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TMI BlogLIMITATION TO INITIATE CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER SECTION 7 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016X X X X Extracts X X X X X X X X Extracts X X X X ..... LIMITATION TO INITIATE CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER SECTION 7 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 - By: - Mr. M. GOVINDARAJAN - Corporate Laws / IBC / SEBI - Dated:- 30-10-2024 - In VIDYASAGAR PRASAD VERSUS UCO BANK ANR. - 2024 (10) TMI 1184 - SUPREME COURT , the Corporate Debtor (second respondent in this case) availed loan and credit facilities from UCO bank and other consortium banks for its Thermal Plants. Since the Corporate Debtor defaulted in repaying the loan amount, the said loan was declared as Non-Performing Asset ( NPA for short) on 05.11.2014. UCO Bank filed an application, under Section 7 of the Insolvency and Bankruptcy Code, 2016 ( Code for short) for initiation of Corporate Insolvency Resolution Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocess ( CIRP for short) against the Corporate Debtor on 13.12.2019. The said application was challenged by the Corporate Debtor on the ground of limitation and also the application filed under Section 7 of the Code was not signed by a competent person. Further the Corporate Debtor contended there was no liability to pay the dues as per the terms of agreement and therefore there was no debt. The Adjudicating Authority held that the General Manager of the UCO Bank was legally authorized to sign the application. Further the Adjudicating Authority examined the terms of the contract and held that there was a loan given by the UCO Bank and the Corporate Debtor was in default in repayment of the debt. Therefore, the Adjudicating Authority rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of the Corporate Debtor that there was no liability to pay the dues. In regard to the limitation, the Adjudicating Authority observed that there was an acknowledgement of debt in the financial statements for the financial year 2016 17. The Adjudicating Authority relied on Section 18 of the Limitation Act to reckon the period of limitation from the date of acknowledgement of the debt and concluded that the institution of CIRP on 13.02.2019 is within the period of limitation. The Adjudicating Authority relied on Section 7(1) of the Code provides that the proceedings thereunder get triggered even in the case of a default by debtor in respect of any financial creditor other than the applicant. Being aggrieved against the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Adjudicating Authority, the appellant filed an appeal before the National Company Law Appellate Tribunal ( NCLAT for short). The NCLAT dismissed the appeal. The NCLAT held that the impugned balance sheet was form part of the application filed under Section 7 . Further in the reply filed by the bank before NCLAT the said balance sheet was attached. Even though the same was not marked before the Adjudicating Authority, the NCLAT allowed as additional documents. The NCLAT observed that Company's balance sheet was prepared in the statutory format as per Schedule III of the Companies Act 2013 , which does not provide for giving the specific name of every secured or unsecured creditor. The Register of charges filed with Registrar of Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es showed that a charge of Rs.1.75 crore was created by the Corporate Debtor. The said charge has not been satisfied by the Corporate Debtor. The entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgement under Section 18 as held by the Supreme Court. The NCLAT also found that the Corporate Debtor gave a One Time Settlement on 07.06.2016 which indicated the jural relation between the parties, and in any event, the same can also be derived by implication. Further, the said Letter is not without prejudice basis and, therefore, amounts to an unequivocal acknowledgement of liability of the Corporate Debtor. The appellant filed the present appeal before the Supreme Court against the order passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the NCLAT. The appellant contended that there is no clear and unequivocal acknowledgement of debt of the Corporate Debtor in the entries of the balance sheets. If so, the financial creditor cannot have the benefit of Section 18 of the Limitation Act to extend the period of limitation which commenced on 05.11.2014. The respondent bank contended that the Balance Sheets of a company are prepared in the prescribed statutory format as per Section 129, read with Schedule III of the Companies Act 2013 , which does not provide for giving specific names of each and every Secured and Unsecured creditor. The Supreme Court relied on its own judgements in- LAXMI PAT SURANA VERSUS UNION BANK OF INDIA ANR. - 2021 (3) TMI 1179 - SUPREME COURT , the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court held that when the principal borrower and/or the (corporate) guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of 3 years therefrom including the fresh period of limitation due to (successive) acknowledgments, it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 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 of the Code enures. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Code. Further, the acknowledgment must be of a liability in respect of which the financial creditor can initiate action under Section 7 of the Code. DENA BANK (NOW BANK OF BARODA) VERSUS C. SHIVAKUMAR REDDY AND ANR. - 2021 (8) TMI 315 - SUPREME COURT the Supreme Court held that an application under Section 7 IBC would not be barred by limitation, on the ground that it had been filed beyond a period of 3 years from the date of declaration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loan account of the corporate debtor as NPA, if there were an acknowledgment of the debt by the corporate debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of 3 years. RAJENDRA NAROTTAMDAS SHETH ANR. VERSUS CHANDRA PRAKASH JAIN ANR. - 2021 (10) TMI 144 - SUPREME COURT, In this case the Supreme Court held that in case the application under Section 7 is filed beyond the period of 3 years from the date of default and the financial creditor furnish the required information relating to the acknowledgment of debt, in writing by the corporate debtor, before the adjudicating authority, with such acknowledgment having taken place within the initial perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of 3 years from the date of default, a fresh period of limitation commences and the application can be entertained, if filed within this extended period. The Supreme Court was in agreement with the concurrent findings of the Adjudicating Authority and NCLAT that the entries in the balance sheets coupled with the note of the auditor of the appellant amount to clear acknowledgment of debt. The Supreme Court further observed that the appellant made a one-time settlement to the UCO Bank vide his letter 07.06.2016 in which he acknowledged that there were prior debts owed to UCO Bank. The OTS constituted acknowledgment of debt since it relates to present and subsisting liability and indicates existence of a jural relationship between the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The Supreme Court held that the findings arrived at by the Adjudicating Authority and NCLAT were correct in law and fact. Since there was no merit in the appeal the Supreme Court dismissed the appeal filed by the appellant. - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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