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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 ..... r 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 Non-Performing Asset (NPA) by the State Bank of India on 31st July, 2013. On 27.03.2015, the State Bank of India issued a loan recall notice to the Corporate Debtor in its capacity as the Lenders' Agent. Some of the Lenders of the Corporate Debtor including State Bank of India assigned their debts from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Tribunal by order dated 31st July, 2020. A three Member Bench of the Appellate Tribunal heard the matter on 02.09.2020 and reserved the judgment. Before the three Member Bench, a judgment of five Members' Bench of Appellate Tribunal in V. Padma Kumar vs. Stressed Assets Stabilization Fund (SASF) & Anr. in Company Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate 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 attract Section 18 of the Limitation Act and whether particular entry made in balance sheet is unequivocal or has been entered into with caveats has to be determined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 appearing for Respondent No.1 opposes the submissions of Shri Abhijeet Sinha. On the materials which have been brought on record in the present case by Respondent No.1, he states that Respondent No.1 has made out a case for extension of period of limitation under Section 18 of the Limitation Act and the Application filed un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance 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 Corporate Persons) Regulations, 2016. Form-1 is statutory Form under which the Application is to be submitted. An Application in Form-1 is not akin to a plaint in a Civil Suit. The Application should elicit relevant details regarding Applicant, Corporate Debtor, Financial Debt and Particulars of Financial Debt. 17. The NCLT Rules, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 information in prescribed column. But that is not to shut out any other relevant information, if brought subsequently. The Hon'ble Supreme Court in Dena Bank (supra) has laid down that IBC Rules and Regulations have to be construed liberally, in a purposive manner to further the objects of enactment. In paragraph 88, following has been said: "88. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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 following effect: "424. Procedure before Tribunal and Appellate Tribunal.- (1) The Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before it or, as the case may be, an appeal before it, be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice, and, subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in paragraph 9 of the order dated 25.09.2020 is as follows:- "9. The Learned Counsel for the Financial Creditor contends that in this case, the right to sue for the first time accrued upon the classification of the account as NPA on 31st July 2013. Thereafter, the Corporate Debtor has time and again admitted and unequivocally acknowledged its debt in the Balance Sheets for the years ending 31st March 2015, 31st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn 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 noticed by this Tribunal in its previous orders and balance sheets of the year 2014-15 and 2015-16 having been brought along with the reply affidavit, which was not disputed by filing a rejoinder, we are of the view that the balance sheets of the year 2014-15 and 2015-16 cannot be disregarded from consideration. There are two more reasons for taking into consideration the balance sheets for the year 2014-15 and 2015-16 - (i) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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 acknowledgement of the debt by the Corporate Debtor within the meaning of Section 18 of the Limitation Act. Section 18 of the Limitation Act provides: "18. Effect of acknowledgment in writing.- (1) Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 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. Partha Saradhi, (2) 1892 I.L.R. 16 Mad. 220 at 222, Udaya Thevar v. Subrahmania Chetti, (3) (1896) 6 M.L.J. 266, 269, Good v. Jane Job, (4) 1 E1 and E1 6 at 11: 120 E.R. 810 at 812. I am unable to agree with the reasoning of the Nagpur decision that a balance-sheet does not save limitation because it is drawn up under a duty to set out the claims made on the company and not with the intention of acknowledging liability. The balance-sheet contains admissions of lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.R. 1957 All. 144." 38. It is, therefore, necessary that upon a reasonable construction of the language used by the debtor in writing the relation of debtor and creditor must appear to be distinctly admitted, that it must be admitted also to be a subsisting jural relation, and then an intention to continue it until it is lawfully determined must also be evident. 39. In Bengal Silk Mills Co. (supra), the Division Bench ultimately concluded the following in paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndi (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 necessarily so. In fact, it is not uncommon to have an entry in a balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor's report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgment of debt for reasons given in the said note." 41. The Hon'ble Supreme Court after referring to the provision of Section 92, 128, 129, 134 and 137 of the Companies Act, 2013, held that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In the balance sheet as on 31st March, 2015 under Note 4, Long Term Borrowings has been mentioned. Note 4, which refers to Rupee Term Loans from Banks and Financial Institutions is as follows: Particulars As at 31.03.2015 Rs. in Lacs As at 31.03.2014 Rs. in Lacs SECURED LOANS Rupee Term Loans from Banks Financial Institutions 286,702.85 137,091.99 423,794.83 286,702.85 137,091.99 423,794.83 45. Under the heading 'Security and term of Repayment' in Roman (i) and Roman (iv), it is menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks & 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 make provisions for loss or liability even these are disputed, the company has reflected & shown above liabilities in the books of account since the damage claim has still not been finalized. At the same time, in accordance with the Accounting standard 9 on 'Revenue Recognition' as has been issued by ICAI and made mandatory to companies u/s xxx OF Companies Act, 2013, which prescribes that the revenue must be acknowledged only after upon realization or its utmost certainty, the company has not set off damage claim against the above liabilities since it is yet not been worked out." 47. The Application filed by Financial Creditor under Section 7 of the IBC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the writing containing the acknowledgment is undated, evidence might be given of the time when it was signed. The explanation clarifies that an acknowledgment may be sufficient even though it is accompanied by refusal to pay, deliver, perform or permit to enjoy or is coupled with claim to set off, or is addressed to a person other than a person entitled to the property or right. 'Signed' is to be construed to mean signed personally or by an authorised agent." 51. The learned Counsel for the Appellant has referred to statement in balance sheet as contained in (xiv) as extracted above to contend that there was a caveat regarding the statements made in the balance sheet. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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