9911796707
| TMI Short Notes |
Limitation Act and the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC),2016. |
2021 (8) TMI 315 - Supreme Court Limitation Act and the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC),2016. Company Petition (IB) No.244/BB/2018 filed by the Appellant Bank against the Respondent No.2 (Corporate Debtor) under Section 7 of the IBC. An Appeal is filed before the hon'ble supreme court of India under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) against a judgment and final order dated 18th December 2019, passed by the National Company Law Appellate Tribunal (NCLAT), allowing Company Appeal (AT) (Insolvency) No.407 of 2019, by the Respondents,i.e. C Shivakumar Reddy & Anr. /Corporate debtor under section 7 of IBC. The NCLAT held that the petition of the appellant bank/Dena Bank under section 7 of the IBC was barred by limitation. On 23rd December, 2011 the Appellant Bank/Dena Bank had sanctioned Term Loan and Letter of Credit Cum Buyers’ Credit in favour of the Corporate Debtor, with an upper limit of ₹ 45.00 Crores.The Corporate Debtor had to pay back this loan within a period of eight (8) years. Accordingly there was a deposit of title deeds of the immovable property with the Appellant Bank. On 20th September, 2013 the Corporate Debtor defaulted in repayment of its dues to the Appellant Bank/Dena Bank. The Loan Account of the Corporate Debtor was therefore declared Non Performing Asset (NPA) on 31st December 2013. The Corporate Debtor addressed a letter to the Appellant Bank/Dena Bank for restructuring the Term Loan, which was not accepted by Appellant Bank/Dena Bank. Appellant Bank/Dena Bank issued a legal notice to the Corporate Debtor calling upon to make a payment of 52.12 crores (INR). The Corporate Debtor failed to make the payment. On 1st January 2015, the Appellant Bank filed an application, O.A. No.16/2015 under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, now known as the Recovery of Debts and Bankruptcy Act, 1993 in short the Debt Recovery Tribunal (DRT), Bangalore for recovery of outstanding dues of 52,12,49,438.60 (INR) as on 22nd December, 2014. The Corporate Debtor replied to the said notice dated 22nd December 2014 by way of a letter dated 5th January 2015, requesting once again, that the loan be restructured. Now this letter of request dated 5th January 2015 is being alleged to be treated as an acceptance of its liability to the Appellant Bank/Dena Bank. On 3rd March 2017, the Corporate Debtor gave a proposal for one time settlement of the Term Loan Account, upon payment of ₹ 5.50 crores only to be rejected by the Appellant Bank. On 27th March 2017, Debt Recovery Tribunal, Bengaluru passed a final judgment and order/decree against the Corporate Debtor for recovery of ₹ 52,12,49,438.60 with future interest at the rate of 16.55% per annum, from the date of filing the application till the date of realization, in the form of a Recovery Certificate. The Counsel for the Bank alleged, that the Corporate Debtor had, in its Annual Reports for the financial years 2016- 2017 and 2017-2018, acknowledged its liability in respect of the loan taken by it from the Appellant Bank. On 1st October 2018, the Appellant Bank issued a Demand Notice to the Corporate Debtor under ‘2016 Adjudicating Authority Rules’, or the "Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016". The Appellant Bank later filed the Petition i.e. CP(IB) No.244/BB/2018 before the Adjudicating Authority under Section 7 of the IBC. The Appellant Bank filed an application to put on record the documents from the Corporate Debtor requesting for a One time settlement, the annual report of the Corporate Debtor and the financial statements all acknowledging of the debt. The Adjudicating Authority admitted the Petition under Section 7 of the IBC, being CP (IB) No.244/BB/2018, and appointed an Interim Resolution Professional. The Respondent/Corporate Debtor vehemently contended bar of limitation, though considered at length, but was rejected by the Adjudicating Authority (NCLT). The Respondent/Corporate Debtor filed an appeal, CA(AT) (Ins) No.407/2019 before the NCLAT under Section 61 of the IBC. It allows a limitation period of 30 days from the date of the NCLT order to allow the aggrieved party to file an appeal in the NCLAT. The NCLAT set aside the order dated 21st March, 2019 passed by the Adjudicating Authority (NCLT) Bengaluru and dismissed the Petition filed by the Appellant Bank under Section 7 of the IBC, holding that the said application was barred by limitation. The present appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) is against a judgment and final order, dated 18th December 2019 passed by the National Company Law Appellate Tribunal (NCLAT). The same provides for any person aggrieved by an order of the National Company Law Appellate Tribunal (NCLAT) may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order. The prima facie issue which arose for consideration of hon'ble Supreme Court, in the appeal u/s. 62 is whether NCLAT has erred in law in arriving at the conclusion that the Petition filed by the Appellant Bank under Section 7 of the IBC was barred by limitation, culminating into setting aside the order dated 21st March 2019. Another question is whether a final judgment and decree of the DRT in favour of the Financial Creditor, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action