2023 (11) TMI 781 - AT - Insolvency and Bankruptcy

Initiation of CIRP - NCLT admitted the application u/s 7 - period of limitation - case is that Section 7 application which was filed after 18 years in October 2019 was way beyond the prescribed limitation period of 3 years under Section 18 of the Limitation Act, 1963 and thus the petition stood barred by limitation. HELD THAT - The law is well settled that for finding out acknowledgement within the meaning of Section 18 of the Limitation Act, balance sheets can be looked into. Hon ble Supreme Court in Bishal 2021 (4) TMI 753 - SUPREME COURT has extensively examined the question in reference to Section 18 of the Limitation Act and upheld the consideration of balance sheets as a valid acknowledgment of debts but also observed that it would depend on the facts of each case as to whether an entry made in a balance sheet qua, any particular creditor, is unequivocal or has been entered into with caveats - the status of balance sheets as valid acknowledgment of debts needs to be examined depending upon the facts of each case while considering the mention of such non-acknowledging statements in the annexed notes or the auditor s report. The Adjudicating Authority has concluded after scrutinizing the balance sheet and the caveats/notice attached thereto that acknowledgments contained in the balance sheet extends the limitation period and hence the Section 7 application is well within the extended limitation period and thus maintainable. The balance sheets contain an acknowledgement of debt from SBI, the original lender and assignment of the said debt to KMBL. Merely because the notes to the account and the director s report narrate the different stages of subsequent litigation with respect to the said unsecured loan, it cannot be said that these notes in any manner diminish the relevance and import of the debt which finds mention in the balance sheets for the purposes of Section 18 of the Limitation Act. Such caveat/information, read together with the balance-sheet do not negate the acknowledgment of that liability - Adjudicating Authority therefore committed no error in holding that the Section 7 application filed by the Respondent No. 1 was not barred by time there being continuous acknowledgment in their respective balance sheets of the Corporate Debtor which acknowledgment was within the meaning of Section 18 of the Limitation Act extending the period of limitation by fresh period of limitation by each acknowledgment. Section 7 of the IBC allows a financial creditor to initiate an insolvency resolution process against the corporate debtor upon showing a default in debt owed by the corporate debtor. The trigger under Section 7 of IBC is non-payment of dues owed to creditors. In the given facts of the case, where debt and default on the part of the Corporate Debtor qua KMBL stands established, there were no cogent grounds for not admitting the Section 7 petition. There are no error in the impugned order passed by the Adjudicating Authority admitting the Section 7 application. There is no merit in the Appeal - appeal dismissed.

Summary

Issues Involved:
1. Whether the Section 7 application was barred by limitation.
2. Whether the balance sheets of the Corporate Debtor constituted an acknowledgment of debt.
3. Whether the Adjudicating Authority erred in admitting the Section 7 application despite the Corporate Debtor being solvent.

Summary:

Issue 1: Limitation Period
The primary issue was whether the Section 7 application was barred by limitation. The Appellant argued that the default occurred on 31.03.2001, and the three-year limitation period expired on 31.03.2004, making the Section 7 application filed on 11.10.2019 time-barred. The Respondent No.1 contended that continuous acknowledgment of the debt in the balance sheets extended the limitation period, making the application timely.

Issue 2: Acknowledgment of Debt in Balance Sheets
The Adjudicating Authority examined the balance sheets and concluded that the entries therein constituted an acknowledgment of debt, thus extending the limitation period. The balance sheets from FY 2005-06 to FY 2016-17 consistently reflected the outstanding loan amount. The Authority found that the caveats attached to the balance sheets did not negate the acknowledgment of debt. The Tribunal upheld this finding, noting that the balance sheets contained clear acknowledgments of debt from SBI, later assigned to KMBL, and the caveats did not diminish the acknowledgment for the purposes of Section 18 of the Limitation Act.

Issue 3: Solvency of Corporate Debtor
The Appellant argued that the Corporate Debtor was solvent, and the Adjudicating Authority should have exercised discretion in not admitting the Section 7 application, citing the Vidarbha Industries Power Ltd. v. Axis Bank judgment. The Tribunal, however, agreed with the Adjudicating Authority that the Vidarbha judgment was context-specific and not applicable in this case. The Tribunal found that the debt and default were established, and there were no cogent grounds for not admitting the Section 7 petition.

Conclusion
The Tribunal dismissed the appeal, finding no error in the Adjudicating Authority's order admitting the Section 7 application. The continuous acknowledgment of debt in the balance sheets extended the limitation period, and the solvency of the Corporate Debtor did not preclude the admission of the application.