TMI Blog2019 (12) TMI 1298X X X X Extracts X X X X X X X X Extracts X X X X ..... if an officer was authorised to grant loan then it could not be said that such person did not the have power to recover the loan amount or to initiate Corporate Insolvency Resolution Process in spite of default in payment of a debt. In the present case there exists two documents which make the case of the Financial Creditor more strong. Thus, to give effect to the provisions of IBC,2016 a harmonious and liberal approach is needed. Further, Regulations made thereunder must confirm to be substantive provisions of IBC,2016 as prescribed in section 240 of IBC,2016 or to the overall object of IBC, 2016. Thus, on all counts this contention of the corporate debtor fails. Whether as per contract there exists liability to pay? - HELD THAT:- There is a event of default as an enumerated in the contract/ agreements read with the sanction letter. The consequences thereof follow accordingly. Thus, the amount disbursed till then along with interest becomes due and payable. Thus, this contention of the corporate debtor is rejected. Whether debt is barred by limitation? - HELD THAT:- The date of default has been stated as 05.08.2014. The financial statements for the year ended 31 st March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed:- 13-12-2019 - Madan B Gosavi : Member (J) Virendra Kumar Gupta : Member (T) For the Financial Creditor : Mr.Rishav Banerjee, Mr.Rahul Anddy. For the Corporate Debtor : Mr. Joy Saha, Mr. M.S.Tiwari, Ms.Souritra Ganguly, Aniruddha Sinha Advocate ORDER Virendra Kumar Gupta This application under section 7 of IBC, 2016 has been filed by the Financial Creditor namely UCO Bank to initiate Corporate Insolvency Resolution Process against Corporate Debtor namely Kaizen Power Limited. The amount of default has been claimed at ₹ 170.20/- Crore. 2. The facts, in brief, are that the Financial Creditor firstly sanctioned Term Loans, Foreign letter of credit with bank guarantee facilities vide sanction letter dated 21.06.2010. The other term loans were also sanctioned subsequently. The credit facilities were availed after execution of various agreements on 30.08.2012, 19.07.2012 and 31.12.2012. The Corporate Debtor committed default in payment of interest as well as principal amount as agreed. Hence, the accounts were declared as NPA on 05.11.2014. On 19.11.2014, notice of recall was issued to require the Corporate Debtor and its guarantors to repay the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f events constituting default would become due and payable forthwith. Based upon these contentions, the learned counsel submitted that in spite of the fact that the sanctioned loan was higher but due to subsequent developments of events of default, the amount disbursed till that date had become due and payable. He further submitted that this agreement had been valid till date. He again drew our attention to the balance-sheet and CIBIL report to show that as per the balance-sheet the debtor's own admission existed as regards to its liability to pay the loan and such admission was corroborated from these documents. 5. On the other hand, the learned Senior counsel for the Corporate Debtor, firstly, raised the point that application was not signed by the competent person, hence, for this reason alone, the petition was liable to be dismissed. Thereafter, he pleaded that as per the observations of the Hon'ble Supreme Court in the case of B.K.Educational Services Private Limited Vs Parag Gupta and Associates 2018 SCC Online SC 1921 in para 48 condonation of delay application as per the provisions of section 5 of the Limitation Act, 1963 was a must to over come the expiry of lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also petition filed under section 7 IBC, 2016 was not maintainable. It was also pleaded that for the failure on the part of the lenders, the Corporate Debtor was eligible for the compensation under section 73 of the Indian Contract Act, 1872. It was further pleaded by the Corporate Debtor that the present application had been filed mainly for recovery, hence, for this reason also, the petition was liable to be dismissed. The Ld. Senior Counsel drew our attention to pages 71, 74, 75, 78 108 of the paper book containing the terms and conditions of the sanction letter. He specifically submitted that the loan amount sanctioned was much more and disbursement had been made of a lesser amount, hence, there was a partial non performance on the part of the lender which put the Corporate Debtor into distress and, therefore, it was not a case of default of a contractual obligation. He also submitted that the first repayment had to commence after expiry of 9 months from the commercial operation date, hence, the amount would have become due and payable only when such period would have expired. In the present case, commercial operation never started. Thereafter, he reiterated earlier submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these arguments, the learned counsel submitted that the petition was liable to be admitted. 8. We have considered the submissions made by both the sides and material on record. 9. In this application several issues arise for our consideration.First issue is whether the person who has signed and filed the petition is competent? In this regard, it is noted that application has been signed by Mr. B.Mondal, Dy. General Manager. It has also been claimed that no signature appeared at the last page of the Form No. 1 at the specified place. However, there is a signature of this person at the bottom of the page, hence, we do not find any substance in this contention of the corporate debtor. We also find that this person is authorised as attorney of the bank to do all acts and deal in matters for and on behalf of the bank including the establishment of the branches or agencies. At page 38 of the paper book as per document signed by the General Manager and Zonal head on 05.02.2019, the said person has been stated as authorised representative of the bank for filing application in the NCLT under section 7 of IBC, 2016 in respect of said corporate debtor. Thus, when both these documents ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two aspects are involved i.e. (i) whether as per contract there exists liability to pay ? (ii) whether debt is barred by limitation? 13. As far as first aspect is concerned, we find that this is a case of consortium loan and the nature of loan is term loan. The repayment of such loan, as per sanction letter/ Agreement was to start after start of commercial operations. However, in the meanwhile, the project got stuck and abandoned due to various factors. Even the loan amount sanctioned was not disbursed fully. This leads us to look into the terms and conditions of sanction letter as well as agreement in detail. As per sq sanction letter there was a moratorium of a period of 9 months from the COD i.e. Commercial Operation Date meaning thereby first repayment was to commence thereafter. However, in Clause 3 of part D of sanction letter containing other conditions , it has been mentioned that company was required to comply with all the conditions stipulated in project related agreements and carry out suitable amendments thereto as may be required for the implementation of the project including the time lines specified with respect to COD. In part F of sanction letter under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 05.08.2014. The financial statements for the year ended 31 st March, 2017, which also contain figures for the financial year ended 31 st 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 payment of term loan and interest. It is also mentioned that the continuing default as on 31 st March, 2017 was in respect of interest on term