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TMI Blog2020 (3) TMI 1244X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st November, 2019 admitted the application. 2. Initially the plea that was taken by the Appellant is that the Demand Notice was not served before the order of admission was passed on 21st November, 2019. Otherwise, the Appellant would have shown that the application under Section 7 was barred by limitation, the account of the 'Corporate Debtor' having been declared as NPA in the year 2009 and the case being decreed in the year 2013. 3. On notice, the Respondents appeared and relied on decision of the three Hon'ble Members of this Appellate Tribunal dated 22nd January, 2020 in "M/s. Ugro Capital Limited v. M/s. Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd. (BDDE)─ Company Appeal (AT) (Insolvency) No. 984 of 2019". In the said case, the Hon'ble Members of this Appellate Tribunal taking into consideration that the suit was decreed on 22nd May, 2015, held that non-payment of debt thereafter amounts to "committed default" in terms of Section 3(12) of the 'I&B Code' for the first time and in terms of Article 137 of the Limitation Act, 1963, for the purpose of filing application under Section 7 of the 'I&B Code' three years from the date the right to apply accrued for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 238A does not deal with application under Sections 7, 9 or 10 of the 'I&B Code', the decision of the Hon'ble Supreme Court in "B.K. Educational Services Private Limited Vs. Parag Gupta and Associates" (Supra) being law of land under Article 141 of the Constitution of India, Article 137 of the Limitation Act, 1963 will be applicable to application under Sections 7, 9 or 10 of the 'I&B Code' since the date of inception of the Code (commencement of the Code i.e. 1st December, 2016). 9. In "Jignesh Shah and another vs. Union of India and another - (2019) 10 SCC 750", the Hon'ble Supreme Court taking into consideration the fact of filing of an application under Sections 433 and 434 of the Companies Act, 2013 observed as follows: "13. Dr Singhvi relied upon a number of judgments in which proceedings under Section 433 of the Companies Act, 1956 had been initiated after suits for recovery had already been filed. These judgments have held that the existence of such suit cannot be construed as having either revived a period of limitation or having extended it, insofar as the winding-up proceeding was concerned. Thus, in Hariom Firestock Ltd. v. Sunjal Engg. (P) Ltd., a Single Judge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cree remaining unsatisfied, as provided in clause (b) of sub-section (1) of Section 434. Therefore, since the debt of the petitioner Company has become time-barred and cannot be legally proved in this Court in course of the present proceedings, winding up of Opposite Party 1 cannot be ordered due to non-payment of the said debt." Finally, the Hon'ble Supreme Court after taking into consideration the date of default observed: - "21. The aforesaid judgments correctly hold that a suit for recovery based upon a cause of action that is within limitation cannot in any manner impact the separate and independent remedy of a winding-up proceeding. In law, when time begins to run, it can only be extended in the manner provided in the Limitation Act. For example, an acknowledgment of liability under Section 18 of the Limitation Act would certainly extend the limitation period, but a suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding-up proceeding is to be filed, by somehow keeping the debt alive for the purpose of the winding-up proceeding. xxx xxx xxx 28. A re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to note the facts of the judgment as follows: - "In the present case, Respondent 2 was declared NPA on 21-7-2011. At that point of time, State Bank of India filed two OAs in the Debts Recovery Tribunal in 2012 in order to recover a total debt of 50 crores of rupees. In the meanwhile, by an assignment dated 28-3-2014, State Bank of India assigned the aforesaid debt to Respondent 1. The Debts Recovery Tribunal proceedings reached judgment on 10-62016, the Tribunal holding that the OAs filed before it were not maintainable for the reasons given therein. 2. As against the aforesaid judgment, Special Civil Application Nos. 10621-622 were filed before the Gujarat High Court which resulted in the High Court remanding the aforesaid matter. From this order, a special leave petition was dismissed on 273-2017. 3. An independent proceeding was then begun by Respondent 1 on 3-10-2017 being in the form of a Section 7 application filed under the Insolvency and Bankruptcy Code in order to recover the original debt together with interest which now amounted to about 124 crores of rupees. In Form-I that has statutorily to be annexed to the Section 7 application in Column II which was the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appellant, time, therefore, begins to run on 21-72011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr Banerjee's reliance on para 11 of B.K. Educational Services (P) Ltd., suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred. 7. This being the case, we fail to see how this para could possibly help the case of the respondents. Further, it is not for us to interpret, commercially or otherwise, articles of the Limitation Act when it is clear that a particular article gets attracted. It is well settled that there is no equity about limitation - judgments have stated that often time periods provided by the Limitation Act can be arbitrary in nature. 8. This being the case, the appeal is allowed and the judgments of the NCLT and NCLAT are set aside." 