TMI Blog2020 (3) TMI 1244X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal side, such institution of the suit and the pendency thereof in that Court cannot enure for the benefit of the present winding-up proceeding. A suit for recovery of money can be filed only when there is a default of dues. Even if the decree is passed, the date of default cannot be shift forward to the date of decree or date of payment for execution as a decree can be executed within specified period i.e. 12 years. If it is executable within the period of limitation, one cannot allege that there is a default of decree or payment of dues - thus, a Judgment or a decree passed by a Court for recovery of money by Civil Court/ Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the I B Code . In the present case, as the account of the Corporate Debtor was declared NPA on 31st October, 2002 and decree was passed on 19th June, 2009/ 31st August, 2009, the application under Section 7 filed by M/s. Stressed Assets Stabilization Fund (SASF) against M/s. Uthara Fashion Knitwear Limited - (Corporate Debtor) is barred by limitation and was not maintainable. The impugned order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment was doubted, the matter was referred to Larger Bench to decide the issue. 5. The brief facts of the case are as follows: At the request of the Corporate Debtor , the Industrial Development Bank of India ( IDBI for short) granted financial assistance of ₹ 600 lacs by way of Term Loan Agreement dated 2nd March, 2000 to the Corporate Debtor and the loan disbursed was primarily secured by hypothecation of plant and machinery together with machinery spares, tools and accessories, raw materials, semi-finished and finished goods, consumable stores, book debts and such other movables and equitable mortgage of properties at an estimated value of ₹ 790.70 lakhs as was specified in the Memorandum of Entry dated 24th August, 2000. The account of the Corporate Debtor was classified as Non-Performing Asset on 29th May, 2002. In the year 2003, at the instance of the IDBI Bank , Debt Recovery proceeding was initiated under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (OA No. 289 of 2003 now re-numbered as O.A. No. 413 of 2007). It was decreed on 19th June, 2009 and Recovery Certificate was issued on 31st August, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or recovery being filed prior to a winding-up petition being filed, opined: 8. To my mind, there is a fallacy in this argument because the test that is required to be applied for purposes of ascertaining whether the debt is in existence at a particular point of time is the simple question as to whether it would have been permissible to institute a normal recovery proceeding before a civil court in respect of that debt at that point of time. Applying this test and dehors that fact that the suit had already been filed, the question is as to whether it would have been permissible to institute a recovery proceeding by way of a suit for enforcing that debt in the year 1995, and the answer to that question has to be in the negative. That being so, the existence of the suit cannot be construed as having either revived the period of limitation or extended it. It only means that those proceedings are pending but it does not give the party a legal right to institute any other proceedings on that basis. It is well-settled law that the limitation is extended only in certain limited situations and that the existence of a suit is not necessarily one of them. In this view of the matter, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng point of the period of limitation is when the company is unable to pay its debts, and that Section 434 is a deeming provision which refers to three situations in which a company shall be deemed to be unable to pay its debts under Section 433(e). In the first situation, if a demand is made by the creditor to whom the company is indebted in a sum exceeding one lakh then due, requiring the company to pay the sum so due, and the company has for three weeks thereafter neglected to pay the sum , or to secure or compound for it to the reasonable satisfaction of the creditor. Neglected to pay would arise only on default to pay the sum due, which would clearly be a fixed date depending on the facts of each case. Equally in the second situation, if execution or other process is issued on a decree or order of any court or tribunal in favour of a creditor of the company, and is returned unsatisfied in whole or in part, default on the part of the debtor company occurs. This again is clearly a fixed date depending on the facts of each case. And in the third situation, it is necessary to prove to the satisfaction of the Tribunal that the company is unable to pay its debts. Here again, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21-72011 was filled up. The NCLT applied Article 62 of the Limitation Act which reads as follows: Description of suit Period of limitation Time from which period begins to run 62. To enforce payment of money secured by a mortgage or otherwise charged upon immovable property Twelve years When the money sued for becomes due. Applying the aforesaid Article, the NCLT reached the conclusion that since the limitation period was 12 years from the date on which the money suit has become due, the aforesaid claim was filed within limitation and hence admitted the Section 7 application. The NCLAT vide the impugned judgment held, following its earlier judgments, that the time of limitation would begin running for the purposes of limitation only on and from 1-12-2016 which is the date on which the Insolvency and Bankruptcy Code was brought into force. Consequently, it dismissed the appeal. 4. Mr Aditya Parolia, learned counsel appearing on behalf of the appellant has argued that Article 137 being a residuary article would apply on the facts of this case, and as right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 3. Having heard the learned counsel for both parties, we are of the view that this is a case covered by our recent judgment in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, para 42 of which reads as follows: 42. 