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TMI Blog2023 (7) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... ry based upon a cause of action that is within limitation cannot in any manner impact the separate and independent remedy and the time can be extended in the manner only as provided in the Limitation Act. The Adjudicating Authority held that the time started in the present case from 20.11.2007 and time taken before the BIFR and DRT could not stop the time to run in this case - it is noted from Section 14 (1) of the Limitation Act, 1963 that in computing the period of limitation for any suit during which the plaintiff having prosecuting him in the court in good faith with due diligence against the defendant (the Respondent herein/ Corporate Debtor) shall be excluded. Whether filing a Petition by the Corporate Debtor before BIFR and subsequently order of AAIFR would be considered as appropriate forum or not and its subsequent impact on Limitation period? - HELD THAT:- It was the Corporate Debtor and not the Appellant herein, who moved the petition before the BIFR in 2004. There is no dispute that the Code came into existence only in 2016, hence the only forum available for the aggrieved party was BIFR initially and AAIFR as Appellant forum later. The Corporate Debtor moved the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion period based on such acknowledgements. From the entries in the Balance Sheet of 2016-17 and Director s Report it is clear that the debt indeed finds place in the Balance Sheet with admission as a Corporate Debtor that they are in process of negotiation with the term lenders for rescheduling/ restructuring. This establishes that the loan/ debt has been taken and acknowledged by the Corporate Debtor - On the face of these facts and recording by the management, it cannot be straight away considered as clear unconditional acknowledgement of debt. Therefore, this Appellate Tribunal would like to go into further records connected with the same debt i.e., pre 2016-17 Balance Sheet and post 2016-17 Balance Sheet with a view to understand whether such dispute has been recorded by the management from day one or can be construed as single/ few/ stray/ isolated caveats. On a quick perusal of perusal of various Balance Sheets from 2006-07 to Balance Sheets of 2013-14, this Appellate Tribunal do not find any apparent denial of debts by the Corporate Debtor - this Appellate Tribunal has to consider that there were acknowledgements of due in the Balance Sheets and the acknowledgement le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings under Sick Industrial Companies (Special Provisions Act, 1985) (in short SICA ) before the Board for Industrial and Financial Reconstruction (in short BIFR ) in 2004. The Appellant issued notice under Section 13(2) of SARFAESI Act, 2002 on 20.11.2007 and the account of the Corporate Debtor was declared as non-performing assets (in short NPA ) as on 31.08.2007. The proceedings continued till 2013 and were abated vide order dated 22.05.2013 passed by the Appellate Authority for Industrial Financial Re-Construction (in short AAIFR ). The Appellant filed an Application to the Debt Recovery Tribunal, Nagpur (in short DRT ) under Section 19 of the Recovery of Debt to the Banks and Financial Institution Act, 1993 (in short RDB Act ) on 05.09.2014 and the same was allowed on 04.12.2018 by DRT in Application No. 162 of 2014. 5. Learned Counsel for the Appellant has stated that the Corporate Debtor came forward for settlement with the Appellant and sent a proposal on 19.09.2016 to clear its dues submitted by five companies, namely, Uniworth Limited, Uniworth International Limited, Indoworth Limited, Textprint Overseas Limited and Uniworth Textiles Limited. 6. Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication is within Limitation. Learned Counsel for the Appellant submitted that in terms of Section 22 (5) of SICA, the limitation for making any claim by the Appellant would start on or after 22.05.2013. Further, the Corporate Debtor has acknowledged the debts in the balance sheets till 2017-18 and through letters/ e-mails have also acknowledged the outstanding dues, which are to be treated as acknowledgements of debt in terms of Section 25 (3) of the Indian Contract Act, 1872. It is further the case of the Appellant that the Adjudicating Authority ignored the vital facts that the Corporate Debtor had acknowledged the outstanding debts vide the letter dated 11.11.2016 in addition to the acknowledgments in the balance sheets which extended the period of limitation in terms of Section 18 of the Limitation Act, 1963. 11. Learned Counsel for the Appellant stated that in terms of the Code, the Adjudicating Authority is required to ascertain the existence of debt and default thereof and once satisfied should have admitted the application under Section 7 of the Code. 12. Learned Counsel for the Appellant also stated that the Adjudicating Authority wrongly construed the letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an account of Respondents (UTL) was classified as NPA prior to 20.11.2007, as the notice under Section 13(2) of SARFAESI Act, 2002 was issued to UTL on 20.11.2007, however no record of default was furnished with Form A and therefore no definite date of default could be ascertained which is a pre-requisite. 