2020 (8) TMI 498 - AT - IBC

CIRP process - applicability of time limitation - challenge to impugned order is limited to issue of limitation, it being raised as a ground in appeal that the financial debt in respect whereof the Financial Creditor sought triggering of Corporate Insolvency Resolution Process was not payable in law, same being barred by limitation - HELD THAT - It is well settled by now that the provisions of the Limitation Act, 1963 are applicable to applications relating to triggering of Corporate Insolvency Resolution Process under I B Code and Article 137 of the Limitation Act, 1963 prescribing a period of three years applies to such applications. In Vashdeo R. Bhojwani vs. Abhyudaya Co-operative Bank Limited and another 2019 (9) TMI 711 - SUPREME COURT , the Hon ble Apex Court referring to its Judgment rendered in B.K. Educational Services Private Limited vs. Parag Gupta and Associates 2018 (10) TMI 777 - SUPREME COURT it was held that it is manifestly clear that the right to sue accrues when a default occurs and if such default has occurred over three years prior to the date of filing of application, the application would be barred by limitation except in cases where on the facts of the case such delay is condoned. Computation of a fresh period of limitation from the date of acknowledgment of liability - HELD THAT - Such acknowledgment in respect of any right has to be in writing and signed by the borrower against whom such debt is claimed well before the expiration of the prescribed period for a suit or application in respect of such right. Any acknowledgment made after the period for enforcement of such right, recovery of such property or debt would not fall within the purview of Section 18 of the Limitation Act, 1963 for the purpose of commencement of fresh period of limitation. In the instant case, the account of the Corporate Debtor was classified as NPA on 1st May, 2000 which is admitted as the date of default. This being an admitted fact and clearly discernible from Form-1 (application by Financial Creditor to initiate Insolvency Resolution Process under Section 7 of the I B Code ) Column 2 of Part-IV at page 65 of the appeal paper book which clearly specifies the date of default as 1st May, 2000 when the account of Corporate Debtor was classified as NPA as stated earlier. The filing of recovery proceeding before the Debts Recovery Tribunal and the claim being subsequently decreed would not shift the date of default. It is settled position of law that in application under Section 7 of the I B Code relief is sought for Resolution of Insolvency of the Corporate Debtor - It is apt to notice that Section 7 of the I B Code has been brought into force on 1st December, 2016 vide S.O. 3594(E) dated 30th November, 2016. Therefore, triggering of Corporate Insolvency Resolution Process in respect of defaults occurring prior to 1st December, 2013 would be impermissible in view of application of Article 137 of the Limitation Act, 1963. The arguments canvassed on behalf of the Appellant that initiation of Corporate Insolvency Resolution Process at the instance of the Financial Creditor was unsustainable as the same had been filed well beyond the period of three years from the date the account of Corporate Debtor was classified as NPA - Appeal allowed.

Summary

Issues Involved:
1. Limitation period for initiating Corporate Insolvency Resolution Process (CIRP).
2. Acknowledgment of debt and its impact on limitation.
3. Effect of recovery proceedings and decrees on the limitation period.

Issue-wise Detailed Analysis:

1. Limitation Period for Initiating CIRP:
The primary issue revolves around the applicability of the Limitation Act, 1963, to applications for triggering the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (I&B Code). The judgment emphasizes that Article 137 of the Limitation Act, which prescribes a three-year limitation period, applies to such applications. The right to sue accrues when a default occurs, and if the default has occurred more than three years prior to the filing of the application, the application would be barred by limitation unless the delay is condoned under Section 5 of the Limitation Act.

2. Acknowledgment of Debt and Its Impact on Limitation:
The appellant argued that the financial debt's default date was 1st May 2000, when the debt was declared as Non-Performing Asset (NPA), and the limitation period should be calculated from this date. The appellant contended that any subsequent acknowledgment of debt would not alter the default date. The judgment clarifies that for an acknowledgment to restart the limitation period, it must be made in writing and signed by the borrower before the expiration of the original limitation period. In this case, the acknowledgment letters dated 31st March 1999, 31st March 2001, and 12th January 2004 were deemed insufficient to extend the limitation period beyond the default date of 1st May 2000.

3. Effect of Recovery Proceedings and Decrees on the Limitation Period:
The judgment discusses the impact of recovery proceedings and decrees on the limitation period. It was argued that the filing of a recovery suit or obtaining a decree does not shift the default date forward. The default date remains static, and the limitation period for initiating CIRP is not extended by such proceedings. The judgment cites previous rulings to reinforce that the date of default is crucial for computing the limitation period, and subsequent recovery actions do not affect this date.

Conclusion:
The judgment concludes that the initiation of CIRP by the financial creditor was barred by limitation as it was filed beyond the three-year period from the date of default (1st May 2000). The subsequent recovery proceedings and acknowledgments did not extend the limitation period. The appeal was allowed, and the impugned order admitting the CIRP application was set aside. Consequently, all orders and actions taken pursuant to the impugned order, including the appointment of the Interim Resolution Professional and the moratorium, were declared illegal and set aside. The Corporate Debtor was released from the CIRP process and allowed to function independently through its Board of Directors. The Adjudicating Authority was directed to fix the fee of the Interim Resolution Professional, to be paid by the Corporate Debtor.