2022 (7) TMI 238 - Tri - 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 - whether the Petition under section 7 of the Code is barred by limitation or not? - HELD THAT - Upon perusal of the record it is apparent that transaction between the parties was purely financial in nature and there is an existence of Financial Debt. From the records it is apparent that the Corporate Debtor continued its operation but failed to service its interest on 31-01-2013, 28-02-2013 and 31-03-2013 - The Corporate Debtor also made the last part payments of the sanctioned loan amount with the Financial Creditor Bank on 04 mat, 2014. However, thereafter the Corporate Debtor has not made arrangements to pay the dues owed to the Financial Creditor. As per the Auditors Report of the Corporate Debtor for financial year ending 31 March, 2018, it states that the Corporate Debtor has defaulted in the repayment of loans or borrowings to financial institutions, banks. (Page 187 of the Supplementary Affidavit to section 7 application). Corporate Debtors own admission that part payments made towards the loan account was with a bona-fide intention of making payment of amounts which were legally due and payable to the Financial Creditor bank. There has been continuous acknowledgement in the Balance Sheet of the Corporate Debtor for the Financial Balance sheet for year ending 2011, 2012, 2013 2018 of the Corporate Debtor, which would extend the limitation period from time to time. The present petition filed by the Financial Creditor is complete in all respects as required by law. The Petition establishes that the Corporate Debtor is in default of a debt due and payable and that the default is more than the minimum amount stipulated under section 4 (1) of the Code, stipulated at the relevant point of time. Application admitted - moratorium declared.

Issues Involved:
1. Whether the Petition under section 7 of the Insolvency and Bankruptcy Code, 2016 is barred by limitation.
2. Existence of financial debt and default by the Corporate Debtor.
3. Continuous acknowledgment of debt by the Corporate Debtor.
4. Admissibility of the financial creditor's petition and initiation of the Corporate Insolvency Resolution Process (CIRP).

Issue-wise Detailed Analysis:

1. Whether the Petition under section 7 of the Insolvency and Bankruptcy Code, 2016 is barred by limitation:
The primary issue before the Tribunal was to determine if the petition filed under section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code) was barred by limitation. The Tribunal noted that the first default occurred on 16 November 2012, and the accounts were declared NPA on 31 March 2013. The Financial Creditor issued several notices and reminders for repayment, including invoking personal guarantees and redemption of the mortgage. The Tribunal referred to the Supreme Court's judgment in Laxmi Pat Surana v. Union Bank of India & Anr, which clarified that the limitation period could be extended by successive acknowledgments of debt under Section 18 of the Limitation Act. The Tribunal found continuous acknowledgment of debt in the Corporate Debtor's balance sheets for the years ending 2011, 2012, 2013, and 2018, thus extending the limitation period.

2. Existence of financial debt and default by the Corporate Debtor:
The Tribunal examined the records and found that the transaction between the parties was purely financial in nature, and there was an existence of financial debt. The Corporate Debtor failed to service its interest on multiple occasions and made the last part payment on 04 May 2014. The Tribunal noted that the Corporate Debtor continued its operations but did not make arrangements to pay the dues owed to the Financial Creditor. The balance sheets and the auditor's report indicated that the Corporate Debtor had defaulted in repayment of loans or borrowings to financial institutions and banks.

3. Continuous acknowledgment of debt by the Corporate Debtor:
The Tribunal found that the Corporate Debtor's balance sheets for the years ending 2011, 2012, 2013, and 2018 reflected short-term borrowings and secured term loans, indicating the existence of cash credit facilities from the Financial Creditor. The charges registered in favor of the Financial Creditor remained unsatisfied. The Tribunal also noted the Corporate Debtor's admission of part payments towards the loan account, which extended the limitation period as per Section 18 of the Limitation Act.

4. Admissibility of the financial creditor's petition and initiation of the Corporate Insolvency Resolution Process (CIRP):
The Tribunal concluded that the petition filed by the Financial Creditor was complete in all respects as required by law. The petition established that the Corporate Debtor was in default of a debt due and payable, and the default amount exceeded the minimum stipulated under section 4(1) of the Code. Consequently, the Tribunal admitted the application for initiating CIRP against the Corporate Debtor. A moratorium under section 14 of the Code was declared, and public announcement of the CIRP was ordered. Mr. Pankaj Kumar Tibrewal was appointed as the Interim Resolution Professional (IRP) to carry out the functions as per the Code, and the Financial Creditor was directed to deposit Rs.5,00,000 with the IRP for expenses.

Conclusion:
The Tribunal found that the petition under section 7 of the Code was not barred by limitation due to continuous acknowledgment of debt by the Corporate Debtor. The existence of financial debt and default was established, and the petition was admitted, leading to the initiation of the CIRP against the Corporate Debtor. The order was pronounced on 04 July 2022.

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