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 may be applied to condone the delay in filing such application. Dealing with Section 23 of the Limitation Act, 1963, the Hon ble Supreme Court observed: xxx xxx xxx Following this judgment, it is clear that when the recovery certificate dated 24-12-2001 was issued, this certificate injured effectively and completely the appellant's rights as a result of which limitation would have begun ticking 12. This Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court observed that the acknowledgment, if any, has to be prior to the expiration of the prescribed period for filing the suit. In the present case, the account was declared NPA since 1st December, 2008 and therefore, the suit was filed. Thereafter, any document or acknowledgment, even after the completion of the period of limitation i.e. December, 2011 cannot be relied upon. Further, in absence of any record of acknowledgment, the Appellant cannot derive any advantage of Section 18 of the Limitation Act. For the said reason, we hold that the application under Section 7 is barred by limitation, the accounts of the Corporate Debtor having declared NPA on 1st December, 2008. 13. The aforesaid decisions of the Hon ble Supreme Court and this Appellate Tribunal make it clear that for the purpose of computing the period of limitation of application under Section 7, the date of default is NPA and hence a crucial date. 14. In Jignesh Shah and another vs. Union of India and another (2019) 10 SCC 750 , the Hon ble Supreme Court noticed the decision of the Hon ble Patna High Court in Ferro Alloys Corpn. Ltd. v. Rajhans Steel Ltd. , wherein the Hon ble Patna High Court held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the application under Section 7 was not barred by limitation as the Corporate Debtor has acknowledged the claim in its Audited Balance Sheet for the F.Y. 2011-2012 2012-2013 onwards. 21. The question as to whether reflection of debt in a Balance Sheet of the Corporate Debtor prepared pursuant to Section 92 of the Companies Act, 2013 amounts to acknowledgment of debt fell for consideration before this Appellate Tribunal in Sh. G Eswara Rao v. Stressed Assets Stabilisation Fund─ Company Appeal (AT) (Insolvency) No. 1097 of 2019 . In the said case, this Appellate Tribunal by Judgment dated 7th February, 2020 noticed the provision of acknowledgment in writing under Section 18 of the Limitation Act, 1963 and Section 92 of the Companies Act, 2013. This Appellate Tribunal also noticed the decree passed by the Debt Recovery Tribunal to find out whether the same can be held to be acknowledgment of debt under Section 18 of the Limitation Act, 1963, and held: 12. The date of default can be forwarded to a future date only under Section 18 of the Limitation Act, 1963, which reads as follows: - 18. Effect of acknowledgment in writing.- (1) Where, before the expiration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding- (a) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies; (b) its shares, debentures and other securities and shareholding pattern; *** (d) its members and debenture-holders along with changes therein since the close of the previous financial year; (e) its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year; (f) meetings of members or a class thereof, Board and its various committees along with attendance details; (g) remuneration of directors and key managerial personnel; (h) penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment; (i) matters relating to certification of compliances, disclosures as may be prescribed; (j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors; and (k) such other mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, it is mandatory for the Corporate Debtor to file Balance Sheet/ Annual Return, which is not the law. 22. In view of the aforesaid findings, agreeing with the decisions aforesaid, at the cost of repetition, we hold: (i) As the filing of Balance Sheet/ Annual Return being mandatory under Section 92(4) of the Companies Act, 2013, failing of which attracts penal action under Section 92(5) (6), the Balance Sheet / Annual Return of the Corporate Debtor cannot be treated to be an acknowledgement under Section 18 of the Limitation Act, 1963. (ii) If the argument is accepted that the Balance Sheet / Annual Return of the Corporate Debtor amounts to acknowledgement under Section 18 of the Limitation Act, 1963 then in such case, it is to be held that no limitation would be applicable because every year, it is mandatory for the Corporate Debtor to file Balance Sheet/ Annual Return, which is not the law. 23. In the present case, as we find that the account of the Corporate Debtor was declared NPA on 31st October, 2002 and decree was passed on 19th June, 2009/ 31st August, 2009, we hold that the application under Section 7 filed by M/s. Stressed Assets Stabilizatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding in Para 23 that Books of Account cannot be treated as acknowledgement. I have also gone through the Judgement in the matter of Sh G Eswara Rao Vs Stressed Assets Stabilisation Fund in Company Appeal (AT) (Insolvency) No. 1097 of 2019 dated 7th February, 2020, especially, Paragraphs 15 and 16 of that Judgement which is also relied on, and the finding recorded in Para 22 that:- (i) As the filing of Balance Sheet/ Annual Return being mandatory under Section 92(4) of the Companies Act, 2013, failing of which attracts penal action under Section 92(5) (6), the Balance Sheet / Annual Return of the Corporate Debtor cannot be treated to be an acknowledgement under Section 18 of the Limitation Act, 1963. (ii) If the argument is accepted that the Balance Sheet / Annual Return of the Corporate Debtor amounts to acknowledgement under Section 18 of the Limitation Act, 1963 then in such case, it is to be held that no limitation would be applicable because every year, it is mandatory for the Corporate Debtor to file Balance Sheet/ Annual Return, which is not the law. 4. With respect, I am unable to agree. I find that there are various Judgements passed by vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Jones v. Bellgrove Properties, (1949) 2KB 700, it was held that a statement in a balance sheet of a company presented to a creditor- share holder of the company and duly signed by the directors constitutes an acknowledgement of the debt. In Mahabir Cold Storage v. CIT (1991) 188 ITR 91, the Supreme Court held: The entries in the books of accounts of the appellant would amount to an acknowledgement of the liability to Messrs. Prayagchand Hanumanmal within the meaning of Section 18 of the Limitation Act, 1963, and extend the period of limitation for the discharge of the liability as debt. In several judgments of this Court, this legal position has been accepted. The Hon ble High Court then referred to some of the Judgements.