with Section 7(5)(a), arguing that the declaration by the proposed Insolvency Resolution Professional (IRP) was incomplete and not in the prescribed Form 2. The Tribunal noted that the proposed IRP did not declare the absence of disciplinary proceedings, and the Adjudicating Authority should have issued a notice to rectify the application within seven days, which was not done.

4. Impact of the status quo order by the Hon’ble Guwahati High Court:
The Appellant pointed out that the Hon’ble Guwahati High Court had directed parties to maintain status quo till 26th August 2019. However, the Adjudicating Authority passed the admission order on 23rd August 2019 without considering the status quo order. The Tribunal acknowledged this oversight, indicating that the Adjudicating Authority should have respected the High Court’s directive.

5. Bar of limitation under the Limitation Act:
The Appellant contended that the petition was barred by limitation, as the loan was sanctioned in 2004, with enhancements up to 2012 and restructuring in 2014, while the petition was filed in 2018. The Tribunal noted that the Corporate Debtor had acknowledged the debt in writing on 13th March 2018, which extended the limitation period as per Section 18 of the Limitation Act. Thus, the petition was filed within the extended limitation period and was not time-barred.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order and remanding the matter back to the Adjudicating Authority for a fresh order, considering the directions in the judgment. The Adjudicating Authority was directed to provide an opportunity for the parties to consider the renewal of the OTS and to rectify any defects in the application. The parties were directed to appear before the NCLT, Guwahati Bench, on 29th June 2020. No order as to costs.