2020 (8) TMI 496 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt or not - time limitation - account declared as NPA - HELD THAT - Similar issue fell for consideration before the Hon ble Supreme Court in GAURAV HARGOVINDBHAI DAVE VERSUS ASSET RECONSTRUCTION COMPANY (INDIA) LTD. AND ANR. 2019 (9) TMI 1019 - SUPREME COURT . In the said case, the Hon ble Supreme Court has noticed that the Respondent was declared NPA on 21st July, 2011. The Bank had filed two OAs before the Debts Recovery Tribunal in 2012 to recover the total debt. Taking into consideration the facts, the Supreme Court held that the default having taken place and as the account was declared NPA on 21st July, 2011, the application under Section 7 was barred by limitation. Therefore, it will be evident that for triggering application under Section 7 the date of default is to be noticed for counting the period of limitation under Article 137 of the Limitation Act, 1963 - it will be evident that Section 13(2) notice was issued on 3rd September, 2014 as the Corporate Debtor (Defendant No.1) committed default in repayment of the said cash credit facilities after the said facility has been declared as NPA. The application under Section 7 has not been filed within three years from the date of default/ NPA having been declared before 3rd September, 2014, as pleaded before the Debt Recovery Tribunal, Ahmedabad in Original Application No. 239 of 2016. As the application under Section 7 being barred by limitation, the application was not maintainable and was fit to be dismissed. Application dismissed.

Summary

Issues Involved:
1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 is barred by limitation.
2. Determination of the date of default for the purpose of calculating the limitation period.
3. Applicability of Article 62 versus Article 137 of the Limitation Act, 1963.
4. Validity of the actions taken by the Interim Resolution Professional and the moratorium imposed by the Adjudicating Authority.

Issue-wise Detailed Analysis:

1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 is barred by limitation:
The primary contention by the Appellant was that the application filed by the 'Bank of Baroda' was barred by limitation as the default occurred on 1st June 2015 and was recorded as NPA on 28th October 2015. The Respondents argued that the claim was not barred by limitation, citing the equitable mortgage and Article 62 of the Limitation Act, 1963, which provides a 12-year limitation period. However, the Tribunal relied on the Supreme Court's decision in "B.K. Educational Services Private Limited Vs. Parag Gupta and Associates," which held that Article 137 of the Limitation Act, 1963, applies to applications under Sections 7, 9, or 10 of the I&B Code, with a three-year limitation period from the date of default.

2. Determination of the date of default for the purpose of calculating the limitation period:
The Tribunal examined the records and found that the 'Corporate Debtor' defaulted on 31st May 2015, and the account was declared NPA on 28th October 2015. However, the Tribunal noted that the Bank had issued a notice under Section 13(2) of the SARFAESI Act on 3rd September 2014, indicating an earlier default date. The Tribunal concluded that the default date should be considered as 3rd September 2014, making the application filed on 19th October 2018 beyond the three-year limitation period.

3. Applicability of Article 62 versus Article 137 of the Limitation Act, 1963:
The Tribunal rejected the applicability of Article 62, which pertains to suits for enforcing payment of money secured by a mortgage, and held that Article 137, a residuary article applicable to applications, governs the limitation period for Section 7 applications. The Tribunal cited the Supreme Court's decision in "Gaurav Hargovindbhai Dave vs. Asset Reconstructions Company (India) Limited," which clarified that Article 137 applies to applications under the I&B Code, and the limitation period begins from the date of default.

4. Validity of the actions taken by the Interim Resolution Professional and the moratorium imposed by the Adjudicating Authority:
The Tribunal set aside the impugned order dated 20th November 2019, passed by the Adjudicating Authority, which had admitted the Section 7 application. Consequently, all actions taken by the Interim Resolution Professional, including the moratorium, freezing of accounts, and advertisements, were declared illegal and set aside. The Tribunal directed the Adjudicating Authority to close the proceedings and release the 'Corporate Debtor' from the rigours of the insolvency process, allowing it to function independently through its Board of Directors.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order and dismissing the Section 7 application filed by the 'Bank of Baroda' as barred by limitation. The Tribunal directed the Adjudicating Authority to determine the fees and costs payable to the Interim Resolution Professional by the 'Bank of Baroda' and to close the proceedings. The 'Corporate Debtor' was released from the insolvency process and allowed to resume its operations. No order as to costs was made in the appeal.