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2021 (4) TMI 583 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditor - assignment of the debt of the Corporate Debtor - legal or enforceable and recoverable claim to initiate any present proceeding or not, since cause of action accrued on 23.06.1998 - applicability of section 25(3) of the Contract Act - whether the said section is an exception to the provisions of Section 18 of the Limitation Act? HELD THAT - The date of default mentioned in the present Petition is 1998 (23/06/1998 as per the Corporate Debtor) and the Petition has been filed on 04/03/2019, after a period of more than 20 years - Since the Assignment Agreement dated 27/09/2013 is much beyond 3 years after the date of default, the contention that Section 25(3) of the Contract Act would be an exception to the provisions of Section 18 of the Limitation Act, would not have any relevance as far as triggering of date of default is concerned. This argument may be appropriate in a recovery proceeding. This proceeding not being a recovery proceeding, this argument cannot be accepted. The date of default mentioned in the Petition relates to pre-assignment era and the said default cannot be related to post assignment proceedings - The Hon ble Supreme Court in Babulal Vardharji Gurjar s case 2020 (8) TMI 345 - SUPREME COURT on the applicability of Section 18 of the Limitation Act while referring to Para No. 21 of the decision in Jignesh Shah case 2019 (9) TMI 1121 - SUPREME COURT categorically held that the same relates to the suits or other proceedings wherever it could apply and where the period of limitation gets extended because of acknowledgement of liability. This is not a suit for recovery and hence Section 18 of the Limitation Act will in no manner impact the limitation within which winding up proceedings is to be filed. The debt is grossly barred by limitation and cannot be held to be due for the purpose of the Petition under section 7 of the Code - petition dismissed.
Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency & Bankruptcy Code, 2016. 2. Default in payment of financial debt. 3. Applicability of the Limitation Act, 1963. 4. Acknowledgment of debt and its effect on the limitation period. 5. Relevance of Section 25(3) of the Indian Contract Act, 1872. Detailed Analysis: 1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency & Bankruptcy Code, 2016: The Petitioner filed a Company Petition under Section 7 of the Insolvency & Bankruptcy Code, 2016, seeking initiation of CIRP against the Corporate Debtor, alleging a default in making payment of a financial debt amounting to ?522,46,05,338/-. 2. Default in payment of financial debt: The Petitioner claimed that the Corporate Debtor defaulted on a loan sanctioned by Tourism Finance Corporation of India (TFCI) in 1996, which was later assigned to the Petitioner. The Corporate Debtor acknowledged the debt in a letter dated 05.12.2016, and the debt was reflected in the balance sheet for the year 2013-14. 3. Applicability of the Limitation Act, 1963: The Corporate Debtor contended that the Petition is barred by limitation as the default occurred on 23.06.1998, and the Petition was filed on 04.03.2019, well beyond the three-year limitation period prescribed under Article 137 of the Limitation Act. The Corporate Debtor relied on the judgment in B. K. Educational Services Private Limited v. Parag Gupta & Associates [2018 SCC online SC 1921], where the Supreme Court held that Article 137 of the Limitation Act applies to the Code. 4. Acknowledgment of debt and its effect on the limitation period: The Petitioner argued that the acknowledgment of debt in the Corporate Debtor’s balance sheet for 2013-14 and the letter dated 05.12.2016 extended the limitation period under Section 18 of the Limitation Act. However, the Corporate Debtor countered that the acknowledgment must occur within the prescribed limitation period, which was not the case here. 5. Relevance of Section 25(3) of the Indian Contract Act, 1872: The Petitioner also invoked Section 25(3) of the Indian Contract Act, 1872, arguing that the Assignment Agreement dated 27.09.2013 constituted a fresh agreement, thus giving rise to a new cause of action. The Corporate Debtor refuted this, stating that the Petition was based on the default dated 23.06.1998 and not on any subsequent agreement. Observations and Judgment: i. Applicability of the Limitation Act: The Tribunal observed that the Supreme Court in B.K. Educational Services Private Limited held that the limitation period for applications under Sections 7 and 9 of the Code is three years from the date of default. The Tribunal noted that the default occurred in 1998, and the Petition was filed in 2019, making it time-barred. ii. Section 18 of the Limitation Act: The Tribunal referred to the Supreme Court’s judgment in Babulal Vardharji Gurjar, which clarified that Section 18 of the Limitation Act applies to suits and other proceedings where the limitation period can be extended by acknowledgment of liability. However, the Tribunal found that the acknowledgment in this case occurred after the expiration of the prescribed limitation period. iii. Section 25(3) of the Indian Contract Act: The Tribunal rejected the Petitioner’s argument that Section 25(3) of the Indian Contract Act could revive the time-barred debt, noting that this provision does not apply to proceedings under the Code, which are not recovery proceedings. iv. Conclusion: The Tribunal concluded that the debt was grossly barred by limitation and could not be considered due for the purpose of the Petition under Section 7 of the Code. Consequently, the Petition was rejected. Final Order: The Petition was dismissed on the grounds that it was barred by limitation, with no costs awarded.
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