2021 (4) TMI 678 - AT - IBC

Initiation of CIRP - Time limitation - acknowledgments of debts under Section 18 of the Limitation Act, 1963 or not - NPA - HELD THAT - While the Writ Petition was pending Financial Creditor issued notice dated 24th December, 2014, that authorized officer had taken possession of the secured assets. On 11th May, 2017, District Magistrate Hooghli issued order under SARFAESI Act, 2002 for possession by the Financial Creditor of the assets hypothecated. On 24th July, 2017, High Court passed interim orders restraining Financial Creditor from taking further steps under SARFAESI Act, 2002, until further orders. Financial Creditor on 10th July, 2018 filed Application under Section 7 of IBC. Corporate Debtor opposed the Application but ground of limitation was not there. Adjudicating Authority admitted the said application on 25th April, 2019. In Appeal to NCLAT issue of limitation was raised but the Appeal was dismissed - it is clear that Section 18 of the Limitation Act applies. Balance-Sheets-Acknowledgment? - HELD THAT - There are various Judgements passed by various Hon ble High Courts including High Court of Delhi and even Hon ble Supreme Court of India which have dealt with the Balance Sheet/Annual Returns of Companies and entries in books of Account where entries in the same have been treated as acknowledgement of debt and even accepted the same for the purpose of Section 18 of the Limitation Act, 1963. It is well settled position of law that Annual Returns/Audited Balance Sheets can be referred to and relied on to see if contents therein amount to acknowledgement or not - it is settled law appearing from the Judgements of the High Court of Delhi and other High Courts that Balance Sheets can be looked into to see if there is acknowledgement of debt. Perusing Judgements of Hon ble Supreme Court we find that even Hon ble Supreme Court has looked into Balance Sheets and Books of Account to see if there is Acknowledgement of Liability. If the amount borrowed is shown in the Balance Sheet, it may amount to Acknowledgement. The Judgements of Hon ble Supreme Court of India are binding and Balance Sheets cannot be outright ignored. The Annual Returns/Audited Balance Sheets, one-time settlement proposals, proposals to restructure loans, by whatever names called, cannot be simply ignored as debarred from consideration and in every given matter, it would be a question of applying the facts to the law and vice versa, to see whether or not the specific contents, spell out an acknowledgement under the Limitation Act. Thus, if the NPA is counted even from 30.09.2012, the balance- sheets which were before the Adjudicating Authority for year ending 2015 to 2016 show acknowledgment of debt and the Application under Section 7 filed on 3rd October, 2018 cannot be said to be time-barred. The balance-sheet for financial year ending 2015 was signed at 30.05.2015 and balance- sheet for financial year ending 31st March, 2016 was signed on 30.05.2016. Thus the Application under Section 7 was within limitation - OTS was declined. Even keeping this document in mind, if one was to keep in view the balance- sheet for year ending 31st March, 2015 and consider this OTS proposal and perused the date of filing of Application under Section 7 of IBC, still the claim must be held within limitation. The main thrust of the argument of Learned Counsel for the Appellant has been that in the matter of Swiss Ribbons 2019 (1) TMI 1508 - SUPREME COURT Hon ble Supreme Court has referred to the shift in the legislative policy and thus see date of default, simply calculate three years and hold the Application as time-barred unless there is Application under Section 5 of Limitation Act. The legislative policy moved from the concept of inability to pay debts to determination of default and one of the policy reasons for this was that cause of default is not relevant. We are unable to appreciate the submission made by the Learned Counsel for the Appellant that because of shift in legislative policy from inability to pay debts to determination of default , it makes any difference to the applicability or inapplicability of provisions of Limitation Act, as far as may be. Appeal dismissed.

Issues Involved:
1. Whether the application filed under Section 7 of the Insolvency and Bankruptcy Code (IBC) by the State Bank of India (SBI) against the Corporate Debtor was time-barred.
2. Whether the balance sheets of the Corporate Debtor can be considered as an acknowledgment of debt under Section 18 of the Limitation Act, 1963.
3. Whether the application of Section 18 of the Limitation Act extends the limitation period for filing an application under Section 7 of the IBC.
4. The impact of the One-Time Settlement (OTS) proposal on the limitation period.
5. Applicability of Section 238A of the IBC and its interaction with the Limitation Act.

Detailed Analysis:

1. Time-Barred Application:
The Corporate Debtor argued that the application under Section 7 of the IBC was time-barred since the account was declared Non-Performing Asset (NPA) on 30.09.2012, and the application was filed on 03.10.2018, beyond the three-year limitation period stipulated under Article 137 of the Limitation Act, 1963. The Adjudicating Authority, however, considered the balance sheets and other documents, finding acknowledgments of debt, thus extending the limitation period under Section 18 of the Limitation Act.

2. Balance Sheets as Acknowledgment of Debt:
The Corporate Debtor contended that balance sheets should not be considered as acknowledgments under Section 18 of the Limitation Act. However, the Adjudicating Authority and the Appellate Tribunal relied on the Supreme Court judgment in "A.V. Murthy Vs. B.S. Nagabasavanna," which held that entries in balance sheets could amount to acknowledgments of debt. The Tribunal found that the balance sheets for the years ending 31.03.2015 and 31.03.2016, signed by the Director of the Corporate Debtor, contained entries of long-term borrowings, thus acknowledging the debt.

3. Application of Section 18 of the Limitation Act:
The Tribunal referred to several judgments, including "B.K. Educational Services Pvt. Ltd. vs. Parag Gupta and Associates" and "Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr.," which clarified that Section 18 of the Limitation Act applies to applications under Section 7 of the IBC. The Tribunal concluded that the acknowledgment of debt in the balance sheets extended the limitation period, making the application filed on 03.10.2018 within the permissible time frame.

4. Impact of the One-Time Settlement (OTS) Proposal:
The Corporate Debtor's OTS proposal dated 20.01.2017 was considered by the Tribunal as an acknowledgment of debt. The Tribunal noted that the OTS proposal, which was rejected by the SBI, indicated an intention to settle the outstanding dues, further extending the limitation period under Section 18 of the Limitation Act.

5. Applicability of Section 238A of the IBC:
Section 238A of the IBC, which incorporates the provisions of the Limitation Act to proceedings under the IBC, was discussed extensively. The Tribunal referred to the Supreme Court's judgment in "Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr." and "Laxmi Pat Surana Vs. Union Bank of India & Anr.," which affirmed that all provisions of the Limitation Act, including Section 18, apply to proceedings under the IBC. The Tribunal concluded that the application of Section 18 was valid and extended the limitation period.

Conclusion:
The Tribunal dismissed the appeal, affirming that the application under Section 7 of the IBC was not time-barred due to the acknowledgments of debt in the balance sheets and the OTS proposal. The Tribunal upheld the application of Section 18 of the Limitation Act, extending the limitation period and making the application filed by SBI within the permissible time frame. The Tribunal also confirmed that Section 238A of the IBC incorporates the provisions of the Limitation Act, including Section 18, to proceedings under the IBC.

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