2019 (9) TMI 1144 - AT - Insolvency and Bankruptcy

Admissibility of petition - Initiation of CIRP - Corporate Debtor unable to repay the amount - Non Performing Asset - whether the application under Section 7 of the I B Code was barred by limitation and, if not, whether the claim of the Banks was barred by limitation to hold that there is no debt payable in the eyes of law? - HELD THAT - The right to apply under Section 7 of the I B Code, accrued to the Bank only since 1st December, 2016, i.e., when I B Code came into force. From the aforesaid provision, it is found that the application under Section 7 is not barred by limitation. Apart from the fact that the Bank had taken action under Section 13(4) of the SARAFAESI Act and the matter is pending before the DRT since 2015-16, there being 12 years of limitation prescribed for enforcement of payment of money secured by a mortgage, we hold that the claim of the none of the Consortium Banks are barred by limitation and, therefore, the Corporate Debtor cannot claim that the debt is not payable in the eyes of law. In absence of any specific order of taking over the Management in terms of Section 13(4)(b) of the SARAFAESI Act, which includes the right to transfer by way of lease, assignment or sale for realizing of the secured asset, we hold that the Management of the Corporate Debtor continued with the Promoter. Therefore, if there is any default on the part of the Corporate Debtor to pay the debt amount, the Appellant cannot pass the blame on the Bank. Appeal dismissed.

Summary

Issues Involved:
1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code) was barred by limitation.
2. Whether the claim of the Banks was barred by limitation.
3. Whether the management of the Corporate Debtor was taken over by the State Bank of India, affecting the liability of the Promoters.

Issue-wise Detailed Analysis:

1. Whether the application under Section 7 of the I&B Code was barred by limitation:

The Appellant contended that the application filed by the State Bank of India under Section 7 of the I&B Code was time-barred as more than three years had passed since the default date of 31st January 2010. The Tribunal referred to Article 137 of Part II of the Third Division of the Schedule of the Limitation Act, 1963, which prescribes a three-year limitation period for applications where no specific period is provided. The right to apply under Section 7 of the I&B Code accrued to the Bank only from 1st December 2016, when the I&B Code came into force. Therefore, the Tribunal held that the application under Section 7 was not barred by limitation.

2. Whether the claim of the Banks was barred by limitation:

The Tribunal examined Articles 61 and 62 of Part V of the First Division of the Limitation Act, 1963. Article 61 pertains to suits relating to the redemption or recovery of possession of mortgaged property, with a limitation period of thirty years. Article 62 pertains to enforcing payment of money secured by a mortgage, with a limitation period of twelve years from when the money becomes due. The Tribunal noted that the State Bank of India had taken action under Section 13(4) of the SARFAESI Act, and the matter was pending before the Debts Recovery Tribunal (DRT) since 2015-16. Given the twelve-year limitation period for enforcing payment of money secured by a mortgage, the Tribunal concluded that the claims of the Consortium Banks were not barred by limitation. Consequently, the Corporate Debtor could not claim that the debt was not payable in the eyes of the law.

3. Whether the management of the Corporate Debtor was taken over by the State Bank of India, affecting the liability of the Promoters:

The Appellant argued that the State Bank of India had taken over the management of the Corporate Debtor, and therefore, the Promoters should not be blamed for any default. The Tribunal found that while the Bank had taken possession of some units of the Corporate Debtor and deployed Security Guards and Concurrent Auditors, it had not taken over the actual management of the Corporate Debtor. The management remained with the Promoters, who opposed the appointment of Security Guards. There was no specific order under Section 13(4)(b) of the SARFAESI Act for taking over the management, which would include the right to transfer by way of lease, assignment, or sale for realizing the secured asset. Thus, the Tribunal held that the management of the Corporate Debtor continued with the Promoters, and any default in paying the debt amount could not be blamed on the Bank.

Conclusion:

In light of the findings, the Tribunal dismissed the appeal, upholding the impugned order of admission dated 14th December 2018, and concluded that there was no merit in the Appellant's arguments. The application under Section 7 of the I&B Code was not barred by limitation, the claims of the Banks were not barred by limitation, and the management of the Corporate Debtor remained with the Promoters, who were responsible for any default. The appeal was dismissed with no costs.