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TMI Blog2022 (6) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... on 3(12) of the Code - the letter signed and stamped by the Corporate Debtor acknowledged, the debt as on 30/03/2014, construes clear acknowledgment of debt as stipulated under Section 18 of the Limitation Act, 1963, thereby granting a fresh period of Limitation for another three years from 30/03/2014, which is nine months from the admitted date of default . Whether an OTS proposal given without Prejudice construes Acknowledgement as stipulated under Section 18 of the Limitation Act, 1963? - HELD THAT:- It remains trite that the question of Limitation is essentially a mixed question of fact and law and in this case a strong foundation has been laid in Part V of the Application. It is noteworthy to state that a document constituting an acknowledgment has to be construed in the context in which it is given. At this juncture, we find it relevant to quote, ITC LIMITED VERSUS BLUE COAST HOTELS LTD. ORS. [ 2018 (3) TMI 932 - SUPREME COURT ], in which the Hon ble Supreme Court dealing with whether Section 3(A) of Section 13 of SARGAESI, was mandatory or directory, took note of the Notices issued by the Financial Creditor and the different proposals made by the Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank has specifically pleaded that the Application moved under Section 14 of the SARFAESI Act, 2002 on 04/02/2017, was dismissed by the ADM on 03/10/2017 and that the assets were never sold and no money was realized against the same. The documentary evidence on record shows that a Writ Petition was also preferred before the Hon ble Bombay High Court and the Bank was given the liberty to file a fresh Application under Section 14 of the SARFAESI Act, 2002. Appeal dismissed. - Company Appeal (AT) (Insolvency) Nos. 373, 491, 492 & 493 of 2022 - - - Dated:- 24-5-2022 - [Justice Ashok Bhushan] Chairperson And [Ms. Shreesha Merla] Member (Technical) For the Appellants : Mr. Abhijeet Sinha, Mr. Ashish Choudhury, Mr. Dhruv Surana and Mr. Aditya Shukla, Advocates. For the Respondent No.1: Mr. Ninad Laud, Mr. Ivo D Costa, Ms. Ananyaa Mazumdar and Mr. Avinash Mathews, Advocates for R-1. For the Respondent No. 2: Mr. Avinash Rajan Khanolkar, Advocate for R-2. JUDGEMENT [Per; Shreesha Merla, Member (T)] Company Appeal (AT) (Insolvency) No. 373 of 2022 1. This Appeal, filed under Section 61 of the Insolvency Bankruptcy Code (hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Counsel Mr. Abhijeet Singh, appearing for the Appellant/ the Suspended Board of Director: The Learned Counsel strenuously contended that the Section 7 Application was filed by a person who was not authorized to do so; that Annexure A in Form 1 is a letter from the Managing Director of a Multi-State Cooperative Society who is an appointee of the Board of Directors; that there is nothing on record to show that he is also the Chief Executive Officer (CEO); that a Notification by the Ministry of Corporate Affairs, S.O. 1091(E) dated 27.02.2019 has clearly specified the persons who are authorised to initiate CIRP; that the Corporate Debtor had raised this issue regarding the lack of authorisation in IA No.2420/2019, that only a person duly authorised by the Board of Directors of a Company is eligible to file an Application under Section 7 of the Code, the Adjudicating Authority vide Order dated 11.03.2019 in the first round of proceedings gave an opportunity to the Financial Creditor to correct the Application, which was not done, but the Adjudicating Authority has concluded that the Managing Director of the Cooperative Society, is also the CEO whose function is to appoint a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed the same. The Learned Counsel drew our attention to the statement made by the Financial Creditor in their Affidavit before the Hon ble Supreme Court which reads as follows: Para 14 Page 8-The possession has been taken by the representative of the Appellant Bank under the SARFAESI proceedings and this, in no way hampers the Appellant s recourse to initiate CIRP proceeding under Section of the IBC. Para 15, Page 8-9: This is in furtherance of the fact that the amount recovered under the SARFAESI proceedings falls short of the amount that is legally owed by the Corporate Debtor (Respondent), which in turn forces the bank to initiate a CIRP proceedings under Section 7 of the IBC. It is submitted by the Counsel that SARFAESI Act, 2002 is a complete Act in itself and prescribes the procedure to be followed for recovery of shortfall, if any, but the Financial Creditor without permission of the Debt Recovery Tribunal precluded to initiate another proceeding on the ground that the recovery made is less than the amount demanded and without disclosing the amount recovered, which is a casting obligation upon the Financial Creditor, filed this Application. It is submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter is amicable dispute resolution (without prejudice) and that the letter was brought on record using fraudulent means without serving a copy of the Appellant and without any Diary number. The Learned Counsel submits that any offer of settlement given without prejudice cannot be construed as acknowledgement under Section 18 of the Limitation Act, 1963, as letters using without Prejudice are not admissible in law. The Learned Counsel strenuously contended that the account