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TMI Blog2021 (12) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... les and Regulations have to be construed liberally, in a purposive manner to further the objects of enactment. Without amending the relevant column in Section 7 Application, a Financial Creditor can bring relevant materials on record before the Adjudicating Authority by way of supplementary affidavit, rejoinder affidavit and the additional affidavit, which materials can be looked into and non-amending of relevant column in Form-1 shall not preclude the admissibility of the materials brought subsequently by way of supplementary affidavit or additional affidavit. Whether the balance sheet as on 31st March, 2017, which was filed along with supplementary affidavit before the NCLT, can only be looked into and balance sheets for the year 2015 and 2016 cannot be looked into? - HELD THAT:- The balance sheets as on 31st March, 2015 and 31st March, 2016, which have been filed along with the reply affidavit of Respondent No.1 before this Appellate Tribunal, can be looked into along with the balance sheet as on 31st March, 2017, which was already on record before the Adjudicating Authority. Whether balance sheets for the years 2015, 2016, 2017 contain an unequivocal acknowledgement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes for R-2 JUDGMENT ASHOK BHUSHAN, J. These two Appeals by the Appellant (Director of Corporate Debtor, Respondent No.2) have been filed challenging order dated 19th February, 2020 passed by the National Company Law Tribunal, Kolkata Bench in Company Petition (IB) No.23/KB/2019 and order dated 08.10.2021 passed by National Company Law Tribunal, Kolkata Bench in IA (IB) No.431/KB/2021 in C.P. (IB) No.23/KB/2019, respectively. 2. We need to notice first the facts of the case and sequence of the events giving rise to filing of these two Appeals by the Director of the Corporate Debtor (Respondent No.2). Corporate Debtor decided to setup a Thermal Power Plant in the State of Jharkhand having capacity of 540 megawatt in two phases. Subsequently increased to 1080 MW (Project). Between 2009 to 2011 (starting from 05.12.2009), the Corporate Debtor executed Loan Agreement and other financing documents with the Consortium of Lenders and availed loan facilities from the Consortium aggregating to INR 2175 crores for phase-1 of the project and INR 2387 crores for phase-II of the project. Due to continuous default in payment, the account of the Corporate Debtor was classified as N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Adjudicating Authority, the Corporate Debtor argued only the question of limitation and did not raise any other ground as raised in the reply affidavit. The Adjudicating Authority considered the submissions of both the parties and took the view taking the date of default as 20th June, 2015 and held that the balance sheet for the financial year ending 31st March, 2017 signed on 29st May, 2017 contained acknowledgement, which was within the period of expiry of limitation. Hence, the Application was not barred by limitation. The Adjudicating Authority vide its order dated 19th February, 2020 admitted the Application filed by Respondent No.1 under Section 7 of the IBC and declared Moratorium under Section 14 of the IBC. Aggrieved against the order dated 19th February, 2020, the Director of the Corporate Debtor has filed Company Appeal (AT) (Insolvency) No.385 of 2020. 6. Company Appeal (AT) (Insolvency) No.385 of 2020 was taken up by this Appellate Tribunal and notices were issued by order dated 04.03.2020. Respondent No.1 filed its reply. A request was made on behalf of the learned Counsel for the Appellant to stay the CIRP proceedings, which was declined by the Appellate Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al praying for direction for the liquidation of the Corporate Debtor, since Corporate Insolvency Resolution Process (CIRP) period had expired and no Resolution Plan was approved by the Committee of Creditors. The Adjudicating Authority by its order dated 08.10.2021 has allowed the prayers in the Application and Corporate Debtor was ordered to be liquidated in terms of Section 33(2) of the IBC r/w sub-section (1) thereof. Aggrieved by the order dated 08.10.2021, the Director of the Corporate Debtor has filed this Appeal. 10. Both these Appeals have been heard together and are being decided by this common judgment. 11. We have heard Shri Abhijeet Sinha, learned Counsel for the Appellant and Shri Ramji Srinivasan, learned Senior Counsel appearing for Respondent No.1. 12. Shri Abhijeet Sinha, learned Counsel for the Appellant submits that the judgment of the Hon ble Supreme Court dated 15th April, 2021 has only decided the question of law, holding that IBC does not exclude the application of Section 6, 14 or 18 or any other provisions of the Limitation Act to proceedings in the IBC. It also held that entries made in the balance sheet may amount to acknowledgement, so as to att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a note/ caveat in its balance sheets. The Corporate Debtor had disputed its liability to make any payment to the Banks and Financial Institutions, hence, the balance sheets cannot amount to an acknowledgement within the meaning of Section 18 of the Limitation Act. It is also submitted that the Corporate Debtor has filed its counter claim before the Debt Recovery Tribunal in O.A. No.712 of 2016 and O.A. No.705 of 2016. In order to claim benefit of Section 18 of the Limitation Act, the facts need to be pleaded and foundation is to be laid down in Section 7 Application. Shri Abhijeet Sinha submits that Application having filed after more than three years of account being declared NPA i.e. 31st July, 2013, the Application is clearly barred by time and Adjudicating Authority committed error in admitting the Application. 