TMI Blog2020 (2) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondents : Vishwas K. Shah, Advocate and Nishan Majumdar ORDER Authored By : Prasanta Kumar Mohanty, Harihar Prakash Chaturvedi Prasanta Kumar Mohanty, Member (T) 1. The present I.B. Petition is filed by the Financial Creditor JM Financial Asset Reconstruction Company (formerly known as JM Financial Asset Reconstruction Company Private Limited) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as a Code ), seeking initiation of Corporate Insolvency Resolution Process ( CIRP in Short) against the Corporate Debtor Company namely, Samay Electronics Private Limited for the default committed by the Corporate Debtor in making repayment of the Cash Credit, Bills purchase, LC, LG facility availed from the Bank. The Applicant (FC), JM Financial Asset Reconstruction Company (Formerly known as JM Financial Asset Reconstruction Company Private Limited) is an Assets Construction Company, acting in its capacity as Trustee of JMFARC-SBI (26/03/2014) II-Trust. The application has been filed by the duly authorised officer, Shri Sanjay Kumar Sipani, Senior Vice President of Financial Asset Reconstruction Company Limited, 3rd Floor, B Wing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Total Term Loan 17,08,59,661.00 40,02,53,584.00 Cash Credit 1,98,20,625.00 4,63,55,469.00 Total 19,06,80,286.00 44,66,09,053.00 7. The Petitioner in support of its contentions has annexed the details of Financial Debt, Records and evidences of default including copies of all the sanction letters, the workings show the amount claimed to be in default and its calculation in tabular form as on 26/10/2011. 8. The present application has been filed by the Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy before this Adjudicating Authority to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor. 9. The Financial Creditor, to substantiate its claim, has enclosed following documents: - i. Copy of Demand Promissory Note for ₹ 18.50 Crores. (Page No. 72 to 73 of paper book) ii. Copy of Letter of Continuity (Page No. 74 of paper book) iii. Copy of Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hecation against Goods to secure Demand Cash Credit. (Page No. 183 to 188 of paper book) xxix. Copy of Guarantee Letter for Bills and Hundies. (Page No. 189-190 of paper book) xxx. Copy of Agreement for Counter Guarantee. (Page No. 191 to 198 of paper book) xxxi. Copy of Letter of Indemnity. (Page No. 199-200 of paper book) xxxii. Copy of Balance Confirmation confirming debit balance as on 30/10/2006. (Page No. 201-202 of paper book) xxxiii. Copy of Demand Promissory Note for ₹ 42.50 Crores. (Page No. 203-204 of paper book) xxxiv. Copy of letter of continuity. (Page No. 205 of paper book) xxxv. Letter of Hypothecation against Goods to secure Demand Cash Credit. (Page No. 206 to 211 of paper book) xxxvi. Copy of Guarantee Letter for Bills and Hundies. (Page No. 212-213 of paper book) xxxvii. Copy of Balance Confirmation confirming debit balance as on 30/10/2006. (Page No. 225-226 of paper book) xxxviii. Copy of Memorandum of Deposit of title deeds dated 28/07/1998. (Page No. 227 to 229 of paper book) xxxix. Copy of Confirmation Letter for extension of mortgage dated 20/09/1999. (Page No. 230-231 of paper book) xl. Cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e drawn on 26/10/2010 and DRT order on consent terms is passed On 01/11/2010. 11.5 It is submitted that the O.A. No. 105 of 2010 was filed by Original Creditor against Sogo Ceramics P. Ltd. in which Corporate Debtor is arrayed as Corporate Guarantor. The said matter resulted in unnotarised consent Terms on 27/08/2010 where the signature of Corporate Guarantor is disputed (no seal of the company is used) and it is not countersigned by Advocate of Corporate Debtor. The order on Consent Terms is dated 05/10/2010. In fact, Corporate Debtor was not represented by any lawyer. The Corporate Debtor disputes the liability of another account of Sogo and this is the bone of contention. It is when Notice was served to Corporate Debtor in RP Proceedings, Corporate Debtor became aware of this illegal consent Terms and challenged the same by way of Appeal being Appeal No. 95 of 11 before DRAT, Mumbai. The said appeal is pending. 11.6 It is further submitted that the pursuant to aforesaid, on 08/03/2011, Corporate Debtor wrote to Original Creditor to release title Deeds of the property, if early payment as stipulated in consent Terms was made. However, Original Creditor under pretext of Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default is not proved and hence also Petition may not be entertained. 11.13 Lastly, it is submitted that the upshot of the foregoing objections is meritorious and Petition may be dismissed in the interest of justice. 12. The Learned Lawyer of the Applicant Bank (FC) clarified their positions and put forth their arguments relying on the documents submitted by them, which were executed by the Corporate Debtor and the Mortgagors/Guarantors. They have also referred the CIBIL report filed with their application which confirms the debt is in default. RoC report filed by them is referred to in support of the charge created in their favour by Corporate Debtor. 