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TMI Blog2025 (4) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... cation filed by the Unity Small Finance Bank Ltd.- Respondent No.1 and initiated Corporate Insolvency Resolution Process ("CIRP" in short) against the Corporate Debtor-Excel Arcade Pvt. Ltd. Aggrieved by the impugned order, the present appeal has been preferred by the suspended Director of the Corporate Debtor. 2. Coming to the relevant factual background and sequence of events in the matter, put briefly, the Corporate Debtor had availed a credit facility from the Punjab & Maharashtra Cooperative Bank which later merged with the Unity Small Finance Bank Ltd. ("USFB" in short). Since the Corporate Debtor had allegedly defaulted in discharging their debt obligations, the Corporate Debtor was declared NPA on 12.02.2019. The USFB-Respondent No.1 issued notices on 07.10.2019, 24.06.2020 and 28.01.2021 demanding repayment of the loan amount from the Corporate Debtor as well as its guarantors. The Respondent No.1 also initiated arbitration proceedings which got concluded by the Arbitrator by passing an award on 28.04.2022 in favour of the Respondent No.1 for an amount of Rs 106 Cr. with interest. Following the arbitral award, the Respondent No.1 initiated execution proceedings against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on 28.10.2023. Hence, the Section 7 application having been filed on 08.11.2023, it stood barred by the law of limitation. It was emphatically asserted that since the Section 7 petition was time-barred, the Adjudicating Authority should have dismissed the Section 7 petition at the very threshold. The Adjudicating Authority could not have proceeded to examine the matter on merits when the petition was palpably not maintainable. 4. It was further contended that limitation cannot be extended merely by mention of arbitration proceedings and without the arbitral award being set up in Part-IV. Part-IV did not show arbitral award as the basis of default. Hence the arbitral award did not automatically extend the limitation. The Adjudicating Authority had wrongly relied upon the arbitral award dated 28.04.2022 to extend the limitation though the date of default arising out of the arbitral award was never pleaded by the Respondent No.1 as the basis for default in their Section 7 application. A reading of the Part-IV would show that only a reference was made in the factual narration of events therein with respect to the arbitral award. Submission was pressed that once a particular date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of default was 12.11.2018, after taking into consideration the exclusion granted by the Hon'ble Supreme Court in the Suo Moto judgment supra, the period of limitation undisputedly stood extended until 28.10.2023. However, since an arbitral award was passed on 28.04.2022, this created a fresh acknowledgment which in turn reset the period of limitation. Reliance was placed on the judgment of the Hon'ble Supreme Court in Dena Bank Vs C. Shivakumar Reddy (2021) SCC Online SC 543 wherein it has been held that a decree in recovery proceedings gives rise to a new limitation period for initiating CIRP if the decree remains unsatisfied. It was emphatically contended that arbitral award not only finds mention in para(g) and (h) of the Part-IV but the arbitral award was also a part of record before the Adjudicating Authority. Hence the Adjudicating Authority did not commit any mistake in holding that the period of limitation stood extended from the date of the arbitral award. Attention was adverted to the decision of the Hon'ble Supreme Court in Vidyasagar Prasad Vs UCO Bank & Anr. in Civil Appeal No. 1031 of 2022 wherein it upheld the Section 7 admission order of NCLAT after extend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant portions of which are as extracted hereunder: PART-IV PARTICULARS OF FINANCIAL DEBT 2. AMOUNT CLAIMED TO BE IN DEFAULT AND THE DATE ON WHICH THE DEFAULT OCCURRED (Attach The Workings For Computation of Amount and Days of Default in Tabular Form) Rs. 1,49,21,38,099.61/- (One Hundred and Forty Nine Crores Twenty One Lakhs Thirty Eight Thousand Ninety Nine Rupees and Sixty One Paisa) as on 31st October, 2023. Date of Default: 12.11.2018 ......... g. The aforesaid arbitration proceedings concluded with an Arbitral Award dated 28.04.2022 in favour of the Financial Creditor, thereby allowing the claim of the Financial Creditor, to the tune of Rs. 1,06,84,932/- along with interest @ 13% from 01.02.2021 till realization and also the cost of Rs. 4,74,064/- as litigation costs. On failure on part of the Corporate Debtor to pay the claim amount, the Financial Creditor also initiated Execution Proceeding before Hon'ble Bombay High Court, which is currently pending for adjudication. A copy of the Arbitral Award dated 28.04.2022 in favor of the Financial Creditor is annexed herewith and marked as ANNEXURE A-8. h. It is pertinent to note that the Corporate Debtor has consistently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, default has been committed on 12.11.2018 i.e. the date of payment of monthly interest. The NeSL Report also states the date of default to be 12.11.2018. Further, the account of the Corporate Debtor was declared as NPA by PMC Bank on 12.02.2019. Thus, the date of default is 12.11.2018. 