2019 (12) TMI 1587 - AT - Companies Law

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - rejection of application on the ground that the debt in question was secured Corporate Guarantee - application barred by time limitation or not - HELD THAT - Similar issue fell for consideration before the Hon ble Supreme Court in GAURAV HARGOVINDBHAI DAVE VERSUS ASSET RECONSTRUCTION COMPANY (INDIA) LTD. AND ANR. 2019 (9) TMI 1019 - SUPREME COURT . The said case was disposed of on 18th September 2019. In the said case the Hon ble Supreme Court noticed that the account of Respondent No.2 was declared NPA on 21st July 2011 and subsequently the State Bank of India filed two Original Applications before the Debts Recovery Tribunal in the year 2012 for recovery of the total debt of Rs. 50 crores. In the meantime when the State Bank of India assigned the debt to Asset Reconstruction Company (India) Limited on 28th March 2014 the Debts Recovery Tribunal vide judgment dated 10th June 2016 held that the waiver was not maintainable. In the said case this Appellate Tribunal by its judgment held that the limitation for application under Section 7 will be counted only from 1st December 2016 which is the date on which the I B Code brought into force. In the present case it has been accepted that the Corporate Debtor defaulted on 13th March 1989. With regard to other Banks it defaulted on 29th November 1989. The suit was filed by IFCI IDBI ICICI Banks in the year August 1990. The Judgment and Decree has been passed as far back as on 6th May 2011. Therefore the application filed under Section 7 of the I B Code is barred by limitation - facts also suggest that the application under Section 7 of the I B Code was filed for the purpose of execution of the Decree passed by the Debts Recovery Tribunal in favour of the Financial Creditor for the purpose other than for the resolution of insolvency or liquidation and is covered by Section 65. The Adjudicating Authority rightly dismissed the application which is barred by limitation. This Appeal is dismissed.

Summary

Issues Involved:
1. Applicability of the judgment in "Dr. Vishnu Kumar Agarwal vs. M/s. Piramal Enterprises Ltd."
2. Simultaneous initiation of Corporate Insolvency Resolution Process (CIRP) against two Corporate Guarantors.
3. Limitation period for filing an application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code).
4. Purpose of the application under Section 7 of the I&B Code.

Detailed Analysis:

1. Applicability of the judgment in "Dr. Vishnu Kumar Agarwal vs. M/s. Piramal Enterprises Ltd."

The Appellant argued that the judgment in "Dr. Vishnu Kumar Agarwal vs. M/s. Piramal Enterprises Ltd." was not applicable to their case. The cited judgment held that once an application under Section 7 is admitted against one Corporate Debtor (either the Principal Borrower or Corporate Guarantor), a second application for the same claim and default cannot be admitted against another Corporate Debtor. The Appellant contended that CIRP could be initiated against the Corporate Guarantor without initiating it against the Principal Borrower.

2. Simultaneous initiation of CIRP against two Corporate Guarantors

The Appellant referenced the decision in "Mrs. Mamtha vs. AMB Infrabuild Pvt. Ltd. & Ors." where the Appellate Tribunal allowed simultaneous initiation of CIRP against two Corporate Guarantors. The Appellant argued that their case was covered by this decision, suggesting that CIRP could be initiated against multiple Corporate Guarantors simultaneously.

3. Limitation period for filing an application under Section 7 of the I&B Code

The Respondent argued that the application under Section 7 was barred by limitation. The Appellant countered that the application was not barred by limitation since proceedings had already been initiated in 1990. The Tribunal referred to the Supreme Court's judgment in "Jignesh Shah and Another v. Union of India and Another," which emphasized that the Limitation Act, 1963 applies to the I&B Code. The Supreme Court held that the intent of the Code was not to revive time-barred debts and that the limitation period must be respected.

The Tribunal also referred to the case "Gaurav Hargovindbhai Dave vs. Asset Reconstruction Company (India) Ltd. & Anr.," where the Supreme Court held that limitation starts from the date of default. In the present case, the Corporate Debtor defaulted on 13th March 1989, and the suit was filed in August 1990. The judgment and decree were passed on 6th May 2011. Thus, the application under Section 7 was deemed barred by limitation.

4. Purpose of the application under Section 7 of the I&B Code

The Tribunal concluded that the application under Section 7 was filed for executing the decree passed by the Debts Recovery Tribunal, rather than for resolving insolvency or liquidation. This was considered an abuse of the I&B Code, falling under Section 65, which pertains to fraudulent or malicious initiation of proceedings.

Conclusion:

The Tribunal held that the application under Section 7 of the I&B Code was barred by limitation and was filed for purposes other than insolvency resolution or liquidation. Consequently, the appeal was dismissed with no costs.