loan and the period of delay was more than 180 days.ln the Auditor's report also the fact of default in payment of interest and repayment of principal amount has been mentioned. Thus, there is an admission of continuing default in the financial statements. It is now a settled judicial position that presentation in the financial statements constitutes acknowledgement of debt within the meaning of provisions of section 18 of the Limitation Act, 1963. This aspect and other related issues as regard to the nature and scope of provisions of section 18 of the Limitation Act, 1963 have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough various letters to the lenders wherein fact of loan/outstanding debt has been either directly or as a pan 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 cases recently. In the case of Hari Omm Transport vs. MSP Metallics Ltd. cp (IB) No. 116/KB/2019 Order dated 15/ 10/2019 wherein the Tribunal has held as under:- 8. It is not in dispute that the Operational Creditor has supplied material during the Financial Year 2014-15. It is also not in dispute that there were agreed deduction out of the bills raised by the Operational Creditor to the tune of₹ 12,43,281/- resulting into impugned sum remaining unpaid. It is also noteworthy that thereafter there have been no supplies or payment by the respective parties. As far as Corporate Debtor is concerned the main plea is that the debt is barred by lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 may be addressed to a person other than a person related to the property or right. The Corporate Debtor has also not been able to produce any record to show that such person was not authorised to send such e-mail. Though such claim has been made, the e-mail ID contains particulars of the Corporate Debtor, hence, it cannot be said that e-mail has not been sent for and on behalf of the Corporate Debtor. Another aspect which needs to be considered is that though said email to statement of account has only sent and no other facts have been mentioned, hence, can it be said to be an acknowledgement of debt. This question again leads us to explanation (a) above wherein it has been stated that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on,- (a) An acknowledgement may be 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 for the execution of a decree or order, shall not be deemed to be an application in respect ofany property or right. From perusal of the explanation (a) to the said section it can safely be concluded that such letters constitute acknowledgement of debt by the corporate debtor, as it is not necessary that the letter should be written to the financial creditor only. It is further noteworthy that explanation (a) takes into its ambit the generally accepted commercial practices of communication between the parties whereby acknowledgement of debt can be inferred as no specific format has been prescribed. 6. Having stated so, a question may arise that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of Sec.238A of the Insolvency Bankruptcy Code, 2016 which is re-produced as under:- The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as mau be, 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 may be. 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 that stale claims cannot be made alive through the mechanism of Insolvency Bankruptcy Code, 2016. This is also so because Insolvency Bankruptcy Code, 2016 is not a recovery mechanism rather a comprehensive code for insolvency resolution old and stale claims cannot be considered as a source or detecting of signs impending insolvency at an early stage. Hence, for this reason also the necessity was felt to make provision of Limitation Act, 1963 applicable to Insolvency Bankruptcy Code, 2016. It has been settled judicially that Sec.238A is applicable since the implication of Insolvency Bankruptcy Code 2016. It is evident that Sec.238A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e within the meaning ofprovisions of Sec. 25(3) of the Indian Contract Act, 1872 and, therefore, if such promise is made after expiry oforiginal limitation period also, the limitation period gets extended as condition of acknowledgement before expiration exists only under Sec. 18 ofthe Limitation Act, 1963. 21. From the perusal of the above judicial decisions, it may be 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 accordance with the nature of proceedings of Insolvency Bankruptcy Code, 2016 . 11. Thus, considering the various aspects as discussed above, we hold that in the present case, there is a continuous cause of action and an acknowledgement of debt resulting into continuation/ extension of limitation period before the expiry of the original limitation period. In this regard, we are further of the view, that presentation of outstanding loan in the financial statements for the year ended on 31 st March, 2016 which also depict the figures of the same as on 31 st March, 2015 is continuation of such outstanding loan from the earlier financial y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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.and Ors. Vs Union of India (UOI) and Ors. is under:- 84. It will be seen that the reason for differentiating between financial debts, which are secured, and operational debts, which are unsecured, is in the relative importance of the two types of debts when it comes to the object sought to be achieved by the Insolvency Code. We have already seen that repayment of financial debts infuses capital into the economy in as much as banks and financial institutions are able, with the money that has been paid back, to further lend money to other entrepreneurs for their businesses. This rationale creates an intelligible differentia between financial debts and operational debts, which are unsecured,which is directly related to the object sought to be achieved by the Code. In any case, workmen's dues, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 ofthe 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 may be applied to condone the delay in filing such application. The finding ofthe Hon'ble Supreme Court in the case ofJignesh Shah another in para 19 of the order are as under:- 19. The aforesaid judgements correctly hold 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 of a winding 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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 Vs M/S Shyam Steel Industries Limited, finding was based on the basis offact 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 corporate debtor. Thus, all such contentions are rejected. As regard to impact of non mentioning of the name of the Financial Creditor in the balance sheet specifically, in addition to our findings in the aforesaid decisions, we find that as per explanation to section 7 (1) of IBC,2016, the proceedings under section 7 of IBC,2016 get triggered even in case of a default by the debtor in respect of any financial creditor other than the applicant. In the present case, it is not in dispute that there is a default in respect of payment of financial debts. Thus, for this reason a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst 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 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); d) The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. v. The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated, suspended, or interrupted during moratorium period. vi. The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. vii. The order of moratorium shall have effect from the date of admission till the completion of the corporate insolvency resolution p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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