TMI Blog2021 (10) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 7 cannot be compared with a plaint in a suit. Further, there is no bar for filing documents as required under Section 7 until a final order either admitting a dismissing the Application has been passed. Non-furnishing of information by the Financial Creditor at the time of filing an Application under Section 7 of the Code need not necessarily entail in dismissal of the Application. Instead, an opportunity can be provided to the Financial Creditor till the admission/rejection of petition to provide additional information required for the satisfaction of the Adjudicating Authority with respect to the occurrence of the default - in the instant case, the balance sheet that has been brought on record in the instant case before the Adjudicating Authority shall be taken into consideration while deciding the question of limitation and default on the part of the Corporate Debtor. The said documents cannot be ignored simply on the premise that it is not pleaded in the Application filed in Form-1 for initiation of the Corporate Insolvency Process - A reading of the documents reveals that the Corporate Debtor has acknowledged/subsisting liability to attract the provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bankruptcy Code, 2016, which was admitted by the Impugned Order, which is under challenge in this Appeal. 4. Grounds of Appeal 4.1 The Appeal is filed mainly on the ground that impugned Order is erroneous and is liable to be set aside as the same fails to appreciate the facts that the Application under Section 7 of the Code was hopelessly time-barred, having been filed after more than 4.5 years from the date on which the alleged default occurred. It is submitted that the account of Corporate Debtor was declared by Respondent No.1 as irregular w.e.f. from 15.08.2014, that is three months before the date of NPA. The Application filed under Section 7 of the I. B. Code, 2016, was filed in 2019, barred by limitation. 4.2 The Adjudicating Authority considering the acknowledgement of debt in the balance sheet of the Corporate Debtor has passed the impugned Order. Accordingly, it is submitted that the name of Respondent No.1 did not find mentioned in the balance sheet of the Corporate Debtor, neither in the notes to it nor the Auditors report. As such, there was no admission of liability towards Respondent No.1, which would amount to an acknowledgement of debt as envisaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is nothing but an internal communication of Respondent No.1. 4.8 Adjudicating Authority further fails to appreciate the facts that the alleged Financial debt is yet to be ascertained, and proceedings in that regard are already pending before the Debt Recovery Tribunal, Mumbai (for brevity 'DRT'). 4.9 The Adjudicating Authority further fails to appreciate that Section 7 of the Application is liable to be dismissed for suppression and concealment of the material facts. 4.10 The Adjudicating Authority further fails to consider that the said project was jeopardised due to the fault of consortium lenders, including Respondent No.1. The Promoters of the Corporate Debtor had invested considerable sums in the project. It is only on account of latches and lacuna on behalf of Respondent No.1, being a consortium arrangement, the project of the Corporate Debtor failed. 5. Appellant Contentions 5.1 The present Appeal arises from the Order dated 13.12.2019 passed by the Adjudicating Authority/National Company Law Tribunal, Kolkata ( AA ), whereby the Application filed under Section 7 of the Insolvency and Bankruptcy Code ( IBC ) by UCO Bank ( FC ) was admitted and CIRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors to carry out necessary amendment to the Form-1. Therefore, it is clear that neither the Adjudicating Authority nor this Hon'ble Tribunal can consider the extension of the period of limitation in the absence of the necessary pleadings. 5.8 In the matter of Shanti Conductors Pvt. Ltd. Vs. Assam State Electricity Board Ors. (2020) 2 SCC 677, the Hon'ble Supreme Court, after appreciating the provisions of Order VII Rule 6 of the Code of Civil Procedure, 1908, has categorically held that under Section 3 of the Limitation Act, the Court by mandate of law is obliged to dismiss a case which is filed beyond the period of limitation even though no pleadings or arguments are raised to that effect and that Section 4 to Section 20 of the Limitation Act are exceptions. However, in order to bring its case under the exception, the Plaint must show the ground upon which exemption from such law is claimed. 5.9 In the present matter, no pleadings have been forthcoming from the side of the Financial Creditor in the Form-1. The Balance Sheet of the Corporate Debtor had merely been included in the Application index under Section 7 of the Code filed before the Adjudicating Authority, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial Creditor makes necessary amendments to Form-1, the arguments about the extension of limitation cannot be considered. (c) Every entry in the Balance Sheet of a company does not amount to an acknowledgement. (d) Whether an entry amounts to an acknowledgement depends on the facts of each case. (e) The acknowledgement has to be an acknowledgement of liability and not just an acknowledgement of disbursement. (f) The acknowledgement has to be unqualified and unequivocal. (g) The acknowledgment has to be made to the person to whom the debt is owed and who is claiming benefit thereof. (h) Balance Sheets have to be read with the Director's Report and / or Auditor's Report to determine if an entry made in a Balance Sheet qua any particular creditor is unequivocal or not. (i) The Balance Sheets, like other documents, have to be read as a whole to determine whether there was an acknowledgement qua a specific creditor. 