13. It is submitted that the State Bank of India (SBI) has assigned its debts to the Applicant vide Assignment Agreement dated 26/03/2014. 14. It is submitted that the Respondent Company is a Principal Borrower with regard to various loans/credit facilities granted by SBI. 15. The Learned Lawyer has also stated that the Respondent Company i.e. Borrower and other Guarantors have failed to honour the terms and conditions of the credit facilities granted by the Financial Creditor and hence, the Applicant Bank classified t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Ltd. reported in 2005 SCC India (Guj) 275. The relevant observations made in the said judgment read as under:- 5. Section 36 of the Securitisation Act reads as under: 36. No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of Section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963. 19. It is also relevant to mention that an application being M.A. No. 59 of 2014 was filed by the applicant before the Ld. Presiding Officer, DRT-II seeking substitution in place of State Bank of India on the basis of Deed of Assignment. The Corporate Debtor defendant therein raised various objections including objections based on the judgment of Hon'ble Supreme Court in the case of Chief Controlling Revenue Authorities vs. Coastal Gujarat Power Limited reported in (2015) 10 SCC 700. The Hon'ble DRT by order dated 23.10.2015 allowed the application by rejecting all objections of the Corporate Debtor. The Financial Creditor is allowed to be substituted in place of State Bank of India as secured Financial Creditor based on the subject Deed of Assignm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has placed on record enough documents evidencing the default and hence, the present Application deserves to be admitted. 24. It is stated that as per the provisions of Insolvency and Bankruptcy Code, 2016 and as per the various rulings, the Hon'ble Tribunal shall look into three criteria for admitting or rejecting the Petition:- (i) The default should be more than ₹ 1,00,000.00 (ii) The application shall be complete, (iii) No proceedings are pending against Insolvency Resolution Professional. 25. It is stated that in view of the aforesaid settled law, it is submitted that the Corporate Debtor has not disputed its liability, the application is complete in all respect and there are no disciplinary proceedings pending or initiated against the proposed Interim Resolution Professional. 26. The matter was taken up and heard both sides at this Bench on 03.07.2018, 02.08.2018, 06.09.2018, 22.10.2018, 06.12.2018, 23.01.2019, 12.03.2019, 15.04.2019, 02.05.2019, 26.06.2019, 31.07.2019, 20.08.2019, 17.09.2019 and 11.10.2019. The counsels of the Petitioner and the Respondent were present and put forth their submissions before the Bench. 27. It is a settled legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inality. The said order is in force even as on this date. 29.7 The Corporate Debtor has filed an additional Affidavit on 04/09/2019 enclosing the Audit Report and Income-Tax Returns for the Assessment Year 2007-2008, 2008-2009 and 2009-2010. The said Audit Reports acknowledge the debt of the Applicant. The said Balance Sheets are the latest as per the Corporate Debtors. Thereafter, no further Balance Sheet has been filed by the Corporate Debtor. The Corporate Debtor has acknowledged its liability of Bank Borrowing to the extent of ₹ 36,79,94,939.00 in its Balance Sheet of 2006-2007. It is presumed that the said outstanding is carried forwarded to the next Financial Year till it is repaid. Admittedly, the Corporate Debtor has not disputed the outstanding and hence, if the Corporate Debtor is required to present the latest Balance-Sheets, the said outstanding would be reflected in the latest Balance-Sheet. 29.8 Continuous proceeding for the same debt is going on from 2010 and appeals are still pending with DRAT. 29.9 The letter dated 08/04/2019 signed and submitted to this Adjudicating Authority by; 1) Shri Raghavjibhai Bhanjibhai Patel 2) Shri Rameshbhai Bhanjib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Professional. The Interim Resolution Professional is further directed to make public announcement of moratorium in respect of Corporate Debtor soon after receipt of an authenticated copy of this order and to act further as per the order/directions issued by this Adjudicating-Authority and to follow the provisions Under Section 13 and 14 and other relevant provisions of the Insolvency and Bankruptcy Code, 2016. 33. As per the provisions of Section 13 and 14 of the I.B. Code on the date of commencement of insolvency, this Adjudicating Authority declares moratorium with effect from today for prohibiting all of the following, namely:- I. (a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, 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 ..... Insolvency and Bankruptcy Code, 2016 is to find out a viable Insolvency Resolution Plan in time for the Corporate Debtor and in order to have a Resolution Plan Viable, feasible and implementation successful, in the era of Minimum Cost of funds based Lending Rate ( MCLR in short)/Repo Linked Interest Rate/Interest Rate Falling Regime and Competitive market condition, Committee Of Creditor(s) (CoC) may explore, while finalizing the Resolution Plan for the Corporate Debtor, the possibility of loading maximum interest at the Applicant Bank's Base Rate (BR) +1% from the date of default to the date of implementation of MCLR and further from the date of implementation of MCLR till the date of approval of the Resolution Plan interest at the rate of Petitioner Bank's One Year MCLR or One Year MCLR + 1% without any penal/overdue interest. 