24. Considering that the date of default is 12.11.2018, we note that the period of limitation after taking into account the exclusion granted by Hon'ble Supreme Court in Suo Moto (supra) gets extended till 28.10.2023. In the meantime, the Arbitral Award dated 28.04.2022 was passed in favour of the Financial Creditor. It is no more res integra that an award or decree gives rise to a fresh cause of action and a fresh period of limitation. We refer to the observations of Hon'ble Supreme Court in Dena Bank ( supra ) : "130. In effect, this Court speaking through Nariman J., approved the proposition that an application under Section 7 or 9 of the IBC may be time barred, even though some other recovery proceedings might have been instituted earlier, well within the period of limitation, in respect of the same debt. However, it would have been a different matter, if the applicant had app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 130 which finds mention in the impugned order. Para 143 of the Dena Bank Judgment supra is as extracted below: " 143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid. " 14. It is the case of the Corporate Debtor that when the arbitral award has neither been set up as the basis of default in the Part-IV of the Section 7 application nor the date of default has been subsequently amended to be the date of arbitral award, the Respondent No.1 is disentitled to claim the benefit of limitation from the date of arbitral award. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for initiation of the Corporate Insolvency Process...... 13. Having examined the matter in detail, we are of the opinion that the findings arrived at by the Adjudicating Authority and NCLAT are correct in law and fact. We find no merit in the appeal. The Civil Appeal No. 1031 of 2022 arising out of the NCLAT order dated 04.10.2021 (Company Appeal (AT)(Insolvency) No. 238 of 2020) is dismissed accordingly." 18. When we look at paragraphs 5 and 13 of the Vidyasagar judgment supra in conjunction, it is clear that even if the balance sheet is not reflected in Form-1 but once the balance sheet is brought on record before the Adjudicating Authority, the balance sheets are required to be taken into consideration while deciding the question of limitation. 19. The Ld. Sr. Counsel for the Appellant drew a distinction in the facts of the present case which is premised on an arbitral award while the Vidyasagar judgment supra was in the context of balance-sheet being the basis of acknowledgement. It was contended that while a balance sheet of a Corporate Debtor is an acknowledgment of liability made to the world at large, the same principle of acknowledgement cannot be applied in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -IV becomes binding. We however notice that in the instant case, the Respondent No.1 failed to bring about change in the date of default through a formal amendment in the Section 7 petition. The date of default has been held to be the date of arbitral award by the Adjudicating Authority without the Respondent No.1 having made a formal pleading to that effect. The Respondent No.1 not having amended their petition or made pleadings to the effect that the date of default had changed, the Adjudicating Authority could not have held that the arbitral award of 28.04.2022 had reset the limitation period. In the given facts and circumstances, we are therefore inclined to agree with the Appellant that the Adjudicating Authority has erred in extending the period of limitation basis the arbitral award. 23. In result, the impugned order is set aside. While giving liberty to the Respondent No. 1 to amend their pleadings, within a period of four weeks from the date of this order, before the Adjudicating Authority for deciding the question of limitation and default on the part of the Corporate Debtor basis the arbitral award, the matter is remanded back to the Adjudicating Authority to decide the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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