13. Coming to the Company Appeal (AT) (Insolvency) No.903 of 2021, learned Counsel Shri Abhijeet Sinha submits that the admission of Section 7 Application being barred by limitation, subsequent proceedings including order dated 08.10.2021 directing for liquidation of the Corporate Debtor deserves to be set aside. 14. Shri Ramji Srinivasan, learned Senior Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng are the issues, which arise for consideration in these Appeals: (1) Whether the relevant column in Section 7 Application having not been amended by Respondent No.1, other materials can be looked into for the purposes of finding an acknowledgement within the meaning of Section 18 of the Limitation Act? (2) Whether the balance sheet as on 31st March, 2017, which was filed along with supplementary affidavit before the NCLT, can only be looked into and balance sheets for the year 2015 and 2016 cannot be looked into? (3) Whether balance sheets for the years 2015, 2016, 2017 contain an unequivocal acknowledgement of debt by the Corporate Debtor, which is a sufficient acknowledgement within the meaning of Section 18 of the Limitation Act? Question No.(1) 16. An Application under Section 7 of the IBC can be filed by a Financial Creditor in such form and manner and accompanied by such fee as may be prescribed as per the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Application is to be filed in Form-1, accompanied with documents and records as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for elaborate pleadings. An application to the Adjudicating Authority (NCLT) under Section 7 of the IBC in the prescribed form, cannot therefore, be compared with the plaint in a suit. Such application cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law. 20. Further, the Hon ble Supreme Court in the above judgment laid down that there is no bar in filing document at any time before the Adjudicating Authority until a final order is passed. In paragraph 91, following has been laid down: 91. On a careful reading of the provisions of the IBC and in particular the provisions of Section 7(2) to (5) of the IBC read with the 2016 Adjudicating Authority Rules there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed. 21. The filing of an Application under Section 7 in Form-1 is procedural requirement. The requirement in procedural rule has not to read in a manner, which may preclude an affected party from bringing other materials on record to bring home his point. The procedure prescribed in the Rules are with an intent to capsule the relevant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nha, learned Counsel for the Appellant is that balance sheets as on 31st March, 2015 and 31st March, 2016, which were not before the Adjudicating Authority cannot be looked into and the only balance sheet which can be looked into is that of the year as on 31st March, 2017 filed before the Adjudicating Authority. We may first consider as to whether before the Appellate Tribunal any document which was not before the Adjudicating Authority can be filed or looked into. 25. We may look into the National Company Law Appellate Tribunal Rules, 2016 for the purpose. Rule 11 of NCLAT Rules, 2016 relates to inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary to meet the ends of justice or to prevent abuse of process of the Appellate Tribunal. 26. Part-XII of the NCLAT Rules, 2016 provides for Discovery, Production and Return of Documents . On an application for summon and producing of documents, an order can be passed by the Appellate Tribunal and the documents can also be suo-moto summoned by the Appellate Tribunal. 27. The Companies Act, 2013 Section 424 provides for Procedure before Tribunal and Appellate Tribunal is to the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Appellate Tribunal shall be deemed to be civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974). 28. It is relevant to note that both by order dated 4th March, 2020 and 4th July, 2020 passed by this Tribunal, the Respondents were granted time to file reply affidavits and Appellant was granted time to file rejoinder. Reply affidavit was filed by the Respondent No.1 annexing balance sheets as on 31st March, 2015 and 31st March, 2016, but no rejoinder was filed by the Appellant either disputing document of balance sheets brought on record by Respondent No.1 or raising any objection regarding the aforesaid two balance sheets. We may also notice that when the Appellate Tribunal after hearing the parties passed a reference order on 25.09.2020, in paragraph 9 of the judgment the statement of learned Counsel for the Financial Creditor was noticed, where it was submitted that Corporate Debtor has time and again admitted and unequivocally acknowledged its debt in the balance sheets for the year ending 31st March, 2015, 31st March, 2016 and 31st March, 2017. The relevant observation of the Appellate Tribunal in this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. As a result, the NCLT held that the Section 7 application was not barred by limitation, and therefore, admitted the same. We have already set aside the majority judgment of the Full Bench of the NCLAT dated 12.03.2020, and the impugned judgment of the NCLAT dated 22.12.2020 in paragraphs 33 and 34. This appeal is, therefore, allowed, and the matter is remanded to the NCLAT to be decided in accordance with the law laid down in our judgment. 