20. Learned Counsel for the Respondents submitted that the Appellant (ARCIL) indicated the date of default as 05.09.2020 in OA No. 162 of 2014 under Section 19 of the RDB Act, before the Adjudicating Authority treating as a date of default for alleged financial debt. Learned Counsel for the Respondents further submitted that the said OA No. 162 of 2014 has been decreed on 06.02.2019 the same has been challenged in DRT, Nagpur and is sub-judice pending consideration after issuance of notice to the Appellant by DRT. 21. Learned Counsel for the Respondents emphasised that prior to issue of the said decree, Uniworth Group of Companies initiated talks for global settlement with the Appellant and then the Appellant had given in principal consent to the settlement offer of Rs. 75 Crores and Rs. 51.10 Crores out of consolidated settlement of Rs. 75 Crores were paid to the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 7, hence, Learned Counsel for the Respondent submitted that mere operation of Section 22 (1) of SICA would not stop the period of limitation running during the pendency of reference under SICA. 26. Learned Counsel for the Respondents also stated that the mere reflection of amount of loan in the balance sheet of the Debtor with caveat and rider does not constitute valid and legal acknowledgments within the meaning of Section 18 of the Limitation Act, 1908. Learned Counsel for the Respondents further submitted that the entries in balance sheets indicating liability is to be read along with director s report to take a comprehensive view. Learned Counsel for the Respondents stated that board of Directors of the Respondent has categorically disputed the alleged debt due to the Appellant and therefore such mention of debt in the balance sheets cannot be construed as admission of debt or acknowledgment of the same. In this regard, Learned Counsel for the Respondents took recourse to the ratio to the judgments of Asset Reconstruction Company (India) Ltd. Vs. Bishal Jaiswal Anr. [Appeal (Civil) No. 323 of 2021], Gautam Sinha Vs. UV Asset Reconstruction Company Ltd. Ors. [Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the proceedings before BIFR in 2004 which remained pending till 2013 and subsequently were abated by AAIFR vide order dated 22.05.2013. ➢ We also take into account the averment of the Respondents that Appellant s contention for exclusion of period during reference under Section 15 r/w Section 16 of SICA is erroneous and misconceived and such contentions would tantamount to decades old pending references under SICA would invariably be counted from 2016 when the Code came into the existence. We also take note of the averments of the Respondent in this regard where, the Respondent has relied the judgment of Jignesh Shah (Supra) according to which an independent remedy cannot impact the period of limitation for initiating proceeding under Section 7 of the Code. The Respondent has also cited other judgments as noted earlier. ➢ In this connection, we take into account the order dated 22.05.2013 of AAIFR in Appeal No. 176/ 11 which was filed by M/s Uniworth Textile ltd. (UTL) against the Appellant under Section 25 of SICA challenging the Order of BIFR dated 14.03.2011, wherein the BIFR has, inter-alia, directed IDBI to advertise for change of management of the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded. (Emphasis Supplied) ➢ These sections of SICA are important reflection for computing the period of limitation especially where the proceedings for enforcement remain pending under SICA and is required to be excluded for counting limitation period and according to Section 22 (1) of SICA as seen above, the exclusion period continue till such time an appeal under Section 25 of SICA is pending. ➢ We have seen from the averments that application was filed by the Corporate Debtor before BIFR in 2004 and hence the time period between 2004 till the pronouncement of order by AAIFR dated 22.05.2013, may be considered for exclusion from counting the limitation period as per clear order dated 22.05.2013 of AAIFR noted earlier, which is in accordance with Section 22(5) of SICA. ➢ We also note that the Appellant filed an original application No. 162/2014 before DRT, Nagpur, against the Corporate Debtor under Section 19 of RDB Act. ➢ It has been brought out that on 19.09.2016 Uniworth Group of Companies of which Corporate Debtor i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld entitle the Appellant herein, to exclude the period of limitation. The Adjudicating Authority also referred to Judgment of Jignesh Shah (supra) wherein it was held 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 and the time can be extended in the manner only as provided in the Limitation Act. The Adjudicating Authority held that the time started in the present case from 20.11.2007 and time taken