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2022 (6) TMI 170 - AT - Insolvency and BankruptcyInitiation of CIRP - Period of limitation -acknowledgement of debts in the Balance Sheet - Corporate Debtor failed to make repayment of its dues - Non-Performing Asset - existence of debt and dispute or not - Whether Limitation under Section 7 Application is triggered from 15/06/2013 the date of default or from 31/03/2014 on which date the Bank has classified the Account of the Corporate Debtor as NPA ? - HELD THAT - In view of this letter, signed and stamped by the Corporate Debtor , the specific Date on which the account was declared as NPA for the purpose of Limitation pales into insignificance. What is pertinent herein is that the Appellant has acknowledged that there is a loan of Rs. 1665.00 Lakhs/- which was taken under various heads that there is an amount which is due and payable as on 31/03/2014 meaning thereby that there is a Debt as defined under Section 3(11) of the Code and a default as defined under Section 3(12) of the Code - the letter signed and stamped by the Corporate Debtor acknowledged, the debt as on 30/03/2014, construes clear acknowledgment of debt as stipulated under Section 18 of the Limitation Act, 1963, thereby granting a fresh period of Limitation for another three years from 30/03/2014, which is nine months from the admitted date of default . Whether an OTS proposal given without Prejudice construes Acknowledgement as stipulated under Section 18 of the Limitation Act, 1963? - HELD THAT - It remains trite that the question of Limitation is essentially a mixed question of fact and law and in this case a strong foundation has been laid in Part V of the Application. It is noteworthy to state that a document constituting an acknowledgment has to be construed in the context in which it is given. At this juncture, we find it relevant to quote, ITC LIMITED VERSUS BLUE COAST HOTELS LTD. ORS. 2018 (3) TMI 932 - SUPREME COURT , in which the Hon ble Supreme Court dealing with whether Section 3(A) of Section 13 of SARGAESI, was mandatory or directory, took note of the Notices issued by the Financial Creditor and the different proposals made by the Debtor including a Letter of Undertaking saying that they were given without Prejudice . The admission of the debt due and payable is further explicit in the letters dated 20.04.2015 which is reproduced in the aforenoted para 4 wherein the Corporate Debtor has admitted the debt, and has also undertaken to pay the amount and requested the Financial Creditor to verify the amount so that it could be immediately paid . It is significant to mention that in this letter dated 20.04.2015 the phrase without prejudice is omitted - the default amount has already been acknowledged on 31/03/2014, on 20/04/2015 and on 10/08/2016 in confirmation with Section 18 of the Limitation Act, 1963. Whether the Adjudicating Authority was justified in admitting the Section 7 Application holding that the Application was not barred by Limitation ? - HELD THAT - Section 134 of the Companies Act, 2013 requires that every Balance Sheet shall be signed by not less than two directors of the Company. The Balance Sheet for the Financial Year 2016-2017 evidences acknowledgement of the loan/borrowings and is duly signed on 04.09.2017 by the Chartered Accountant and by both the directors, one of whom is the Appellant himself - In the instant case, the Balance Sheet for the Financial Year 2016-17 and the appended notes to the Financial Statements clearly specify the debt owed to the Financial Creditor . The material on record does not define any caveats forming part of the Financial Statements to prove otherwise. This Tribunal is of the considered view that the acknowledgement in Balance Sheet for FY 2016-17, relied upon by the Financial Creditor, is unequivocal and crystallizes the issue of acknowledgement of debt as defined under Section 18 of the Limitation Act, 1963 - this Tribunal is of the earnest view that the Application filed under Section 7 of the Code is well within the period of Limitation. As regarding the contention of the Learned Counsel for the Appellant that the Corporate Debtor had initiated Proceedings under Section 14 of the SARFAESI Act, 2002 and has recovered some amounts and taken physical possession of some of the assets and therefore the Financial Creditor is precluded from initiating CIRP under IBC, 2016, is without merit, especially keeping in view Section 238 of the Code which overrides other laws. The material on record also shows that the Bank has specifically pleaded that the Application moved under Section 14 of the SARFAESI Act, 2002 on 04/02/2017, was dismissed by the ADM on 03/10/2017 and that the assets were never sold and no money was realized against the same. The documentary evidence on record shows that a Writ Petition was also preferred before the Hon ble Bombay High Court and the Bank was given the liberty to file a fresh Application under Section 14 of the SARFAESI Act, 2002. Appeal dismissed.