on 31.03.2014 was never sub-standard and drew our attention to a letter dated 21.09.2014 addressed by the Financial Creditor/Cosmos Bank in which the outstanding balance overdue as on 20.09.2014 is termed as NIL and therefore the date of default cannot be 30/03/2014. Further, it is argued that the CIBIL report dated 12/12/2014 showed the account to be standard . Learned Counsel contended that the Document dated 31/03/2014 is a fraudulent one, wherein the figures were filled in; the sanction date and the date of Agreement are blank and the signature was taken on a blank paper and hence cannot be considered as an acknowledgment of debt . Moreover the Document is dated 31/03/2014 and the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly reflected. The Learned Counsel for the Respondent also drew our attention to the Declaration/Confirmation of Balance and acknowledgement of debt issued by the Appellant herein on 31.03.2014 with respect to the credit facilities taken from the Financial Creditor Bank. It is submitted that the signature by the Corporate Debtor as on 31.03.2014 on this Document clearly shows that there is a Debt and Default as required under the provisions of IBC. Learned counsel also contended that the aforenoted letter dated 20.04.2015 specifies that the amount would be immediately paid and this letter does not specify without prejudice . The Learned Counsel for the Respondent relied on the OTS letter dated 10.08.2016, which, though cites without prejudice in the conclusion of the letter, it is stated that there is a mutual compromise and all legal proceedings and notices stands withdrawn. The said letter is reproduced here as under: The Learned Counsel further contended that the phrase without prejudice does not in the context of IBC, specify that it is not under Section 18 of the Limitation Act, 1963. It is further contended that the letter dated 10/08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed as hereunder: It is thus clear that since the Limitation Act is applicable to Applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. The right to sue , therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the Application, the Application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such Application. (Emphasis Supplied) 9. In Jignesh Shah Vs. Union of India (2019) 10 SCC 750, the Hon ble Supreme Court held that the period of limitation for making an Application under Section 7 or 9 of the IBC three years from the date of accrual of the right to sue, that is, the date of default. 10. This Tribunal is of the considered view that it is not the specific date when the amount was classified as NPA but the date when the default has occurred is what is relevant for deciding the issue of Limitation as held by the Hon ble Supreme Court in a catena of Judgements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 18 of the Limitation Act. Section 18 of the Limitation Act gets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate resolution process under Section 7 IBC ensures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgment, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgment of the debt, from time to time, for institution of the proceedings under Section 7 IBC. Further, the acknowledgment must be of a liability in respect of which the financial creditor can initiate action under Section 7 IBC. (Emphasis Supplied) 11. We do find force in the submission of the Learned Counsel for the Appellant that the date of default on record is 15/06/2013. The evidence on record also establishes that the amounts were due and payable even prior to 31/03/2014. As per the ratio of the Hon ble Supreme Court in B.K. Educational Services Private Limited , (Supra) and Jignesh Shah (Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious heads that there is an amount which is due and payable as on 31/03/2014 meaning thereby that there is a Debt as defined under Section 3(11) of the Code and a default as defined under Section 3(12) of the Code is reproduced as hereunder: 3. Definitions.-In this Code, unless the context otherwise requires,- (11) debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; (12) default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not 1 [Paid] by the debtor or the corporate debtor, as the case may be; 14. The aforenoted letter signed and stamped by the Corporate Debtor acknowledged, the debt as on 30/03/2014, construes clear acknowledgment of debt as stipulated under Section 18 of the Limitation Act, 1963, thereby granting a fresh period of Limitation for another three years from 30/03/2014, which is nine months from the admitted date of default . The effect of the OTS Letter dated 10/08/2016, given without prejudice : 15. Now we address ourselves to the contention of the Learned Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows: But when a statement is used as acknowledgement for the purpose of Section 29 (5), it is not being used as evidence of anything. The statement is not an evidence of an acknowledgement. It is the acknowledgement. Therefore, the without prejudice Rule could have no Application. It said: Here, the respondent, Mr. Rashid was not offering any concession. On the contrary, he was seeking one in respect of an undisputed debt. Neither an offer of payment nor actual payment. We, thus, find that the mere introduction of the words without prejudice have no significance and the debtor clearly acknowledged the debt even after action was initiated under the Act and even after payment of a smaller sum, the debtor has consistently refused to pay up. [Emphasis supplied] 17. This Tribunal had an occasion to consider this issue in Abhishek Gupta Vs. Asset Reconstruction Company India Limited in Company Appeal (AT) (Insolvency) No. 1094 of 2021, wherein it was held that the words without Prejudice are irrelevant for the purpose of Section 18. The same view was taken by this Tribunal in Bank of India Multi ARC Coating and Strips Limited 2020 SCC OnLin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial Year 2016-2017 evidences acknowledgement of the loan/borrowings and is duly signed on 04.09.2017 by the Chartered Accountant and by both the directors, one of whom is the Appellant himself. 