before the BIFR and DRT could not stop the time to run in this case. ➢ We have noted from Section 14 (1) of the Limitation Act, 1963 that in computing the period of limitation for any suit during which the plaintiff having prosecuting him in the court in good faith with due diligence against the defendant (the Respondent herein/ Corporate Debtor) shall be excluded. ➢ Hence, the moot point is to decide whether filing a Petition by the Corporate Debtor before BIFR and subsequently order of AAIFR would be considered as appropriate forum or not and its subsequent impact on Limitation period. We observe that it was the Corporate Debtor and not the Appellant herein, who moved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g sufficient cause is the only criterion for condoning delay. Sufficient Cause is the cause for which a party could not be blamed. We have already taken note of the legal bar for initiation of proceedings against an industrial company by virtue of Section 22 (1), SICA and obviously, when a party was thus legally disabled from resorting to legal proceeding for recovering the outstanding dues without the permission of BIFR and even on application permission therefor was not given the period of suspension of legal proceedings is excludable in computing the period of limitation for the enforcement of such right in terms of Section 22(5), SICA. In the absence of provisions for exclusion of such period in respect of an application under Section 9, IBC, despite the combined reading of Section 238A, IBC and the provisions under the Limitation Act what is legally available to such a party is to assign the same as a sufficient cause for condoning the delay under Section 5 of the Limitation Act. In such eventuality, in accordance with the factual position obtained in any particular case viz., the period of delay and the period covered by suspension of right under Section 22 (1), SICA etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... references made by the company to the BIFR/AAIFR and the matters relating the rate and/ or arising of stands cancelled. However, the Company is exploring possibilities of registering with the National Company Law Tribunal (NCLT) with a suitable resolution scheme. b) The Secured lenders of the Company have assigned their debts, together with all security interests and rights, to Asset Reconstruction Company (India) Ltd, (ARCIL). As part of overall settlement, ARCIL has agreed to settle its claims and an agreement to this effect between the Company and the ARCIL is in the process of being executed. c) Pending final disposal of above matters, the Financial Statements have been prepared on going concern basis as the management is of the opinion that the going concern assumption is not vitiated in view of facts stated above. (Emphasis Supplied) ➢ Per contra on this point, the Respondent has stated that the Balance Sheet merely recorded the outstanding dues and should not be construed as acknowledgment of the debt. It is the case of the Respondent that in the Directors Report, it was indicated that management is disputing the debt. Following is the relevant por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supp (1) SCC 402, this Court held : 12. The entries in the books of accounts of the appellant would amount to an acknowledgment of the liability to M/s Prayagchand Hanumanmal within the meaning of Section 18 of the Limitation Act, 1963 and extend the period of limitation for the discharge of the liability as debt .. 22. A perusal of the aforesaid Sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements expressly recognised by Section 134 (7). Equally, the auditor s report may also enter caveats with regard to acknowledgments made in in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills (supra), that there is a compulsion of law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I find it is settled law appearing from the Judgments 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 Judgments 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 Judgments of Hon'ble Supreme Court of India are binding and Balance Sheets cannot be outright ignored. 41. 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 whether or not the specific contents, spell out an acknowledgement under the Limitation Act. (Emphasis Supplied) ➢ It is therefore evident that mere entry in the Balance Sheet cannot be taken as unqualified acknowledgment of the debt. However, it ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st March, 2016 in Para VIII, the Corporate Debtor has recorded the company has defaulted in repayment of dues through financial institutions, banks and debenture holders as under:- As per original agreement, all the following loans have become due for repayments. However, the company s negotiations with the term lenders for rescheduling/ restructuring is in process. In the same, in para VIII, the name of ICICI has been clearly recorded. In the same Balance Sheet, in the Notes to the Financial Statements, in Note No. 4 (iii) it has been recorded The Company has received an intimation from the