11. In "Vashdeo R. Bhojwani vs. Abhyudaya Co-operative Bank Limited and another - (2019) 9 SCC 158", the Hon'ble Supreme Court referring to B.K. Education (Supra) observed: - "3. Having heard the learned counsel for both parties, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I Act, 2002' in the year 2013. Therefore, the second time it become NPA in the year 2013 when action under Section 13(2) was taken." Referring to Section 18 of the Limitation Act, 1963, this Appellate Tribunal further observed: - "22. The aforesaid provision makes it clear that for the purpose of filing a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has to be made in writing duly signed by the party against whom such property or right is claimed. 23. In the present case, 'Asset Reconstruction Company (India) Ltd.'- ('Financial Creditor') has failed to bring on record any acknowledgment in writing by the 'Corporate Debtor' or its authorised person acknowledging the liability in respect of debt. The Books of Account cannot be treated as an acknowledgment of liability in respect of debt payable to the 'Asset Reconstruction Company (India) Ltd.'- ('Financial Creditor') signed by the 'Corporate Debtor' or its authorised signatory. 24. In "Sampuran Singh and Ors. v. Niranjan Kaur and Ors.─ (1999) 2 SCC 679", the Hon'ble Supreme Court observed that the acknowledgment, if any, has to be prior to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery or a decree passed by a Court cannot shift forward the date of default. 17. A suit for recovery of money can be filed only when there is a default of dues. Even if the decree is passed, the date of default cannot be shift forward to the date of decree or date of payment for execution as a decree can be executed within specified period i.e. 12 years. If it is executable within the period of limitation, one cannot allege that there is a default of decree or payment of dues. 18. Therefore, we hold that a Judgment or a decree passed by a Court for recovery of money by Civil Court/ Debt Recovery Tribunal 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'. 19. In "M/s. Ugro Capital Limited v. M/s. Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd. (BDDE)─ Company Appeal (AT) (Insolvency) No. 984 of 2019", as other decisions have not been brought to the notice of the Hon'ble Bench, it cannot be cited as a precedent. 20. It is next submitted by the learned counsel appearing for the Respondents that the application under Section 7 was not barred by limitation as the 'Corporate Debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be an application in respect of any property or right." 13. As the Decree passed by DRT on 17th August, 2018 cannot be said to be an acknowledgement of debt by the 'Corporate Debtor' in terms of Section 18 of the Limitation Act, 1963 learned Counsel for the Respondent relied on Balance Sheet of the 'Corporate Debtor' for the years ending 2014-15, 2015-16 and 2016-2017 to suggest that the 'Corporate Debtor' admitted the liability in its Independent Auditor's Report and Balance Sheet. 14. Section 92 of the Companies Act, 2013 mandates a Company to prepare a return in the prescribed form as they stood on the close of the financial year regarding providing different details. Under Section 92(5), if a Company fails to file its annual return under sub-section (4), before the expiry of the period specified, it is punishable with fine and the Officers of the Company on such default are also punishable with imprisonment or fine or both as under: - Companies Act section 92(1), (4), (5) and (6) to be reproduced "92. Annual return.- (1) Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both. (6) If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made there under, he shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees." 15. As the filing of Balance Sheet/ Annual Return being mandatory under Section 92(4), failing of which attracts penal action under Section 92(5) & (6), the Balance Sheet / Annual Return of the 'Corporate Debtor' cannot be treated to be an acknowledgement under Section 18 of the Limitation Act, 1963. 16. If the argument is accepted that the Balance Sheet / Annual Return of the 'Corporate Debtor' amounts to acknowledgement under Section 18 of the Limitation Act, 1963 then in such case, it is to be held that no limitation would be applicable because every year, it is mandatory for the 'Corporate Debtor' to file Balance Sheet/ Annual Return, which is not the law." 22. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Assets Stabilization Fund (SASF)' will pay the fee of the 'Interim Resolution Professional' and 'corporate insolvency resolution process cost', as may be determined. The appeal is allowed with aforesaid observation and direction. However, in the facts and circumstances of the case, there shall be no order as to cost. JUDGEMENT (12th March, 2020) A.I.S. Cheema, J. : 1. I have had the opportunity to go through the draft of erudite Judgement by the Hon'ble Chairperson. With great respect and all humility at my command I have reservations regarding part of the Judgement where it relates to Annual Returns/audited Balance Sheets. 2. I am not recording here particulars of how the Appeal has arisen and facts of the case and why present Bench of Chairperson and 4 Members was required to be constituted as it is dealt with in the Judgement crafted by Hon'ble Chairperson. 3. I have gone through Judgement in the matter of "V Hotels Limited Vs. Asset Reconstruction Company (India) Limited" - Company Appeal (AT) (Insolvency) No. 525 of 2019 and its finding in Para - 23 that "Books of Account" cannot be treated as acknowledgement. I have also gone through the Judgement in the matter of "Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 of the Limitation Act. 8. The Judgement in the matter of "The Commissioner of Income Tax" (supra) was in the context of provisions of the Income Tax Act. In Para - 17 of the Judgement, it was observed:- 17. In the case before us, as rightly pointed out by the Tribunal, the assessee has not transferred the said amount from the creditors' account to its profit and loss account. The liability was shown in the balance sheet as on 31st March, 2002. The assessee being a limited company, this amounted to acknowledging the debts in favour of the creditors. Section 18 of the Limitation Act, 1963 provides for effect of acknowledgement in writing. It says where before the expiration of the prescribed period for a suit in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, a fresh period of limitation shall commence from the time when the acknowledgement was so signed. In an early case, in England, in Jones v. Bellgrove Properties, (1949) 2KB 700, it was held that a statement in a balance sheet of a company presented to a creditor- share hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence these liabilities are not confirmed by your Directors. 