2021 (1) TMI 511 - AT - Insolvency and Bankruptcy

Referring matter to larger bench - Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - demand notice was not served before passing of the admission order - time limitation - order of reference - relevancy of binding judicial precedent or a patent error - HELD THAT - Application under Section 7 of I B Code filed by M/s Stressed Assets Stabilization Fund (SASF) Financial Creditor came to be admitted by the Adjudicating Authority (National Company Law Tribunal), Single Bench Chennai in terms of order dated 21st November, 2019 which was assailed in Company Appeal (AT) (Insolvency) No. 57 of 2020 primarily on the ground that demand notice was not served before passing of the admission order otherwise the Appellant would have shown that the application was barred by limitation as the account of Corporate Debtor had been declared as NPA in the year 2009 and decree came to be passed in the year 2013. In V. PADMAKUMAR VERSUS STRESSED ASSETS STABILISATION FUND (SASF) ANR. 2020 (3) TMI 1244 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI IDBI had advanced financial assistance of ₹ 600 Lakhs by way of Term Loan Agreement dated 2nd March, 2000 to the Corporate Debtor and the loan was duly secured. The account of Corporate Debtor was classified as NPA on 29th May, 2002. IDBI Bank initiated recovery proceedings by filing OA No. 289 of 2003, later renumber as OA No.413 of 2007. It was decreed on 19th June, 2009 leading to issuance of Recovery Certification on 31st August, 2009 which was reflected in the Balance Sheet dated 31st March, 2012 - The Appellant, basing its plea on the aforestated facts, raised the contention that the application filed under Section 7 of I B Code in the year 2019 was barred by limitation. This Appellate Tribunal noticing the judgments delivered by Hon ble Apex Court in JIGNESH SHAH ANOTHER VERSUS UNION OF INDIA ANOTHER 2019 (9) TMI 1121 - SUPREME COURT , GAURAV HARGOVINDBHAI DAVE VERSUS ASSET RECONSTRUCTION COMPANY (INDIA) LTD. AND ANR. 2019 (9) TMI 1019 - SUPREME COURT , VASHDEO R BHOJWANI VERSUS ABHYUDAYA CO-OPERATIVE BANK LTD AND ANR. 2019 (9) TMI 711 - SUPREME COURT , and decision of this Appellate Tribunal in V HOTELS LIMITED, TULIP STAR HOTELS LTD. ANR. VERSUS ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED 2019 (12) TMI 1273 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI , was of the view that for the purpose of computing the period of limitation for application under Section 7 the date of default is NPA and hence a crucial date. It is manifest that the findings arrived at by the five Member Bench were based on consideration of the latest judgments of the Hon ble Apex Court wherein the remedy available across the ambit of I B Code was recognized as distinct from the recovery mechanism in civil jurisdiction. It is not in controversy that the I B Code was enacted to achieve the objective of resolving insolvency and bankruptcy issues for which timelines were laid down. It is now well settled that the remedy available under the I B Code is a remedy distinct from remedy available in civil jurisdiction/ recovery mechanism and since the I B Code is not a complete Code, provisions of Limitation Act are attracted to proceedings under it before NCLT and NCLAT as far as applicable i.e. in regard to matters not specifically provided for in I B Code. The whole mechanism of triggering of Corporate Insolvency Resolution Process revolves round the concept of debt and default . Once debt and default are established, the Financial Creditor, the Operational Creditor or the Corporate Person can initiate the CIRP by filing application respectively under Section 7, 9 or 10 of I B Code in prescribed format before the Adjudicating Authority. It is well settled now that proceedings under I B Code are not in the nature of recovery proceedings and being an independent remedy same can be had recourse to by the aggrieved person seeking triggering of CIRP by establishing debt and default and complying with the procedural requirements laid down under the Code. Thus, the order of reference which, in letter and spirit, is more akin to a judgment of an Appellate Court appreciating the findings and judgment in V. Padmakumar s Case is incompetent and deserves to be rejected. Following of the judicial precedent of a Bench of equal strength and of a Larger Bench as in the instant case, is a matter of judicial discipline. The Referral Bench, where such reference is competent, can make a reference for matter being placed before a Larger Bench for reconsideration in the circumstances indicated in the aforesaid judgments after recording its opinion. It is not open to the Referral Bench to appreciate the judgment rendered by the earlier Bench as if sitting in appeal to hold that the view is erroneous. Escaping of attention of the earlier Bench as regards a binding judicial precedent or a patent error is of relevance but not evaluation of earlier judgment as if sitting in appeal - We are sad to note that the Referral Bench has overlooked all legal considerations. Such misadventures weaken the authority of law, dignity of institution as also shake people s faith in rule of law. We hope and trust that the Hon ble Members of the Referral Bench would exhibit more serious attitude towards adherence of the binding judicial precedents and not venture to cross the red line. As a sequel to the rejection of order of reference as being incompetent, let the Company Appeal (AT) (Insolvency) No. 385 of 2020 be listed for regular hearing before Court No. IV on 11th January, 2021.

