TMI Blog2020 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ELD THAT:- The presentation in the balance sheet or auditor's report there to amounts to acknowledgement of debt by corporate debtor. This proposition is now more or less settled. The application filed by the Financial Creditor under section 7 of the Insolvency Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor, namely R.P. Info Systems Ltd. is hereby admitted - moratorium is declared. - C.P. (IB) NO. 652/KB/2019, C.A. (IB) NO.1016/KB/2019 - - - Dated:- 4-2-2020 - Madan B. Gosavi, Judicial Member And Virendra Kumar Gupta, Technical Member Joy Saha, Sr. Adv. and Uttiyo Mallick, Adv. for the Appellant. Ratnanko Banerjee, Sr. Adv., Subhankar Nag, Sidhartha Sharma, Ms. Ujjaini Chatterjee, Advs. and Ms. Diprani Thakur, PCS for the Respondent. ORDER Virendra Kumar Gupta, The facts, in brief, are that originally, State Bank of Bikaner and Jaipur granted loan to the Corporate Debtor. On merger of this bank with State Bank of India, this petition has been filed by SBI. The ld. Counsel for the financial creditor also drew our attention to the notification issued regarding merger and transfer of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ltd.,[2020] 114 taxmann.com 18 (NCLT-Bengaluru) in support of its claim that it was barred by limitation even though there is acknowledgement after 3 years of limitation period. 3. Ld. Counsel for the financial creditor in the rejoinder contended that the proceedings under PMLA had no bearing at the stage of admission of petition under section 7 of IBC, 2016. To buttress this point, he submitted that conditions which were required to be seen were whether there existed any debt which was due and payable and default in payment thereof had occurred. In the present case, all these factors were present. Hence, there was no substance in the contention of the corporate debtor which will come into play only on later stage. Taking his argument further, the ld. Sr. Counsel submitted that in the case of any corporate debtor having no asset would claim that proceedings under section 7 could not be initiated against him on the same analogy, which could not be proper basis to reject petition filed by a Financial Creditor. He again reiterated that it was immaterial proceedings under PMLA were pending and assets had been attached. 4. First question is in regard to precedence of law over In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t help to the case of the Corporate Debtor. 6. As regards to the aspect of acknowledgement of debt, we are of the considered view that presentation in the balance sheet or auditor's report there to amounts to acknowledgement of debt by corporate debtor. This proposition is now more or less settled. As regards to various aspects relating to the scope and applicability of provisions of section 18 of Limitation Act, 1963 and presentation in financial statement are concerned, we consider it pertinent to reproduce the relevant findings of our order in the case of UCO Bank v. Kaizen Power Ltd. [CP (IB)No. 254/KB/2019, dated 13-12-2019]. Quote 14. The next aspect is whether debt is barred by limitation. A lot of judicial decisions have been cited by the Corporate Debtor. The date of default has been stated as 5-8-2014. The financial statements for the year-ended 31st March, 2017, which also contain figures for the financial year ended 31st March, 2016, show the amount of long term borrowings both secured and unsecured. In clause 3.4 thereof, it has been stated that the company has made certain defaults in payment of term loan and interest. It is also mentioned that the contin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein are reproduced hereinafter which, in our considered opinion, would take care of all the arguments made by the Corporate Debtor. Consequently, such arguments of corporate debtor are rejected. 17. It has been pleaded by the corporate debtor that amounts were advanced much before that date and those were payable by 31/3/1994, hence, debt had become time-barred before filing reference under SICA and consequently Sec.22(5) of the SICA was not applicable. However, the fact remains that there have been continuous acknowledgement of liability by the corporate debtor either by way of proposal for revival package, presentation in balance sheet or through various letters to the lenders wherein fact of loan/outstanding debt has been either directly or as a part of correspondence. There have been promises as well to repay the loan. Thus, taking into consideration these aspects, we are of the considered opinion that this constitute an acknowledgement of debt, hence, for this reason the debt is not barred by limitation. 18. We also submit that various aspects relating to the acknowledgement of debt under Sec. 18 of Limitation Act, 1963 have been considered by this Tribunal in a few cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right; (b) The word 'signed' means signed either personally or by an agent duly authorised in this behalf; and (c) An application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right. 9. From the perusal of Section 18(1), it is apparent that acknowledgement of liability must be made before expiry of limitation period for filing the suit. If limitation has already expired, it would not revive under section 18. In the present case, last payment has been made in July, 2015 and e-mail has been sent in April, 2016, which is well before the expiry period of three years. Hence, first hurdle is crossed. Now, we have to look whether such e-mail can be construed as acknowledgement of debt as it has been claimed that such mail has not been addressed to the Operational Creditor. From the perusal of the Explanation (a) above, it is clear that the claim of the Corporate Debtor is not valid because such explanation clearly states that a communication maybe addressed to a person other than a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed. (2) Where the writing containing the acknowledgement is undated, oral evidence maybe given of the time when it was signed, but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. Explanation: For the purposes of this section,- (a) An acknowledgement maybe sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right; (b) The word signed means signed either personally or by an agent duly authorised in this behalf; and (c) An application f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up proceeding. In law, when time begins to run, it can only be extended in the manner provided in the Limitation Act. For example, an acknowledgement of liability under section 18 of the Limitation Act would certainly extend the limitation period, but a suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding up proceeding is to be filed, by somehow keeping the debt alive for the purpose of the winding up proceeding. The above findings also support our view. 8. Having stated so, we also take into consideration the provision of Sec. 238A of the Insolvency Bankruptcy Code, 2016 which is reproduced as under:- The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as maybe, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case maybe. 