12. These were the two considerations which led the Court to conclude that even the debt shown in the balance sheet in respect of the said petitioning creditor would not amount to an acknowledgement as contemplated under Section 18 of the Limitation Act and following observations in this regard are reported: "Therefore, in understanding the balance sheets and in explaining the statements in the balance-sheets, the balance-sheets together with the Directors' report must be taken together to find out the true meaning and purport of the statements. Counsel appearing for petitioning creditor contended that under the statute the balance sheet was a separate document and as such if there was unequivocal acknowledgement on the balance-sheet is a statutory document and perhaps is a separate document but the balance sheet not confirmed or passed by the shareholders at the appropriate meeting and in order to do so it must be accompanied by a report, if any, made by the Directors. Therefore, even though the balance sheet may be a separate document these two documents in the facts and circumstances of the case should be read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be read with Directors' Report. In the Directors Report which is before us, there does not appear to be any acknowledgement of debt. The statement recorded by the Auditor with regard to the pending litigation in the facts of the present matter, we find, cannot be read as an acknowledgement by Company under Section 18 of the Limitation Act." 7. In the above reference to Judgement in the matter of "Gautam Sinha" while referring the Judgement of the Hon'ble High Court of Delhi in the matter of "The Commissioner of Income Tax-III v. Shri Vardhman Overseas Ltd." reported as 2011 SCC OnLine DEL 5599, only part of Para - 17* of that Judgement was reproduced. In Judgement in the matter of "Commissioner of Income Tax" (supra), the Hon'ble High Court of Delhi after referring to Judgement of the Hon'ble Supreme Court in "M/s Mahabir Cold Storage Versus C.I.T." (supra) and the legal positon in Para - 17, observed that in several Judgements of the High Court, the legal position has been accepted and added:- "In Daya Chand Uttam Prakash Jain vs. Santosh Devi Sharma 67 (1997) DLT 13, S.N. Kapoor J. applied the principle in a case where the primary question was whether a suit under Order 37 CP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orcement of Security Interest Act, 2002 (SARFAESI - in short) was mandatory or directory in nature and in the context, dealt with the matter where the Creditor had not replied to debtors' representation and it was claimed that there was breach of Section 13(3A). In that context, Hon'ble Supreme Court dealt with attendant circumstances and the Notices which were issued by the Creditor and the different proposals debtor made including a "Letter of Undertaking" dated 25th November, 2013 and in Para - 35 of that Judgement observed:- Letter of Undertaking "Without Prejudice" 35. Much was sought to be made of the words "without prejudice" in the letter containing the undertaking that if the debt was not paid, the creditor could take over the secured assets. The submission on behalf of the debtor that the letter of undertaking was given in the course of negotiations and cannot be held to be an evidence of the acknowledgement of liability of the debtor, apart from being untenable in law, reiterates the attempt to evade liability and must be rejected. The submission that the letter was written without prejudice to the legal rights and remedies available under any law and therefore the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2013 requires filing of Annual Returns by the Company mandatory and the default attracts penal action, the same cannot be treated as an acknowledgement under Section 18 of the Limitation Act, 1963. The law requires preparation of Financial Statements and Annual Returns and filing of the same. The default in filing attracts action. There is no compulsion or force regarding the contents disclosing acknowledgement. This is clear from Para - 11 of the Judgement in the matter of "In re. Padam Tea Company Ltd." (referred supra in Para - 5). There the Directors recorded their opinion with regard to the liabilities shown to say that the same are barred by limitations and hence, the liabilities are not being confirmed by the Directors. Thus the provisions of the Companies Act mandating filing of Annual Return/Balance Sheet cannot be treated as if they are coercive and so should be treated as inadmissible. 12. Apart from Judgements of the High Courts, as referred, Judgement in the matter of "Mahabir Cold Storage" (supra) clearly recorded in Para - 12 that entries in the books of accounts would amount to an acknowledgement of the liability within the meaning of Section 18 of the Limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me is that even the Hon'ble Supreme Court has observed that if the amount borrowed by the party is shown in the Balance Sheet, it may amount to acknowledgement and the creditor might have a fresh period of limitation from the date on which the acknowledgement was made. 15. Thus, I find 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 I 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. I find the Judgements of Hon'ble Supreme Court of India are binding and Balance Sheets cannot be outright ignored. 16. For the above reasons, I am of the opinion that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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