accrued lenders that financial assistance together with all security interest in respect thereof and its right in respect thereof have been absolutely assigned by the said lender to Asset Reconstruction Company Limited, accompany formed under the Companies Act, 956 and registered with Reserve bank of India as a scrutinised and reconstruction company pursuant to necessary provisions of Securitisation and reconstruction of financial assets and enforcement of Security Interest Act, 2002 . We also take into account that in Director s Report of the same Balance Sheet of 2016-17 BO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company has taken up the matter with both the exchanges as the company is in compliance with the Listing Agreement. The Company has disputed the repayment of due. The loss and damages caused to the borrower by the lender is much more than the amount lent. Hence, figures of the borrowed amount shown in the balance sheet after due adjustments with the said loss and damages may result in entitlement to recover substantial amount from the lender. Under these facts and circumstances, the figures of borrowed amount In this balance sheet cannot be considered as admission, if any, of the claim of lender(s). Pg- 1586 Annexure to Auditor s Report: (ix) The Company has defaulted in repayment of dues to financial institutions, banks and debenture holders as under: As per Original Agreement, all the following Loans have become due for repayments. However, the Company's negotiations with the term lenders for rescheduling / restructuring Is In process: Nature of Financial Assistance Amount (In Lacs) Period of Default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. The Company has disputed the repayment of due. The loss and damages caused to the borrower by the lender is much more than the amount lent. Hence, figures of the borrowed amount shown in the balance sheet after due adjustments with the said loss and damages may result in Do Debt Due, rather the borrower is entitled to recover substantial amount from the lender. Under those facts and circumstances, the figures of borrowed amount in this balance sheet cannot be considered as admission, if any, of the claim of lender(s). Pg- 1665 Independent Auditor s Report (viii) The Company has defaulted in repayment of dues to financial institutions, banks and debenture holders as under: As per Original Agreement, all the following Loans have become due for repayments. However, the Company's negotiations with the term lenders for rescheduling / restructuring Is In process: Nature of Financial Assistance Amount (In Lacs) Period of Default Whether the company has defaulted in repayment of loans or borrowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchanges as the company is in compliance with the Listing Agreement. The Company has disputed the repayment of due. The loss and damages caused to the borrower by the lender is much more than the amount lent. Hence, figures of the borrowed amount shown in the balance sheet after due adjustments with the said loss and damages may result in No Debt Due, rather the borrower Is entitled to recover substantial amount from the lender. Under these facts and circumstances the figures of borrowed amount In this balance sheet cannot be considered as admission, if any, of the claim of lender(s). ➢ Excerpts taken from various documents marked in Appeal Paper Book:- 2017-18 Pg-1792 Directors Report (Boards View) The company is exploring other options available under the law for enforcement of specific performance of the argument on the same line as in the case of major lenders. The company has disputed the claims of the lenders or creditors being unsustainable. 2018-19 Pg- 1890 Directors Report (Boards View) The company has filed suit for enforc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets and the acknowledgement letter of the Corporate Debtor which would extend the limitation period, in terms of Section 18 of Limitation Act, 1963. ➢ Section 18 of the Limitation Act, 1963 makes it clear that any acknowledgement expiration of prescribed period for an application in respect of any acknowledgement of liability made in writing signed by the party against whom such right is claimed shall result into fresh period of limitation to be computed from such time. ➢ As regard, the plea of the Respondent regarding pending appeal by the Respondent against the order of DRT in OA No. 162 of 2014, we have noted that as on date no adverse order to the DRT order has been passed and therefore the DRT order in that particular OA is still hold good. Incidentally, the outcome of such pending appeal in DRT case does not debar the right the Appellant in pursuing legal remedy under Section 7 of the Code. ➢ We also note that the Respondent vide letters dated 19.06.2016, 11.11.2016, 22.01.2018, 28.02.2018 have acknowledged the debts and offered the settlement of Rs. 75 Crore out of which Rs. 51.10 Crores was paid. These letters were issued by the individual comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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