9. Before looking into the ambit and scope of this section, it is stated that this provision was incorporated in Insolvency Bankruptcy Code, 2016 with the object th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout any restriction in commercially and legally. Accordingly, we hold that such statement constitute acknowledgment. In this regard, we further take the assistance of the provision of Explanation (a) of Sec. 18(1) of Limitation Act, 1963 wherein scope of acknowledgment has been given in a widest possible manner. It is also to be noted that writ petition was filed within a period of 3 years from the date of issue of recall notice and, hence, for this reason also provisions of sec. 18 of the Limitation Act, 1963 are applicable. Even otherwise, in our considered view, such averments made before the Hon'ble High Court amount to promise within the meaning of provisions of sec. 25(3) of the Indian Contract Act, 1872 and, therefore, if such promise is made after expiry of original limitation period also, the limitation period gets extended as condition of acknowledgement before expiration exists only under sec. 18 of the Limitation Act, 1963.' 21. From the perusal of the above judicial decisions, it maybe noted that the Explanation (a) of sec. 18 of Limitation Act, 1963 is wide in scope and has to be interpreted in the background of the current commercial environment and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019 dated August 9, 2019 wherein paras 59-60, the Hon'ble Supreme Court has observed that the term claim under IBC has been defined in a manner to do away with the legal limitations associated in general law in regard to enforceability of claims regarding defaults and recovery of outstanding debt. We consider it pertinent to reiterate that IBC,2016 has been enacted with the object to resolve the bankruptcy and promote entrepreneurs hip along with its focus on promotion of credit and growth, hence, a pragmatic approach has to be taken which should to be in accordance with such objects for this reason also, we hold that once a person obtains the loans and fails to repay, adverse impact is a natural consequences nor only for a specific borrower but on the overall economic growth of the country, hence, legal technicalities should not be allowed to over ride such objectives for this view, we draw support from the following observations of the Hon'ble Supreme Court in the case of Swiss Ribbons Pvt. Ltd. . v. Union of India (UOI) is under: - 84. It will be seen that the reason for differentiating between financial debts, which are secured, and operational debts, which are uns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financial creditor, confirm the plea that presentation in the balance sheet amounts to acknowledgement of debt. 14. We also find no merits in the contention of the Corporate debtor that there exists some dispute and it was a case of non-performance for the reason that even a disputed claim can be considered for the purpose of section 7 so long, there is debt which is due and payable and a default has occurred in payment thereof In this regard, following observations of Hon'ble Supreme Court in the case of Innovative Industries are relevant:- 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of debt , we have to go to section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a claim and for the meaning of claim , we have to go back to section 3(6) which defines claim to mean a right to payment even if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitation Act, 1963 are applicable to the proceedings under IBC, 2016. In the above cases, the Hon'ble Supreme Court has held that in case of delay, the limitation could be extended Under Section 18 of Limitation Act, 1963 by the act of parties as prescribed thereunder and the application can be filed after getting condonation of delay under section 5 of Limitation Act, 1963. The findings of the Hon'ble Supreme Court in the case of B.K. Educational Services in para 48 of the order are reproduced as under:- 48. 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 maybe applied to condone the delay in filing such application. The finding of the Hon'ble Supreme Court in the case of Jignesh Shah in para 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess for Corporate person) Regulation, 2016, the existence of debt due to the Financial Creditor may be proved on the basis of record available in information utility or other relevant documents or financial statements showing that the debt has not been paid. Thus, on this basis also existence of debt due and payable in alive mode stands proved. 12. As far as the reliance on the decision by Corporate Debtor on the decision of the NCLT Kolkata Bench in the case of M/s Prowess International (P) Limited v. M/s Shyam Steel Industries Limited (supra) is concerned, the said decision is no longer holds the field for the reason of subsequent judicial decisions, wherein presentation of debt in financial statements has been held as acknowledgement. We further consider it pertinent to point out that in the case of M/s Prowess International (P) Limited v. M/s Shyam Steel Industries Limited, finding was based on the basis of fact that name of Financial Creditor was not appearing in the balance sheet which is not the case here and for this reason also the ratio of that case is not applicable . 16. In our considered view, the aforesaid decisions take care of all the contentions raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted. ii. We declare a moratorium and public announcement in accordance with Sections 13 and 15 of the IBC, 2016. iii. Moratorium is declared for the purposes referred to in section 14 of the Insolvency Bankruptcy Code, 2016. The IRP shall cause a public announcement of the initiation of Corporate Insolvency Resolution Process and call for the submission of claims under section 15. The public announcement referred to in clause (b) of sub-section (1) of section 15 of Insolvency Bankruptcy Code, 2016 shall be made immediately. iv. Moratorium under section 14 of the Insolvency Bankruptcy Code, 2016 prohibits the following: (a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Secur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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