36. The Registry is hereby directed to communicate the authentic copy of this order to the Financial Creditor, Corporate Debtor Company, the I.R.P. and also to the Registrar of Companies, Gujarat immediately through speed post/registered post. 37. Thus the present I.B. petition filed Under Section 7 of the IBC stands admitted with the above d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts which are already time barred. 6. The judgment of the Hon'ble Supreme Court (in the matter of Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (India) Ltd. and Ors. (18.09.2019 - SC): MANU/SC/1301/2019 : ) is being reproduced herein below: 1. In the present case, the Respondent No. 2 was declared NPA on 21.07.2011. At that point of time, the State Bank of India filed two O. As in the Debt Recovery Tribunal in 2012 in order to recover a total debt of 50 Crores of rupees. In the meanwhile, by an assignment dated 28.03.2014, the State Bank of India assigned the aforesaid debt to Respondent No. 1. The Debt Recovery Tribunal proceedings reached judgment on 10.06.2016, the Tribunal holding that the O. As filed before it were not maintainable for the reasons given therein. 2. As against the aforesaid judgment, Special Civil Application Nos. 10621-10622 were filed before the Gujarat High Court which resulted in the High Court remanding the aforesaid matter. From this order, a Special Leave Petition was dismissed on 25.03.2017. 3. An independent proceeding was then begun by Respondent No. 1 on 03.10.2017 being in the form of a Section 7 application filed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkable. 6. Having heard the learned Counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being an application which is filed Under Section 7, would fall only within the residuary Article 137. As rightly pointed out by learned Counsel appearing on behalf of the Appellant, time, therefore, begins to run on 21.07.2011, as a result of which the application filed Under Section 7 would clearly be time-barred. So far as Mr. Banerjee's reliance on para 7 of B.K. Educational Services Private Limited (supra), suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred. 7. This being the case, we fail to see how this para could possibly help the case of the Respondents. Further, it is not for us to interpret, commercially or otherwise, articles of the Limitation Act when it is clear that a particular Article gets attracted. It is well settled that there is no equity about limitation-judgments have stated that often time periods provided by the Limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: 27. 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. 4. In order to get out of the clutches of para 27, it is urged that Section 23 of the Limitation Act would apply as a result of which limitation would be saved in the present case. This contention is effectively answered by a judgment of three learned Judges of this Court in Balkrishna Savalram Pujari and Ors. v. Shree Dnyaneshwar Maharaj Sansthan and Ors., MANU/SC/0174/1959 : : [1959] Supp. (2) S.C.R. 476. In this case, this Court held as follows: In dealing with this argument it is necessary to bear in mind that Section 23 refers not to a continuing right but to a continuing wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is made: 13. Admittedly, 'I B Code' has come into force since 1st December, 2016, therefore, the right to apply accrued to 1st Respondent on 1st December, 2016. Therefore, we hold that the application Under Section 7 was not barred by limitation. 2. We had also made it clear beyond any doubt that for applications that will be filed Under Section 7 of the Code, Article 137 of the Limitation Act will apply. However, we find in the impugned judgment that Article 62 (erroneously stated to be Article 61) was stated to be attracted to the facts of the present case, considering that there was a deed of mortgage which was executed between the parties in this case. We may point out that an application Under Section 7 of the Code does not purport to be an application to enforce any mortgage liability. It is an application made by a financial creditor stating that a default, as defined under the Code, has been made, which default amounts to ₹ 1,00,000/- (one lakh) or more which then triggers the application of the Code on settled principles that have been laid down by several judgments of this Court. 3. Article 141 of the Constitution of India mandates tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one-time settlement sent on 3rd March, 2017, which was rejected by the Bank on 28th April, 2018. 5. It is not in dispute that the Respondent has accepted that the 'Corporate Debtor' defaulted to pay the debt on 30th September, 2013. The account was classified as NPA with effect from 31st December, 2013. 6. Section 18 of the Limitation Act, 1963 reads as follows:- 18. Effect of acknowledgment in writing.