23. The Hon ble Supreme Court in Asset Reconstruction Co. (India) Ltd. Vs. Bishal Jaiswal , 2021 SCC OnLine SC 321, held that entries in a Balance Sheet amount to an acknowledgment of liability for the purpose of Section 18 of the Limitation Act, 1963 observing as follows: 139. Section 18 of the Limitation Act cannot also be construed with pedantic rigidity in relation to proceedings under the IBC. This Court sees no reason why an offer of One Time Settlement of a live claim, made within the period of limitation, should not also be construed as an acknowledgement to attract Section 18 of the Limitation Act. In Gaurav Hargovindbhai Dave (supra) cited by Mr. Shivshankar, this Court had no occasion to consider any proposal for one time settlement. Be that as it may, the Balance Sheets and Financial Statements of the Corporate Debtor for 2016-17, as observed above, constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Sheth and Another v Chandra Prakash Jain and Another, where, speaking for the Bench, Justice L Nageswara Rao held: 25. We have already held that the burden of prima facie proving occurrence of the default and that the Application filed under Section 7 of the Code is within the period of limitation, is entirely on the financial creditor. While the decision to admit an Application under Section 7 is typically made on the basis of material furnished by the financial creditor, the Adjudicating Authority is not barred from examining the material that is placed on record by the corporate debtor to determine that such Application is not beyond the period of limitation. Undoubtedly, there is sufficient material in the present case to justify enlargement of the extension period in accordance with Section 18 of the Limitation Act and such material has also been considered by the Adjudicating Authority before admitting the Application under Section 7 of the Code (Emphasis Supplied) 25. Since the ratio of the Judgements relied upon by the Counsel for the Appellant regarding Limitation , have been addressed to by the Hon ble Supreme Court in the aforenoted Judgements, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Financial Statements clearly specifies the debt and construes an acknowledgment of the outstanding dues providing a fresh period of Limitation. Keeping in view all the aforenoted dates, this Tribunal is of the earnest view that the Application filed under Section 7 of the Code is well within the period of Limitation. 28. Now we address ourselves to the other issues raised by the Appellant that the Section 7 Application was filed without authorization and therefore the Petition itself ought to have been dismissed as not maintainable. It is the case of the Appellant that the authorization ought to have been by the CEO and none other and that the person signing the authorization must have been a Member of the Board of Directors of the Respondent Bank. At this Juncture we find it relevant to reproduce Section 51(1) of the Multi State Cooperative Societies Act, 2002, ( MSCS Act ) as hereunder: 51. Chief Executive.-(1) There shall be a Chief Executive, by whatever designation called, of every multi-State co-operative society to be appointed by the board and he shall be a full-time employee of such multi-State co-operative society. (2) The Chief Executive shall be a me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred Application No. I.A. 2417/2021 seeking direction for taking action against the Financial Creditor for committing perjury on the main ground that the Respondent Bank has stated that only symbolic possession of the assets has been taken whereas in the Rejoinder before the Hon ble Supreme Court they have stated that physical possession has been taken and some amounts have been recovered and therefore, there were some discrepancies in the Affidavit amounting to fraud and forgery. Learned Adjudicating Authority has dismissed the Application on the ground that there was no material suppression of any fact as alleged by the Corporate Debtor. For reasons cited in para 30 of CA (AT) (Ins.) 373 of 2022, we find no merit in this Appeal and the same is dismissed accordingly. Company Appeal (AT) (Insolvency) No. 492 of 2022 33. Appellant/Applicant preferred MA 2420/2019 on the ground that C.P. No. 4108/2018 is not maintainable as it was filed by a person who does not hold specific authorization to initiate CIRP. For reasons cited in paras 28 29 of CA (AT) (Ins.) 373 of 2022, we find no merit in this Appeal and the same is dismissed accordingly. Company Appeal (AT) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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