2021 (3) TMI 686 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time limitation - HELD THAT - The Application under Section 7 of the I B Code for initiation CIRP against the debtor is maintainable only when a default has occurred. Hon ble Supreme Court in the Case of B.K. Education Services Pvt. Ltd. Vs. Parag Gupta Associates 2018 (10) TMI 777 - SUPREME COURT held that the right to sue accrues when a default occurs. If the default has occurred over three years prior to date of filing of the application under Section 7 of the I B Code; the application would be barred under Article 137 of the Limitation Act. The date of right to sue can be extended only when the debt is acknowledged by the Corporate Debtor within limitation of three years - Admittedly, in this case, the Appellant has committed default and the loan account declared as NPA before 2001 and thereafter - Respondent No. 1 has not placed on record any document of acknowledgement of debt within limitation of three years. The Corporate Debtor committed default and the loan account declared as NPA before 2001 and thereafter, there is no acknowledgement of debt within limitation of three years and it is clear that the Judgment/decree passed by the DRT-II on 29.04.2019 cannot shift forward the date of default for the purpose of computing the period for filing an Application under Section 7 of the I B Code. Thus, the Application under Section 7 of the I B Code filed by the Respondent No. 1 on 23.01.2019 against the M/s L.S.P. Agro Ltd. (Corporate Debtor) is barred by limitation and was not maintainable. The matter is remitted back to the Ld. Adjudicating Authority to decide fees and costs of CIRP payable to IRP/RP, which shall be borne by the Respondent No. 2 (Corporate Debtor).

Summary

Issues:
1. Admission of Application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Competency of Stressed Assets Stabilization Fund (SASF) to file the Application.
3. Bar on limitation for filing the Application under Section 7 of the I&B Code.

Analysis:
1. The Appellant, an ex-Director of the Corporate Debtor, appealed against the order admitting the Application under Section 7 of the I&B Code. The loan default by the Corporate Debtor led to the initiation of Corporate Insolvency Resolution Process (CIRP). The Appellant contested the admission based on the lack of acknowledgment of debt and the debt being time-barred due to the NPA declaration pre-2001.

2. The key contention was the competency of SASF, acting on behalf of IDBI, to file the Application. The Central Government's notification authorized SASF to acquire Stressed Assets of IDBI, making it eligible to initiate CIRP against the Corporate Debtor. The Appellant argued that SASF lacked the locus to file the Application, challenging the validity of the process.

3. The critical issue revolved around the limitation period for filing the Application. The Adjudicating Authority admitted the Application, citing the DRT's order for payment as evidence that the debt was not time-barred. However, the Appellant argued that the debt acknowledgment was not within the three-year limitation period, making the Application time-barred. The Supreme Court precedent was referenced to support the argument that the Application, filed in 2019 for a pre-2001 NPA declaration, was indeed time-barred.

In conclusion, the Appellate Tribunal set aside the impugned order, dismissing the Application under Section 7 of the I&B Code as time-barred. The Corporate Debtor was released from the moratorium, and the matter was remitted to the Adjudicating Authority for determining fees and costs. The judgment emphasized the importance of adherence to limitation periods and debt acknowledgment in insolvency proceedings, ensuring a fair and legally sound resolution process.