-- (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment 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 acknowledgment was so signed. (2) Where the writing containing the acknowledgment is undated, oral evidence may be 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 sections,-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LICATION OF LIMITATION ACT, 1963 28.1 The question of applicability of the Limitation Act, 1963 ( Limitation Act ) to the Code has been deliberated upon in several judgments of the NCLT and the NCLAT. The existing jurisprudence on this subject indicates that if a law is a complete code, then an express or necessary exclusion of the Limitation Act should be respected. In light of the confusion in this regard, the Committee deliberated on the issue and unanimously agreed that the intent of the Code could not have been to give a new lease of life to debts which are time-barred. It is settled law that when a debt is barred by time, the right to a remedy is time-barred. This requires being read with the definition of 'debt' and 'claim' in the Code. Further, debts in winding up proceedings cannot be time-barred, and there appears to be no rationale to exclude the extension of this principle of law to the Code. 28.2 Further, non-application of the law on limitation creates the following problems: first, it re-opens the right of financial and operational creditors holding time-barred debts under the Limitation Act to file for CIRP, the trigger for which is default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible to institute a normal recovery proceeding before a civil court in respect of that debt at that point of time. Applying this test and de hors 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 second point will have to be answered in favour of the respondents and it will have to be held that there was no enforceable claim in the year 1995, when the present petition was instituted. 14. Likewise, a Single Judge of the Patna High Court in Ferro Alloys Corporation Ltd. v. Rajhans Steel Ltd., MANU/BH/0055/1999 : : (2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt without jurisdiction. Such section permits a plaintiff to present the same suit, if the Court of the first instance, returns a plaint from defect of jurisdiction or other causes of like nature, being unable to entertain it. In the present case, a secured creditor is not withdrawing a proceeding pending before the Debts Recovery Tribunal under Section 19 of the Act of 1993 to invoke the provisions of the Act of 2002. Rather the secured creditor is proceeding, independent of its right to proceed under the Act of 1993, while invoking the provisions of the Act of 2002. This choice of the secured creditor to invoke the Act of 2002 is independent of and despite the pendency of the proceedings under the Act of 1993, has to be looked at from the perspective of whether or not such an action meets the requirement of Section 36 of the Act of 2002, when the secured creditor is proposing to take a measure under Section 13(4) of the Act of 2002. Although, a secured creditor, as held in Transcore (supra), is entitled to take a remedy or a measure as available in the Act of 2002, despite the pendency of other proceedings, including a proceeding under Section 19 of the Act of 1993, in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ₹ 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. The Appellate Tribunal noted the NCLT Decision that the limitation period for suit was 12 years, their being a mortgage. However, Hon'ble Supreme Court taking into consideration the judgment in B.K. Education Services Private Limited vs. Parag Gupta and Associates - MANU/SC/1160/2018 : held that the limitation started from the date of default, i.e., 21st July, 2011 when the account was declared NPA. 11. Admittedly, the Corporate Debtor' the defaulted in making payments on 20th Septembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent application during the pendency of matter in DRT and DRAT and further, on the issue that the Corporate Debtor acknowledged its loan liability in its balance sheet of 2006 - 07 for in Income Tax return for the year 2008, 2009 and 2010. Thereafter no balance sheet is found to be filed by the corporate debtor before the ROC. Therefore, in my humble view, it cannot be treated as a continuing acknowledgement of the loan liability till the loan is repaid because the Honourable NCLAT has already held in its recent judgement of C. Shivakumar Reddy Vs. Dena Bank and Ors. that, even after acknowledgement made after 3 years in the balance sheet or agreed to pay the debt by way of restructuring of debts cannot be termed to be a document of acknowledgement in terms of Section 18 of the Limitation Act and further the time spent in filing the recovery proceedings before the DRT and DRAT cannot be excluded because these Court cannot be termed as Court having no jurisdiction and proceeding lodged before it were being persuaded bonafidely. 11. Moreover, it is a fact on the record that such proceedings are stated to be still pending. Hence, I am of the considered view that the limitation wil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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