2024 (12) TMI 1246 - AT - IBC

Determination of the date of default for the purpose of invocation of the proceeding under Section 7 of I B Code - Appellant had preferred Writ Petition before the High Court of Telangana and the same is still pending consideration - what would be the criteria to determine, as to what would be the date of default has to be, either 01.10.2012 or 03.01.2020, where the OTS/Compromise was in favour of the Financial Creditors was ultimately withdrawn in the meeting of the members of consortium on 04.02.2019? HELD THAT - The Ld. Adjudicating Authority while scrutinizing the propriety of the judgment referred to, as rendered in the matters of Bijnor Urban Co-Operative Bank Limited Vs. Meenal Agarwal Others 2021 (12) TMI 669 - SUPREME COURT , which was relied by the Appellant, has answered the same by observing thereof, that there cannot be any contrary view, with regards to the guidelines issued for the grant of benefit of the OTS scheme, which though cannot be claimed as a matter of right, because it is an arrangement, made under the guidelines issued by the Reserve Bank of India in order to carve out a middle, way for shortening the settlement of the dispute, but it is not as a matter of right. The Ld. Adjudicating Authority has observed that, the aforesaid authority in the matters of Bijnor Urban Co-Operative Bank Limited 2021 (12) TMI 669 - SUPREME COURT , which deals with regards to the modalities to be adopted for sanctioning of the OTS, for settlement of a dispute is not an arrangement, which is available to a dishonest borrower. The defaulter, Corporate Debtor has not remitted the amount. It was contended that the date of declaration of the account has to be Non-Performing Asset (NPA) on 01.10.2012, would not be the actual date of determination of the limitation, because the same according to the Appellant was to be considered, from the date when the Corporate Debtor has acknowledged the dues - The Ld. Adjudicating Authority, observed that the application under Section 7 of the I B Code, has been filed on 19.07.2020, and that is being argued to be well within the limitation, determining the same to be with effect from the compromise decree of 03.01.2020. The Ld. Adjudicating Authority considered the aforesaid aspect and ultimately observed, that default in the case of the proceeding has to be reckoned from the date when the financial creditor had actually got the knowledge of the default having been committed, which in the instant case will be falling to be 01.10.2012 when the notices under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act was issued. Commission of a default consciously means, that it is an expression of default when it is realized and accepted by the Financial Creditor and accepted by the Corporate Debtor when the notices under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act was issued and accepted by the Corporate Debtor. The aspect of default as defined under Section 13 (2) of the SARFAESI Act was to be reckoned from the date notice is issued. It does not mean a debt when held or any part or instalment of the amount becomes due to be payable, but not paid. It would be actually be the default which has occurred when the notices were issued on 01.10.2012, for drawing the proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, reckoning of the period of limitation prescribed under Article 137 the Limitation Act, since has been given a retrospective effect for the purposes of the proceeding under Section 7 or 9 of the I B Code. The drawing of the proceedings by issuing a notice or demand on 29.08.2018, after the reckoning of the default committed on 01.10.2012, the procedure under Section 7 rendered to be initiated and barred by limitation. As the entire proceeding under Section 7 of I B Code, was barred by limitation, the same does not hold merit and would accordingly stand dismissed .

Summary

Issues Involved:

1. Determination of the date of default for the purpose of initiating proceedings under Section 7 of the Insolvency and Bankruptcy Code (I&B Code).
2. Applicability of the Reserve Bank of India (RBI) circulars on the One-Time Settlement (OTS) scheme.
3. Impact of ongoing proceedings and appeals under the Recovery of Debts and Bankruptcy Act, 1993 on the initiation of proceedings under Section 7 of the I&B Code.
4. Application of the Limitation Act, specifically Article 137 and Section 18, to the proceedings under Section 7 of the I&B Code.

Detailed Analysis:

1. Determination of the Date of Default:

The core issue was identifying the correct date of default, which is crucial for determining the limitation period for initiating proceedings under Section 7 of the I&B Code. The account of the Corporate Debtor was declared a Non-Performing Asset (NPA) on 01.10.2012. The Appellant argued that the limitation should be counted from a later date, specifically from the acknowledgment of the debt by the Corporate Debtor or from the compromise decree dated 03.01.2020. However, the Adjudicating Authority held that the date of default should be reckoned from when the financial creditor had knowledge of the default, which was 01.10.2012, the date the account was declared NPA. This conclusion was supported by referencing the judgment in Asset Reconstruction Company Limited, which emphasized that the declaration of a loan account as NPA should be considered the date of default.

2. Applicability of RBI Circulars on OTS:

The Appellant contended that the withdrawal of the OTS offer was contrary to the circulars issued by the RBI. However, the Adjudicating Authority refrained from delving into the implications of the RBI circular dated 26.02.2014, as the matter was pending before the High Court. The Authority noted that the OTS scheme is not a right but an arrangement under RBI guidelines to facilitate dispute resolution. The Authority further observed that the OTS could not be claimed as a matter of right, especially when the borrower is dishonest, and the withdrawal of the OTS was communicated on 04.02.2019.

3. Impact of Ongoing Proceedings and Appeals:

The proceedings under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993, resulted in a compromise decree on 03.01.2020, which was challenged and dismissed in subsequent appeals. The Appellant also filed a writ petition challenging these orders, which is pending. The Adjudicating Authority noted that since the matter was already under challenge, the proceedings under Section 7 of the I&B Code should not proceed until the writ court adjudicates the actions taken under Sections 13, 19, and 20 of the Recovery of Debts and Bankruptcy Act.

4. Application of the Limitation Act:

The Adjudicating Authority addressed the applicability of Article 137 of the Limitation Act, which prescribes a three-year limitation period for applications under Section 7 of the I&B Code. The Appellant sought to benefit from Section 18 of the Limitation Act, arguing that the limitation period should start from the acknowledgment of debt by the Corporate Debtor. However, the Authority concluded that the limitation period began on 01.10.2012, the date of the NPA declaration, and not from any subsequent acknowledgment or the compromise decree. The Authority emphasized that the issuance of the demand notice on 29.08.2018 could not override the limitation period, rendering the Section 7 proceedings barred by limitation.

Conclusion:

The Adjudicating Authority upheld the decision to dismiss the application under Section 7 of the I&B Code due to the proceedings being barred by limitation. The Authority affirmed that the correct date of default was 01.10.2012, and the subsequent actions, including the OTS and ongoing legal challenges, did not alter this determination. The judgment emphasized the necessity of adhering to the prescribed limitation periods and clarified the non-entitlement of the OTS as a right.