31. The reference of the balance sheet of 2016-17 in the above paragraph was made by the Hon ble Supreme Court in context of referring to the judgment of NCLT. The judgment of Hon ble Supreme Court in no manner can be read to hold that it is only the balance sheet of 2016-17, which can be looked into and balance sheets of 2014-15 and 2015-16, which have been filed before this Appellate Tribunal cannot be looked into. Thus, reference of the Hon ble Supreme Court in paragraph 35 was in the context of NCLT judgment and does not help the Appellant to contend that balance sheet of only 2016-17 can be looked into. 32. As noted above, argument of the Financial Creditor on the basis of balance sheets for the year 2014-15 and 2015-16 have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, financial statements of a Corporate Debtor are relevant and may contain an acknowledgement within the meaning of Section 18 of the Limitation Act. The balance sheets for the year 2014-15 and 2015-16 cannot be refused to be looked into on submissions of learned Counsel for the Appellant that they having not been filed before the Adjudicating Authority cannot be looked into. We are satisfied that the balance sheets, which have been filed along with the reply affidavit of Respondent No.1 are to be looked into and we grant leave to bring the balance sheets and Director s Report for the year 2014-15 and 2015-16 on record. 34. The Question No.(2) is thus answered in the following words; The balance sheets as on 31st March, 2015 and 31st March, 2016, which have been filed along with the reply affidavit of Respondent No.1 before this Appellate Tribunal, can be looked into along with the balance sheet as on 31st March, 2017, which was already on record before the Adjudicating Authority . Question No.(3) 35. Now coming to the crucial question as to whether the balance sheets for the year as on 31st March, 2015, 31st March, 2016 and 31st March, 2017 contains an unequivocal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occasion to consider the acknowledgement of liability in balance sheets of the Corporate Debtor in reference to Section 19 of the Limitation Act, 1908 and following was held in paragraph 9: 9. In support of the contention that the balance-sheets do not amount to acknowledgements of liability, because they were prepared under compulsion of law Mr. Banerji relies upon the decision in Kashinath v. New Akot Ginning and Pressing Co. Ltd. (1) I.L.R. 1950 Nag. 562 at 568 : A.I.R. 1951 Nag. 255. It is true that the balance-sheets were required to be made both by the Indian Companies Act, 1913 as also by the articles of association of the defendant company. There was a compulsion upon the managing agents to prepare the documents but there was no compulsion upon them to make any particular admission. They faithfully discharged their duty and in doing so they made honest admissions of the Company's liabilities. Those admissions, though made in discharge of their duty, are nevertheless conscious and voluntary admissions. A document is not taken out of the purview of section 19 of the Indian Limitation Act merely on the ground that it is made under compulsion of law, see Venkata v. Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the next year. In each balance-sheet there is thus an admission of a subsisting liability to continue the relation of debtor and creditor and a definite representation of a present intention to keep the liability alive until it is lawfully determined by payment or otherwise. There is necessarily a time lag between the date of the signing of the balance-sheet and the end of the previous year. The balance-sheet contains no admission of the amount due on the date of the signature, that amount may be and often is different from the amount shown as due at the end of the previous year, but that fact alone does not take the document out of the purview of section 19. Take the case of a banker and its depositor. Suppose the banker sends to the depositor a monthly statement of account made for the month of February 1961 and signed on March 15, 1961. The statement gives the balance due on February 28, 1961. The amount due on March 15 may be quite different; the banker might have been made payments for the customer, nevertheless the statement amounts to a sufficient acknowledgement under section 19. I am therefore unable to agree with the decision in Jwala Prasad v. Jwala Bank Ltd. (5) A.I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in the last case has been followed in India and it has been held that an admission of indebtedness in a balance-sheet is a sufficient acknowledgement under section 19 of the Indian Limitation Act, see The Rajah of Vizianagram v. Official Liquidator, Vizianagram Mining Co. Ltd., (12) (1951) 2 M.L.J. 535 at 550-1 : A.I.R. 1952 Mad. 136 at 145, Lahore Enamelling and Stamping Co. Ltd. v. A.K. Bahalla (13) A.I.R. 1958 Punjab 341 at 347, First National Bank Ltd. v. The Mandi (State) Industries Ltd., (14) (1957) 59 Punjab Law Reports 589 and in an unreported decision of S.R. Das Gupta, J. in matter No. 449 of 1955 Re: Vita Supplies Corporation Ltd. (15) decided on December 7, 1956. 