to the Financial Creditor to initiate proceedings under Section 7 of the IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the Certificate of Recovery. Yet another question being whether there is any bar in law to the amendment of pleadings, in a Petition under Section 7 of the IBC, or to the filing of additional documents, apart from those filed initially. The counsel for the appellant bank in hon'ble apex court, cited judgments of the same court as in SESH NATH SINGH & ANR. VERSUS BAIDYABATI SHEORAPHULI CO-OPERATIVE BANK LTD AND ANR. [2021 (3) TMI 1183 - SUPREME COURT], LAXMI PAT SURANA VERSUS UNION BANK OF INDIA & ANR. [2021 (3) TMI 1179 - SUPREME COURT] and ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED VERSUS BISHAL JAISWAL & ANR. [2021 (4) TMI 753 - SUPREME COURT]. It being contended that Section 18 of the Limitation Act applied to proceedings under the IBC. The issue was no longer res integra, meaning thereby the same had already been decided by the court earlier and is not an untouched area of law. The counsel for the corporate debtor contented that there was a factual determination by the NCLAT, records revealing of no acknowledgement of debt for the purpose of extending limitation. Further contention being that Petition of the Bank under Section 7 of the IBC was barred by limitation. This conclusion was arrived at on the basis of facts and materials on record and it cannot be said that the conclusion is perverse or otherwise warrants intervention of the hon'ble supreme court in a second appeal. Further the actions before the adjudicating authority/NCLT were challenged as in there was a belated filing of documents an action ought not to have been allowed by the court of first instance,i.e. NCLT/adjudicating authority. Moreover there was an interim application filed by the Bank and new set of facts were introduced. This liberty was granted only to file a gist of the case and some orders/judgments. However the Appellant Bank in abuse of the process of the Tribunal, filed I.A. No. 131 of 2019, introducing a whole new set of documents and setting up an entirely new case for extension of limitation, on the ground of alleged acknowledgement of debt. Section 18 of the Limitation Act would apply to proceedings in the NCLT under Section 7 of the IBC, only when sufficient materials on record are placed with its petition under Section 7 of the IBC, to attract Section 18 of the Limitation Act. The corporate debtor argued as communications/letters proposing for a one time settlement were only to buy peace and end the litigation and cannot, therefore, be construed as acknowledgment of debts for the purpose of Section 18 of the Limitation Act. Citing the judgment of GAURAV HARGOVINDBHAI DAVE Versus ASSET RECONSTRUCTION COMPANY (INDIA) LTD. AND ANR. - 2019 (9) TMI 1019 - Supreme Court, a proposal for One Time Settlement cannot be construed as an acknowledgment of debt for the purpose of Section 18 of the Limitation Act. Finally the certificate of recovery as issued by DRT cannot be linked to a Petition under section 7 IBC. There could be no question of reckoning limitation from the date of failure to make payment in terms of the Recovery Certificate. HELD THAT: The hon'ble court referred to its own judgment of Swiss Ribbons Pvt. Ltd. And Anr. Versus Union of India And Ors. - 2019 (1) TMI 1508 - Supreme Court as the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. Unlike coercive recovery litigation, the Corporate Insolvency Resolution Process under the IBC is not adversarial to the interests of the Corporate Debtor. As to the contention of limitation, the hon'ble apex court held that there can be no dispute with the proposition of law laid down in BABULAL VARDHARJI GURJAR Versus VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. & ANR. - 2020 (8) TMI 345 - Supreme Court that limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. The court gave its finding as to Section 18 of Limitation Act is an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, it has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgement must be made before the relevant period of limitation has expired. Held by the hon'ble bench, that the NCLAT coming to the decision as to nothing on record to suggest that the ‘Corporate Debtor’ acknowledged the debt within three years and agreed to pay debt is unsustainable in law. The principles of limitation should apply to an application under Section 7 of the IBC which enables a financial creditor to file an application initiating the Corporate Insolvency Resolution Process (CIRP)against a Corporate Debtor before the Adjudicating Authority, when a default has occurred. On a conjoint reading of the provisions of the IBC quoted above, it is clear that a final judgment and/or decree of any Court or Tribunal or any Arbitral Award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7 of the IBC. Respondent is a Corporate Debtor and the Appellant Bank, a Financial Creditor. The issuance of a "Certificate of Recovery" in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid. There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC in Form-1. Finally, the appeal stood allowed and the impugned judgment (NCLAT) was held to be unsustainable in law and facts. The impugned judgment and order of the NCLAT was set aside.
Full Text: 2021 (8) TMI 315 - Supreme Court
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