Summary

Issues Involved:
1. Reconsideration of the judgment in "V. Padmakumar Vs. Stressed Assets Stabilization Fund (SASF) & Anr."
2. Competence of the reference made by the three-member Bench.
3. Applicability of Section 18 of the Limitation Act, 1963 to Insolvency Cases.
4. Judicial discipline and adherence to binding precedents.

Issue-Wise Detailed Analysis:

1. Reconsideration of the Judgment in "V. Padmakumar Vs. Stressed Assets Stabilization Fund (SASF) & Anr.":
The three-member Bench of the Appellate Tribunal questioned the judgment in "V. Padmakumar Vs. Stressed Assets Stabilization Fund (SASF) & Anr." This judgment held that entries in a company's balance sheet do not amount to an acknowledgment of debt under Section 18 of the Limitation Act, 1963. The Referral Bench argued that the Supreme Court and various High Courts have consistently held that such entries do constitute an acknowledgment of debt, thus necessitating a reconsideration of the "V. Padmakumar" judgment.

2. Competence of the Reference Made by the Three-Member Bench:
The reference's competence was challenged, with arguments asserting that a smaller Bench cannot question a Larger Bench's decision. The three-member Bench should have followed the five-member Bench's ruling in "V. Padmakumar" as binding precedent. The judgment emphasized that judicial discipline requires adherence to decisions of larger or co-equal Benches unless there is a compelling reason, such as a patent error or omission of a relevant statutory provision, to refer the matter to a larger Bench.

3. Applicability of Section 18 of the Limitation Act, 1963 to Insolvency Cases:
The five-member Bench in "V. Padmakumar" concluded that the balance sheet entries do not constitute an acknowledgment of debt under Section 18 of the Limitation Act, 1963. This finding was based on the mandatory nature of filing balance sheets under Section 92(4) of the Companies Act, 2013, which attracts penal action for non-compliance. The judgment also referenced the Supreme Court's decision in "Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminum Industries Ltd. & Anr.," which held that Section 18 does not apply to proceedings under the Insolvency and Bankruptcy Code (IBC).

4. Judicial Discipline and Adherence to Binding Precedents:
The Tribunal highlighted the importance of judicial discipline, stating that a Bench of lesser strength cannot overrule or question the decision of a larger Bench. The Referral Bench's action in questioning the "V. Padmakumar" judgment was deemed inappropriate and a violation of judicial discipline. The Tribunal cited several Supreme Court judgments emphasizing that consistency in judicial decisions is crucial for maintaining public confidence in the legal system.

Conclusion:
The Tribunal rejected the reference made by the three-member Bench, deeming it incompetent. It reiterated that the five-member Bench's judgment in "V. Padmakumar" should be followed as binding precedent. The Tribunal emphasized the importance of judicial discipline and adherence to established legal principles, thereby maintaining the integrity and consistency of judicial decisions. The matter was directed to be listed for regular hearing before the appropriate court.