40. In Asset Reconstruction Company (India) Ltd. vs. Bishal Jaiswal Anr., the Hon ble Supreme Court after review, approvingly quoted the Calcutta High Court judgment in Bengal Silk Mills and in paragraph 21, the following was laid down: 21. Importantly, this judgment in Bengal Silk Mills [Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128 : AIR 1962 Cal 115] holds that though the filing of a balance sheet is by compulsion of law, the acknowledgment of a debt is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties, we need to proceed to examine the submissions before us in light of the law laid down above. 43. Submission of Shri Abhijeet Sinha before us is that the Hon ble Supreme Court in judgment dated 15th April, 2021 did not enter into the examination of the materials and the evidence of the present case to decide as to whether acknowledgement as claimed by Respondent No.1 are acknowledgement within the meaning of Section 18 of the Limitation Act or not and has left the question to be decided on case to case basis. We are in agreement with the above submission of Shri Abhijeet Sinha. In the judgment dated 15th April, 2021, the Hon ble Supreme Court has laid down the principles for determination of acknowledgement under Section 18 of the Limitation Act, but has not entered into the question as to whether in the facts of the present case, Respondent No.1 is entitled to claim extension of period of limitation on the strength of Section 18 of the Limitation Act. We, thus, have to look into the financial statements and the balance sheets of the Corporate Debtor to find as to whether they contain an acknowledgement within the meaning of Section 18 of the Limitation Act. 44. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... committed by the banks Financial Institutions and due to arbitrary action taken by them and non adherence of applicable RBI guidelines by these banks financial institutions, the company has sustained huge losses and damages. The company is in the process of working out damage claim against these banks financial institutions against the above reasons. The company has obtained legal advice from its counsels on legal position/tenability realisation of such damage claims in accordance with the prevailing laws. On perusal of these opinions, the company is of the firm opinion that company shall succeed in getting damage claim against the banks Is which may far exceed the amount reflected above at note no.5 as due to the banks financial institutions. We are also under preliminary legal advice that because of various omission and commissions of banks FIs, and resultant possible damage claim due to the said lapses on the part of banks FIs, all such securities as has been mentioned in the above mentioned notes and/ or other securities are also stand discharged to that extent. However, as per the prudential accounting conventions, which requires company to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier judgment again reiterated that an acknowledgement of liability that is made in a balance sheet can amount to acknowledgement of debt. In paragraph 118, the following was laid down: 118. It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act. In Asset Reconstruction Company (India) Limited v. Bishal Jaiswall (supra) authored by Nariman, J. this Court quoted with approval the judgments, inter alia, of Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, [ Bengal Silk Mills ] and in Re Pandem Tea Co. Ltd., the judgment of the Delhi High Court in South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana and the judgment of Karnataka High Court in Hegde Golay Ltd. v. State Bank of India and held that an acknowledgement of liability that is made in a balance sheet can amount to an acknowledgement of debt. 50. Further in paragraph 127, the following has been laid down: 127. Section 18 of the Limitation Act speaks of an Acknowledgment in writing of liability, signed by the party against whom such property or right is claimed. Even if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 18 of the Limitation Act and Respondent No.1 is entitled to claim that fresh period of limitation started after the acknowledgement. The date of default being 31st July, 2013 and balance sheet as on 31st March, 2015 having signed on 2nd September, 2015, the acknowledgement was made within expiry of three years period of limitation from 31st July, 2013. The acknowledgement continues in balance sheets as on 31st March, 2016 and 31st March, 2017. Hence, the Application under Section 7 of the IBC filed in 26th December 2018 is well within limitation and has rightly been admitted by the Adjudicating Authority. 55. We, thus, uphold the order of Adjudicating Authority admitting Section 7 Application filed by Respondent No.1 for the reasons as indicated above. There is no merit in the Company Appeal (AT) (Insolvency) No.385 of 2020, which is dismissed. 56. Coming to Company Appeal (AT) (Insolvency) No.903 of 2021, which has been filed against the order dated 08.10.2021 allowing the prayers in IA (IB) No.431/KB/2021 in C.P. (IB) No.23/KB/2019 filed by Resolution Professional for liquidation as no Resolution Plan was approved by the Committee of Creditors and CIRP period had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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