Issues Involved:
1. Limitation period for filing the application under Section 7 of the Insolvency and Bankruptcy Code (IBC). 2. Validity of the One Time Settlement (OTS) proposal as an acknowledgment under Section 18 of the Limitation Act, 1963. 3. Authorization to file the Section 7 application. 4. Impact of proceedings under the SARFAESI Act on the initiation of CIRP under IBC. 5. Allegations of perjury and fraud by the Financial Creditor. Detailed Analysis: 1. Limitation Period for Filing the Application under Section 7 of the IBC: The primary issue was whether the application filed under Section 7 of the IBC was barred by limitation. The Appellant argued that the date of default was 15.06.2013, making the application filed on 25.10.2018 time-barred. The Tribunal referred to the Supreme Court judgments in 'B.K. Educational Services Private Limited vs. Parag Gupta and Associates' and 'Jignesh Shah vs. Union of India,' which clarified that the limitation period for filing an application under IBC is three years from the date of default. The Tribunal held that the date of default is significant for calculating the limitation period, not the date when the account was classified as NPA. The Tribunal found that the acknowledgment of debt on 31.03.2014, 20.04.2015, and 10.08.2016 extended the limitation period, making the application filed on 25.10.2018 within the permissible period. 2. Validity of the OTS Proposal as an Acknowledgment under Section 18 of the Limitation Act, 1963: The Appellant contended that the OTS proposal dated 10.08.2016, marked "without prejudice," could not be considered an acknowledgment under Section 18 of the Limitation Act. The Tribunal referred to the Supreme Court judgment in 'ITC vs. Blue Coast Hotels Ltd. & Ors.,' which held that the phrase "without prejudice" does not negate the acknowledgment of debt. The Tribunal concluded that the OTS proposal and other communications constituted valid acknowledgments under Section 18, thereby extending the limitation period. 3. Authorization to File the Section 7 Application: The Appellant argued that the Section 7 application was filed without proper authorization, as it was not signed by the Chief Executive Officer (CEO) as required by the Ministry of Corporate Affairs notification. The Tribunal referred to Section 51(1) of the Multi-State Cooperative Societies Act, 2002, which allows the Chief Executive, by whatever designation called, to be appointed by the board. The Tribunal held that the Managing Director, who signed the authorization, satisfied the requirement as he was a member of the Board of Directors. The Tribunal also noted that the circular dated 27.02.2019 could not be applied retrospectively to the application filed before that date. 4. Impact of Proceedings under the SARFAESI Act on the Initiation of CIRP under IBC: The Appellant argued that the Financial Creditor had already initiated proceedings under the SARFAESI Act and recovered some amounts, precluding them from initiating CIRP under IBC. The Tribunal referred to Section 238 of the IBC, which overrides other laws, and noted that the SARFAESI proceedings did not result in any recovery as the assets were not sold. The Tribunal dismissed the Appellant's contention, emphasizing that the IBC proceedings were independent and could be initiated despite the SARFAESI proceedings. 5. Allegations of Perjury and Fraud by the Financial Creditor: The Appellant filed an application alleging perjury and fraud by the Financial Creditor, claiming discrepancies in their statements regarding possession and recovery of assets. The Adjudicating Authority dismissed the application, finding no material suppression of facts. The Tribunal upheld this decision, noting that the Financial Creditor's statements were consistent when read in their entirety and did not amount to perjury or fraud. Conclusion: The Tribunal dismissed all the appeals, holding that the Section 7 application was not barred by limitation, the OTS proposal constituted a valid acknowledgment of debt, the authorization to file the application was valid, and the proceedings under the SARFAESI Act did not preclude the initiation of CIRP under IBC. The Tribunal also found no merit in the allegations of perjury and fraud by the Financial Creditor.
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