5.15 Furthermore, from a perusal of the cases relied upon in the Reference Order in the case of Bishal Jaiswal Vs. ARCIL, it is clear that the acknowledgement relied upon was distinct and unequivocal in each of those cases. Furthermore, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wledgement for the same reason as given about the Balance Sheet for the year ending 31.03.2017. 5.18 There is a gap of more than three years between the date of first default and the balance sheet relied upon by Respondent No.1 . Without prejudice to the above, it is further submitted that along with the Application under Section 7 of the Code filed before the AA; the FC had filed a copy of the Balance Sheet of the CD as of 31.03.2017. Furthermore, the FC had also filed a copy of the detailed account statement of the CD as maintained in the books of the FC. 5.19 It is submitted that from a perusal of the said Statement of Accounts, filed before this Hon'ble Tribunal, it is evident that the FC had been charging Penal Interest from the CD from 30.03.2013 onwards, thereby implying that the first default on the part of the CD had occurred on or before 30.03.2013. Furthermore, such Penal Interest is also reflected in the entries dated 30.04.2013, 31.05.2013, 29.06.2013, 31.07.2013, 31.08.2013, 30.09.2013, 31.10.2013, 03.12.2013 etc., thereby implying that the CD had been in continuous default. 5.20 It is submitted that an acknowledgement to extend the Limitation peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the Code. Therefore, this Appeal ought to be allowed, and the CD should be freed from the rigours of CIRP. 6. Respondent No.1 UCO Bank's Contentions 6.1 The Corporate Debtor had availed various credit facilities from time to time from UCO Bank/Respondent No.1. The Corporate Debtor executed various documents to avail/secure such credit facilities. As of September 14 2011, a principal sum of ₹ 170.20 crores and the accrued Interest of ₹ 350.50 crores was due as of January 31 2019. The account of the Corporate Debtor was classified as NPA on November 05 2014. Subsequently, action under the SARFAESI Act, 2002 was undertaken before the DRT Mumbai for recovery of dues of Respondent No.1. The Application under Section 7 was filed under the IBC, 2016 before Adjudicating Authority/NCLT Calcutta on or before 2019. 6.2 The Appellant had challenged the admission order mainly on the ground that the petition is barred by limitation as the date of default was November 05 2014, when the account was declared as NPA. Respondent No.1 has annexed the Balance Sheet of the Corporate Debtor for the Financial Year ending March 31 2017 (page 90, Vol. I, Appeal Paper Book) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From Banks 19,496.22 19,496.22 6.5 The Company has made certain defaults in repayment of Term Loans and Interest. The continuing default as of March 31 2019, is as below: 'Interest on Term Loans ₹ 16,352.65' (amount in Lacs) 6.6 However, surprisingly at Note 3.5 Annexure B @pg. 29 of Reply Affidavit of UCO Bank, the Company has made Exception/Qualification Note, which was not in the Balance Sheet as on 31.03.2016 31.03.2017. 6.7 Even in the Provisional Balance Sheet (Annexure C @pg. 39 of Reply Affidavit of UCO Bank), similar Exception Note at Cl. 3.5 has been made with similar mala fide intention (Annexure C @pg. 44 of Reply Affidavit of UCO Bank). 6.8 Even the extract Register of Charges of ROC evidence that the charges were registered in favour of UCO Bank, which is subsisting to date (Annexure D of Reply Affidavit of UCO Bank). 6.9 LEGAL SUBMISSIONS EXTENSION OF PERIOD OF LIMITATION AS PER SECTION 18 OF THE LIMITATION ACT, 1963 Based on the above, it is submitted that the aforesaid documents fulfil the criteria of acknowledgement laid under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of subsisting liability of the Corporate Debtor. However, it may not necessarily specify the exact nature of the liability. It indicates that the jural relationship between the Parties and the same can also be derived by implication in any event. Further, the said Letter is not 'Without Prejudice' basis and, therefore, amounts acknowledgement of liability of the Corporate Debtor. 7. Discussion and findings 7.1 Limitation 7.2 The learned Counsel for the Appellant is mainly raised that the petition filed by the Respondent No.1 Bank is not maintainable on the ground of limitation. It is contended that the only date of default, as stated in Form 1, is November 05 2014, whereas the Section 7 Application was filed on February 13 2019. No pleading is, or factual foundation for the extension of limitation has been set out in Form-1. Further, no amendment of Form 1 has been sought by the Financial Creditor at any stage. The Adjudicating Authority has relied on the balance sheet of the Corporate Debtor for the year ending March 31 2017, to hold that the Application was not barred by limitation. In the circumstances, the benefit of section 18 of Limitation Act 1963 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence furnished by the financial creditor within fourteen days of the receipt of the Application under Section 