2020 (6) TMI 231 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - time limitation - HELD THAT - The 'Operational Creditor' while placing these facts before the Adjudicating Authority has clearly described the date of default as 7th October, 2013 (Page 46 of the Appeal paper book). The 'Operational Creditor' cannot escape from the factual assertion incorporated in Demand Notice and the application filed before the Adjudicating Authority. A combined reading of the Demand Notice and the application filed for triggering of 'Corporate Insolvency Resolution Process' at the instance of 'Operational Creditor' clearly establishes that the default had occurred on 7th October, 2013 and the application for triggering of 'Corporate Insolvency Resolution Process' under Section 9 of the 'I B Code' was filed before the Adjudicating Authority on 20th April, 2018 i.e. well after the prescribed period of three years in terms of provisions of residuary clause engrafted under Article 137 of the Limitation Act, 1963 - there can be no hesitation in holding that the application filed by the 'Operational Creditor' under Section 9 of the 'I B Code' was barred by limitation. Whether issuance of six cheques by the 'Corporate Debtor' towards the part payments of the outstanding operational debt would amount to an acknowledgment of debt thereby giving fresh lease of life to the claim of 'Operational Creditor' qua such operational debt? - HELD THAT - In respect of the invoices raised in the year 2013 the prescribed period of limitation being three years in terms of Article 137 of the Limitation Act, 1963 expired in the year 2016 and the issuance of cheques by the 'Corporate Debtor' in the year 2017 being well beyond the prescribed period of three years would not be construed as an acknowledgment in writing within the prescribed period of limitation in terms of Section 18 of the Limitation Act, 1963. The situation would have been different if such cheques issued by the 'Corporate Debtor' towards the part payment of the operational debt had been issued prior to 7th October, 2016 as the date of default occurred on 7th October, 2013 which fact is admitted by the 'Operational Creditor' in Form 5. In this factual background and on the very basis of what was placed by the 'Operational Creditor' before the Adjudicating Authority, issuance of six cheques dated 5th December, 2017 by the 'Corporate Debtor' towards part payment of the operational debt in respect of invoices with last one raised on 2nd September, 2013 cannot be termed as an acknowledgment of debt within the ambit of Section 18 of the Limitation Act, 1963 - The inescapable conclusion is that the operational debt in respect whereof the 'Operational Creditor' sought triggering of 'Corporate Insolvency Resolution Process', was neither due nor payable in law on the date when such 'Corporate Insolvency Resolution Process' was sought to be initiated by the 'Operational Creditor'. The application under Section 9 was hit by limitation - application admitted - appeal allowed.

Summary

Issues Involved:
1. Whether the claim was barred by limitation.
2. Whether the issuance of cheques by the Corporate Debtor amounted to an acknowledgment of debt.
3. The validity of the Corporate Insolvency Resolution Process (CIRP) initiation.

Detailed Analysis:

1. Barred by Limitation:
The primary issue was whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) was time-barred. The Adjudicating Authority admitted the application filed by the Operational Creditor, but the appellant contended that the claim was barred by limitation. The relevant period of limitation is governed by Article 137 of the Limitation Act, 1963, which prescribes a period of three years. The default date was stated as 7th October 2013, and the application was filed on 20th April 2018, well beyond the three-year limitation period. Thus, the application was deemed barred by limitation.

2. Acknowledgment of Debt:
The next issue was whether the issuance of six cheques by the Corporate Debtor amounted to an acknowledgment of debt, thereby extending the limitation period. According to Section 18 of the Limitation Act, 1963, an acknowledgment of liability in writing, signed before the expiration of the prescribed period, can extend the limitation period. However, in this case, the cheques were issued on 5th December 2017, which was beyond the three-year limitation period that ended in 2016. Therefore, these cheques could not be considered as an acknowledgment to extend the limitation period.

3. Validity of CIRP Initiation:
Given that the application was filed beyond the prescribed limitation period and the cheques did not constitute a valid acknowledgment of debt, the initiation of the Corporate Insolvency Resolution Process (CIRP) was invalid. The Operational Creditor's application under Section 9 of the I&B Code was thus barred by limitation and could not be sustained.

Conclusion:
The appeal was allowed, and the impugned order admitting the petition under Section 9 of the I&B Code was set aside. Consequently, all orders passed by the Adjudicating Authority, including the appointment of the Interim Resolution Professional, declaration of moratorium, freezing of accounts, and any actions taken by the Interim Resolution Professional, were declared illegal and set aside. The application under Section 9 of the I&B Code was dismissed, and the Corporate Debtor was allowed to function independently through its Board of Directors. The Adjudicating Authority was directed to fix the fee of the Interim Resolution Professional, which was to be paid by the Corporate Debtor for the period he functioned. The appeal was allowed without any order as to costs.