* 9. In the Judgement in the matter of Sheetal Fabrics (supra), Hon ble High Court of Delhi referred to Judgement in the matter of In re. Padam Tea Company Ltd. AIR 1974 Calcutta 170 and referred to the said Judgement as under:- 10. Let me first deal with the case of Padam Tea Co. Ltd. (supra). This case relied upon by learned Counsel for the respondent company in support of his plea that acknowledgement contained in the balance sheet co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directors. Therefore, even though the balance sheet may be a separate document these two documents in the facts and circumstances of the case should be read together and should be construed together. 13. In the same breath, the High Court also explained as to what would constitute an acknowledgement under Section 18 of the Limitation Act by referring to the judgment of the Supreme Court and this discussion would be found in the following passage: It was held by the Supreme Court in the case of L.C. Mills v. Aluminium Corpn. of India Ltd., (1971) 1 SCC 67 : AIR 1971 SC 1482, that it was clear that the statement on which the plea of acknowledgement did not create a new right of action but merely extended the period of limitation. The statement need not indicate the exact nature or the specific character of the liability. The words used in the statement in question must, however, relate to a present subsisting liability and indicate the existence of a jural relationship between the parties such as, for instance, that of a debtor and a creditor and the intention to admit such jural relationship. Such an intention need not, however, be in express terms and could be inferred by im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Jain vs. Santosh Devi Sharma 67 (1997) DLT 13, S.N. Kapoor J. applied the principle in a case where the primary question was whether a suit under Order 37 CPC could be filed on the basis of an acknowledgement. In Larsen Tubro Ltd. v. Commercial Electric Works 67 (1997) DLT 387 a Single Judge of this Court observed that it is well settled that a balance sheet of a company, where the defendants had shown a particular amount as due to the plaintiff, would constitute an acknowledgement within the meaning of Section 18 of the Limitation Act. In Rishi Pal Gupta v. S.J. Knitting Finishing Mills Pvt. Ltd. 73 (1998) DLT 593, the same view was taken. The last two decisions were cited by Geeta Mittal, J. in S.C. Gupta v. Allied Beverages Company Pvt. Ltd. (decided on 30/4/2007) and it was held that the acknowledgement made by a company in its balance sheet has the effect of extending the period of limitation for the purposes of Section 18 of the Limitation Act. In Ambika Mills Ltd. Ahmedabad v. CIT Gujarat (1964) 54 ITR 167, it was further held that a debt shown in a balance sheet of a company amounts to an acknowledgement for the purpose of Section 19 of the Limitation Act and in orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility and must be rejected. The submission that the letter was written without prejudice to the legal rights and remedies available under any law and therefore the acknowledgement or the undertaking has no legal effect must likewise be rejected. This letter is reminiscent of a letter that fell for consideration in Spencer s case as pointed out by Mr. Harish Salve, as a Rule the debtor who writes such letters has no intention to bind himself further than is bound already, no intention of paying so long as he can avoid payment, and nothing before his mind but a desire, somehow or other, to gain time and avert pressure. It was argued in a subsequent case that an acknowledgment made without prejudice in the case of negotiations cannot be used as evidence of anything expressly or impliedly admitted. The House of Lords observed as follows: But when a statement is used as acknowledgement for the purpose of Section 29 (5), it is not being used as evidence of anything. The statement is not an evidence of an acknowledgement. It is the acknowledgement. Therefore, the without prejudice Rule could have no application. It said: Here, the respondent, Mr. Rashid was not offeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) clearly recorded in Para 12 that entries in the books of accounts would amount to an acknowledgement of the liability within the meaning of Section 18 of the Limitation Act, 1963. As such, I have difficulty with the Judgement in the matter of V Hotels Limited (supra) relied on where in Para 23, the Bench of this Tribunal observed that The books of accounts cannot be treated as an acknowledgement of liability in respect of debt . If books of accounts can be considered, I find it difficult to hold that the audited Balance Sheet prepared on the basis of books of accounts, needs to be ignored. Apart from the above, in Judgement in the matter of Kashinath Sankarappa Wani Vs. New Akot Cotton Ginning ; Pressing Co., Ltd. reported as MANU/SC/0007/1958, while dealing with Resolution of Board of Directors and while considering Balance Sheet with regard to question of limitation, Hon ble Supreme Court examined the Resolution and also the Balance Sheet and in the context of the facts of that matter came to a conclusion that the Resolution or the Balance Sheet did not help the Appellant. It is not that it was held that for the purpose of limitation, Balance Sheet cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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