2020 (8) TMI 543 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and default or not - Appellant proceeds to point out that in the present case in Form-1, the date of default is shown as 01.11.2012 and that the Application was filed under Section 7 of the Insolvency and Bankruptcy Code on 06.09.2018 - time limitation - HELD THAT - It cannot be gainsaid that as per Section 18 of the Limitation Act, 1963, an acknowledgement is not limited in respect of the debt only, but in relation to any property or right , which is the subject matter of LIS between the parties. Needless for this Tribunal to point out that there has to be an acknowledgement , as per ingredients of Section 18 of the Limitation Act, 1963 and it must be an unqualified one and the same will create fresh cause of action to a party/ litigant to cement its claim on such acknowledgement . The acknowledgement must be an acknowledgement of an existing liability - More importantly, an acknowledgement of debt must relate to an admission of existing relationship of a Debtor and Creditor and then intention to continue it should also be evident. An acknowledgement is to be in writing, the same is to be within the period of limitation and is to be signed by a litigant party whom the property or right is claimed - In the present case, the 1st Respondent/ Bank had provided adequate opportunity to the Corporate Debtor to pay the balance amount and also admittedly issued a legal notice dated 26.06.2017 whereby and whereunder it was mentioned that they had sanctioned additional loan of ₹ 5 crores in the larger interests of the purchasers of the apartments to complete Phase-I works . The fact of the matter is that the Corporate Debtor had failed to complete the Phase-I works, although additional fund was granted and because of the non-completion of the Phase-1 work, the persons who had thought of purchasing the apartments had not deposited the money in respect of BWSSB and BESCOM. The impugned order dated 16th July, 2019 passed by the Adjudicating Authority (NCLT), Bengaluru Bench admitting Section 7 Application is free from any legal error. Also, the plea of the Appellant that Application under Section 7 of the IBC is barred by limitation is also negatived by this Tribunal because of the fact that the said Application was filed before the Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench on 05.09.2018, well within time, from the date of defaulted and stopped payment from 31.5.2017 - Appeal dismissed.

Issues Involved:
1. Legality of the impugned order dated 16th July 2019.
2. Professional conduct of Karnataka Bank.
3. Solvency and cash flow of the Corporate Debtor.
4. Loan Assignment Agreement and additional funding.
5. Limitation period for filing the application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code).
6. Completion of the project and external factors affecting it.
7. Admission of debt and default by the Corporate Debtor.
8. Pendency of proceedings before the Debts Recovery Tribunal (DRT).
9. Acknowledgement of debt and its implications.

Detailed Analysis:

1. Legality of the Impugned Order:
The Appellant challenged the impugned order dated 16th July 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench, which admitted the Section 7 Application filed by the 1st Respondent/Financial Creditor. The Tribunal found that the order was free from legal error and upheld its validity.

2. Professional Conduct of Karnataka Bank:
The Appellant argued that Karnataka Bank acted unprofessionally and disregarded the Reserve Bank of India's regulations and circulars. However, this argument was not sufficient to overturn the impugned order.

3. Solvency and Cash Flow of the Corporate Debtor:
The Appellant contended that the Corporate Debtor was still solvent with impending cash flow from several avenues. However, the Tribunal noted that the Corporate Debtor had defaulted on its repayments and was classified as a Non-Performing Asset (NPA) by the Karnataka Bank.

4. Loan Assignment Agreement and Additional Funding:
The Karnataka Bank assigned the debt to Phoenix ARC Private Limited, and the Corporate Debtor obtained additional funding of ?5 crores. However, the Corporate Debtor failed to repay the outstanding amount, leading to the filing of the Section 7 Application.

5. Limitation Period for Filing the Application:
The Appellant argued that the application under Section 7 of the I&B Code was barred by limitation, as it was filed more than three years after the date of default. However, the Tribunal found that the application was filed within the limitation period, considering the part payments made by the Corporate Debtor and the acknowledgment of debt.

6. Completion of the Project and External Factors:
The Appellant cited external factors, such as a stay order from the National Green Tribunal and increased construction costs, that delayed the project's completion. The Tribunal acknowledged these factors but emphasized the Corporate Debtor's failure to complete the project despite additional funding.

7. Admission of Debt and Default:
The Corporate Debtor admitted to availing credit facilities and defaulting on payments. The Tribunal noted that the Corporate Debtor's account was classified as NPA, and the debt was assigned to the 1st Respondent, who was entitled to enforce payment.

8. Pendency of Proceedings before the DRT:
The Tribunal clarified that the pendency of proceedings before the Debts Recovery Tribunal did not bar the initiation of the Corporate Insolvency Resolution Process (CIRP) under the I&B Code.

9. Acknowledgement of Debt:
The Tribunal emphasized that the Corporate Debtor had acknowledged the debt and made part payments, which extended the limitation period. The Tribunal cited relevant case law to support its conclusion that the acknowledgment of debt created a fresh cause of action.

Conclusion:
The Tribunal dismissed the appeal, upholding the Adjudicating Authority's order admitting the Section 7 Application. The Tribunal found no merit in the Appellant's arguments regarding the limitation period, professional conduct of Karnataka Bank, and external factors affecting the project's completion. The Corporate Debtor's acknowledgment of debt and part payments were crucial in extending the limitation period, leading to the dismissal of the appeal.

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