2023 (4) TMI 1138 - AT - Insolvency and Bankruptcy

Initiation of CIRP - date of default - period of limitation - Corporate Debtor contested the application filed under Section 7 of the Code on the ground that it has been filed beyond the period of limitation and is not maintainable - whether the petition filed under Section 7 of the Code is barred by limitation or not? - HELD THAT - It has now been repeatedly held by the Hon ble Supreme Court and followed by this Tribunal that Article 137 of the Act would apply for counting the period of limitation in respect of an application filed under Section 7 of the Code. Article 137 of the Act provides three years from the date when the right to apply accrues. Right to apply accrues from the date of default as has been provided in Section 7 of the Code itself. Admittedly, the Bank did not mention the date of default in Part IV of Form 1 of the application filed under Section 7 of the Code and disclosed the date of default as 30.06.2011 only in the supplementary affidavit. The trigger date is thus 30.06.2011 for the purpose of counting the period of three years which is up to 30.06.2014. Meaning thereby, w.e.f 01.07.2014 the limitation to apply under Section 7 of the Code had expired. However, Section 18 of the Act deals with acknowledgement of the debt for the purpose of extension of limitation but it categorically provides that the acknowledgement has to be made during the period of three years and not beyond that. In the present case, the Bank could not produce any evidence to prove that there has been acknowledgment in writing and signed by the Appellant for the purpose of extension of period of limitation except for the reply to the notice issued under Section 13(2) of the SARFAESI Act, 2002 in which the Appellant did not make any unambiguous and unequivocal acknowledgement which could extend the period of limitation. The limitation counted from the date of default i.e. 30.06.2011 had expired on 30.06.2014 and there is no acknowledgement of debt during this period in terms of Section 18 of the Act. The Bank did not place on record the balance sheet prior to 2014 and the only balance sheets placed on record are from 31.03.2015 to 31.03.2018 and the OTS also took place on 21st January, 2019 much beyond the period of three years. There are no substance in the argument of Counsel for Respondent for the purpose of maintaining the impugned order which is patently erroneous and based upon mis-reading of evidence. Hence, the appeal is hereby allowed and the impugned order is set aside. Appeal allowed.

Summary

Issues Involved:
1. Whether the application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 is within the period of limitation.
2. Whether the acknowledgment of debt extends the limitation period.

Summary:

Issue 1: Limitation Period for Filing Application under Section 7 of the Code

The appeal was filed by the Suspended Director of the Corporate Debtor against the order admitting the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by the IDBI Bank Limited. The Adjudicating Authority had allowed the application for the resolution of the defaulted amount and appointed an Interim Resolution Professional (IRP).

The Bank filed the application on 01.11.2019 for the defaulted amount calculated as on 08.01.2019. The Bank had initially sanctioned a cash credit limit which was later enhanced. It issued a loan recall notice and invoked personal guarantees, subsequently taking recourse under the SARFAESI Act, 2002.

The Bank did not mention the date of default in Part IV of Form 1, which is a mandatory requirement. The Adjudicating Authority allowed the Bank to file a supplementary affidavit to include the formal date of default and related documents. The supplementary affidavit stated the date of default as 30.06.2011.

The Corporate Debtor contested the application on the ground of limitation, arguing that the application was filed beyond the period of limitation. The Adjudicating Authority concluded that the application was within limitation based on continuous acknowledgments in the balance sheets and the acceptance of the One Time Settlement (OTS) proposal.

Issue 2: Acknowledgment of Debt and Extension of Limitation Period

The counsel for the Appellant argued that the limitation period should be counted from the date of default, which was 30.06.2011, and thus expired on 30.06.2014. The Adjudicating Authority had contradictory observations regarding the balance sheets and acknowledgments. The Appellant contended that there were no balance sheets for the years 2011, 2012, and 2013 to acknowledge the debt within the limitation period.

The Respondent argued that the Appellant had admitted its liability in response to the notice issued under the SARFAESI Act and by accepting the OTS offer in January 2019.

The Tribunal held that the limitation period for filing an application under Section 7 is three years from the date of default. The date of default was 30.06.2011, and the limitation expired on 30.06.2014. There was no acknowledgment of debt within this period to extend the limitation. The balance sheets provided were from 2015 onwards, and the OTS acceptance occurred beyond the limitation period.

Conclusion:

The Tribunal found that the application was filed beyond the period of limitation and there was no valid acknowledgment of debt to extend the limitation period. The appeal was allowed, and the impugned order was set aside. The IRP was advised to seek any other remedy available to him in accordance with the law.