2021 (12) TMI 1018 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - Time Limitation - Adjudicating Authority rejected the submission of acknowledgment observing that Appellant has not placed any law before it that amount mentioned in the Balance Sheet comes under the definition of acknowledgment of debt under Section 18 of the Limitation Act, 1963 - HELD THAT - The Balance Sheet for the Financial Year 2016-17 having been signed on 01.09.2017 and the above Application having been filed on 20.03.2020, it is well within three years period from acknowledgment of debt as claimed by the Appellant. It is now well settled that acknowledgment in the Balance Sheet is sufficient acknowledgment under Section 18 of the Limitation Act, 1963. In recent judgment of the Hon ble Supreme Court in DENA BANK (NOW BANK OF BARODA) VERSUS C. SHIVAKUMAR REDDY AND ANR. 2021 (8) TMI 315 - SUPREME COURT , after referring to the judgment of ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED VERSUS BISHAL JAISWAL ANR. 2021 (4) TMI 753 - SUPREME COURT , the Hon ble Supreme Court again reiterated that Section 18 of the Limitation Act, 1963 is fully applicable to proceedings under I B Code and entries in books of accounts and/ or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act. The Adjudicating Authority having not examined the balance sheet for Financial Year 2016-17 ending on 31.03.2017. In the interest of justice, the Adjudicating Authority has to examine the balance sheet to find out as to whether it contain acknowledgment within the meaning of Section 18 of the Limitation Act or not. Second ground given by the Adjudicating Authority for rejecting the Application i.e. that there is no document to show that any interest has ever been paid to the Petitioner by the Corporate Debtor in lieu of the amount, hence, Appellant is not covered in the definition of Financial Creditor - HELD THAT - The definition begins with the expression financial debt means a debt alongwith interest, if any. Thus a financial debt may be with interest, if any. The definition, thus, clearly contemplates that debt along with interest is not mandatory to be there it to be a financial debt. Interest will be a part of the debt only if there is interest in the transaction. Words if any after the word interest clearly indicates that it is not mandatory that debt should be alongwith interest in all cases - the consideration of the balance sheet for Financial Year 2016-17 may also be relevant for determining as to whether there was a financial debt or not. Thus, by taking into consideration the Balance Sheet, the Adjudicating Authority can re-consider the question of Applicant being Financial Creditor or not. Matter remanded to the Adjudicating Authority for fresh consideration of the Application under Section 7 after issuing fresh notice to the Corporate Debtor and after giving opportunity to the Corporate Debtor also - appeal allowed by way of remand.

Summary

Issues Involved:

1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, was barred by limitation?
2. Whether the Appellant qualifies as a 'Financial Creditor' under the I&B Code?

Detailed Analysis:

1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, was barred by limitation?

The Adjudicating Authority (National Company Law Tribunal) initially rejected the application on the grounds that it was barred by limitation, as the last repayment was made on 15.03.2016, and the application was filed on 20.03.2020, beyond the three-year limitation period. The Appellant argued that the balance sheet for the Financial Year ending 31.03.2017, signed by the Corporate Debtor on 01.09.2017, contained an acknowledgment of the debt, thereby extending the limitation period.

The Tribunal referenced the Supreme Court judgment in "Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Anr." which established that an acknowledgment in a balance sheet is sufficient under Section 18 of the Limitation Act, 1963, to extend the limitation period. The balance sheet signed on 01.09.2017, and the application filed on 20.03.2020, were within the three-year period from the acknowledgment of debt.

The Adjudicating Authority's failure to consider the balance sheet as an acknowledgment under Section 18 of the Limitation Act was deemed an error. The Tribunal emphasized that whether an acknowledgment in a balance sheet qualifies under Section 18 depends on the facts of each case and must be examined accordingly.

2. Whether the Appellant qualifies as a 'Financial Creditor' under the I&B Code?

The Adjudicating Authority also rejected the application on the grounds that there was no document showing any interest paid to the Appellant by the Corporate Debtor, thus disqualifying the Appellant as a 'Financial Creditor'. The Tribunal examined the definition of 'financial debt' under Section 5(8) of the I&B Code, which includes debt along with interest, if any. The phrase "if any" indicates that interest is not mandatory for a debt to qualify as a financial debt.

The Tribunal disagreed with the Adjudicating Authority's reasoning, stating that the absence of interest does not disqualify a debt from being a financial debt. The consideration of the balance sheet for the Financial Year 2016-17 was also deemed relevant for determining whether there was a financial debt.

Conclusion:

The Tribunal set aside the order of the Adjudicating Authority and remitted the matter for fresh consideration of the application under Section 7 of the I&B Code. The Adjudicating Authority was instructed to re-examine the balance sheet to determine if it contained an acknowledgment within the meaning of Section 18 of the Limitation Act and to reconsider the question of whether the Appellant qualifies as a Financial Creditor. The appeal was allowed with no order as to costs.