7. As per the proviso to Section 7(4) of the IBC, inserted by amendment, by Act 26 of 2019, if the Adjudicating Authority has not ascertained the existence of default and passed an order within the stipulated period of time of fourteen days, it shall record its reasons for the same in writing. The Application does not lapse for non-compliance of the time schedule. Nor is the Adjudicating Authority obliged to dismiss the Application. On the other hand, the Application cannot be dismissed, without compliance with the requisites of the Proviso to Section 7(5) of the IBC. 76. Section 7(5)(a) provides that when the Adjudicating Authority is satisfied that a default has occurred, and the Application under subsection (2) of Section 7 is complete and there is no disciplinary proceeding pending against the proposed resolution professional, it may by Order admit such Application. As per Section 7(5)(b), if the Adjudicating Authority is satisfied that default has not occurred or the Application under sub-Section (2) of Section 7 is incomplete or any disciplinary proceeding i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion that the documents enclosed with the applications being I.A. No. 27 of 2019 and I.A. No. 131 of 2019 and the pleadings in the supporting affidavits, made out a case for computation of limitation afresh from the dates of the relevant documents. It would also be pertinent to note that the reasons for the execution of the documents are irrelevant. It is not the case of the Respondents, that any of those documents were extracted through coercion. 127. Section 18 of the Limitation Act speaks of an Acknowledgment in writing of liability, signed by the party against whom such property or right is claimed. Even if the writing containing the acknowledgment is undated, evidence might be given of the time when it was signed. The explanation clarifies that an acknowledgment may be sufficient even though it is accompanied by refusal to pay, deliver, perform or permit to enjoy or is coupled with claim to set off, or is addressed to a person other than a person entitled to the property or right. 'Signed' is to be construed to mean signed personally or by an authorised agent. 128. In the instant case, ₹ 111 lakhs had been paid towards outstanding Interest on March 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na High Court in Ferro Alloys Corporation Limited v. Rajhans Steel Limited (supra) was rendered in the context of Section 434(1)(b) of the Companies Act 1956, which provided that a company would be deemed to be unable to pay its debts if execution or other process issued on a decree or Order of any Court or Tribunal in favour of a creditor of the Company was returned unsatisfied in whole or in part. 132. We see no reason why the principles should not apply to an application under Section 7 of the IBC which enables a financial creditor to file an application initiating the Corporate Insolvency Resolution Process against a Corporate Debtor before the Adjudicating Authority, when a default has occurred. As observed earlier in this judgment, on a conjoint reading of the provisions of the IBC quoted above, it is clear that a final judgment and/or decree of any Court or Tribunal or any Arbitral Award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7 of the IBC. 133. It is not in dispute that the Respondent No. 2 is a Corporate Debtor and the Appellant Bank, a Financial Credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a certificate of Recovery is also issued authorising the creditor to realise its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the Recovery Certificate. 139. The Appellant Bank was thus entitled to initiate proceedings under Section 7 of the IBC within three years from the date of issuance of the Recovery Certificate. The Petition of the Appellant Bank, would not be barred by limitation at least till May 24, 2020. 140. While it is true that default in payment of a debt triggers the right to initiate the Corporate Resolution Process, and a Petition under Section 7 or 9 of the IBC is required to be filed within the period of limitation prescribed by law, which in this case would be three years from the date of default by virtue of Section 238A of the IBC read with Article 137 of the Schedule to the Limitation Act, the delay in filing a Petition in the NCLT is condonable under Section 5 of the Limitation Act unlike delay in filing a suit. Furthermore, as observed above Section 14 and 18 of the Limitation Act are also applicable to proceedings under the IBC. 141. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents. Needless however, to mention that depending on the facts and circumstances of the case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order. In our considered view, the decision of the Adjudicating Authority to entertain and/or to allow the request of the Appellant Bank for the filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in Appeal. 113. As per Section 18 of Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the date of the statement. In construing words used in the statements made in writing on which a plea of acknowledgment rests oral evidence has been expressly excluded but surrounding circumstances can always be considered. Stated generally courts lean in favour of a liberal construction of such statements though it does not mean that where no admission is made one should be inferred, or where a statement was made clearly without intending to admit the existence of jural relationship such intention could be fastened on the maker of the statement by an involved or far-fetched process of reasoning. Broadly stated that is the effect of the relevant provisions contained in Section 19, and there is really no substantial difference between the parties as to the true legal position in this matter. 118. It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act. In Asset Reconstruction Company (India) Limited v. Bishal Jaiswall (supra) authored by Nariman, J. this Court quoted with approval the judgments, inter alia, of Bengal Silk Mills Co. v. Ismail Golam Hossain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (2) thereof provides that the Application shall be in the Form and manner as prescribed. Sub-section (3) obligates the financial creditor to furnish the record of default recorded with the information utility or such other record or evidence of default as may be specified, along with the Application. On the basis of records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3), the Adjudicating Authority within a period of 14 days shall ascertain the existence of a default, as stipulated under sub-section (4). According to sub-section (5), the Adjudicating Authority may admit the Application filed under sub-section (2), where the Adjudicating Authority is satisfied that a default has occurred, the Application filed is complete and no disciplinary proceedings are pending against the proposed resolution professional. As per sub-section (6), the corporate insolvency resolution process shall commence from the date of admission of the Application. 16. Rule 4 of the 2016 Rules prescribes that the Application under 7 of the Code shall be filed in form 1, accompanied by documents and records required therein and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither admitting or dismissing the Application has been passed. While concluding, this Court had opined that in case of inordinate delay, the Adjudicating Authority, at its discretion, may allow or decline the request of the applicant to file additional pleadings and/or documents before passing the final Order. 18. While examining the question of maintainability of an application filed under Section 7 of the Code in the absence of a plea regarding the acknowledgment of liability, this Court in Asset Reconstruction Company (India) Limited v. Bishal Jaiswal Anr., gave an opportunity to the financial creditor to amend its pleadings before the NCLAT on payment of costs of ₹ 1 lakh. In the said case, the corporate debtor's account was declared as NPA from 2010. The NCLT admitted the Application under Section 7 on the ground that there was a continuing cause of action. The NCLAT dismissed the Appeal of the corporate debtor on the ground that limitation would commence from the date on which the Code came into force, i.e., 01.12.2016. This Court remanded the matter back to the NCLAT to re-examine the question of limitation. After remand, the NCLAT allowed the Appeal filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 7 of the Code is maintainable only with respect to debts that are not time-barred. (See: B.K. Educational Services Private Limited v. Parag Gupta and Associates) The primary obligation of making out a prima facie case of default is on the financial creditor. There is no necessity for the corporate debtor to provide any information at the stage of admission of the Application under 7 of the Code, as the burden of showing non-payment of a legally recoverable debt, which is not time-barred, is on the financial creditor. At the same time, it is clear from the judgments of this Court in Asset Reconstruction (supra) and Dena Bank (supra) that non-furnishing of information by the financial creditor at the time of filing an application under Section 7 of the Code need not necessarily entail in dismissal of the Application. An opportunity can be provided to the financial creditor to provide additional information required for satisfaction of the Adjudicating Authority with respect to the occurrence of the default. (emphasis supplied) 11. If we analyse facts of this case in the light of the ratio of the about mention decisions of the Hon'ble Supreme Court, then the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed. 11.5 Therefore, in the instant case, the balance sheet that has been brought on record in the instant case before the Adjudicating Authority shall be taken into consideration while deciding the question of limitation and default on the part of the Corporate Debtor. The said documents cannot be ignored simply on the premise that it is not pleaded in the Application filed in Form-1 for initiation of the Corporate Insolvency Process. 11.6 We find that the balance sheet for the financial year ending on March 31 2017, was part of the record before the learned Adjudicating Authority and was annexed with Section 7 Application, which was also duly admitted by the Appellant during the hearing. Subsequently, the balance sheet for the financial year ending will March 31 2019, was annexed with the reply filed by Respondent No. 1 before this Hon'ble Tribunal on March 02, 2020. However, as the practice and procedure of this Hon'ble Tribunal, the same was not accepted at the filing counter without the specific mention of this Hon'ble Tribunal. Accordingly, a copy of the Application for the additional document is also annexed as Annexure A. Subsequently; this Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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