TMI Blog2022 (8) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... applies only where the debt is one which would be enforceable against the defendants, but for the law of limitation. Where a debt is not binding on the defendant for other reasons, and consequentially not enforceable against him, there is no question of applicability of Section 25(3). The provisions of the IBC are designed to ensure that the business and/or commercial activities of the Corporate Debtor are continued by a Resolution Professional, post imposition of a moratorium, which would give the Corporate Debtor some reprieve from coercive litigation, which could drain the Corporate Debtor of its financial resources. This is to enable the Corporate Debtor to improve its financial health and at the same time repay the dues of its creditors - The IBC is not just another statute for recovery of debts. Nor is it a statute which merely prescribes the modalities of liquidation of a Corporate body, unable to pay its debts. It is essentially a statute which works towards the revival of a Corporate body, unable to pay its debts, by appointment of a Resolution Professional. IBC has overriding effect over other laws. Section 238 of the IBC provides that the provisions of the IBC shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANERJEE And J. K. MAHESHWARI , JJ. FOR THE PETITIONER : ARAVINDH S. JUDGMENT INDIRA BANERJEE, J. This appeal filed by the Appellant Financial Creditor, Kotak Mahindra Bank Limited under Section 62 of the Insolvency and Bankruptcy Code, 2016, hereinafter referred to as the IBC , is against the judgment and order dated 8th January, 2020 of the National Company Law Appellate Tribunal, New Delhi (NCLAT) allowing Company Appeal (AT) Insolvency No. 1349 of 2019 filed by the Respondent-Corporate Debtor, against an order dated 6th September, 2019 passed by the Adjudicating Authority/National Company Law Tribunal (NCLT) admitting the application being Company Petition No.(IB) 672/ND/2019 filed by the Appellant Financial Creditor under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporator Debtor. 2. The Corporate Debtor carries on business of manufacture of tempo and tractor components. In or about 2012-2013, the Corporate Debtor decided to expand its business and operations and entered into negotiations with bankers for finance for the proposed expansion. 3. According to the Corporate Debtor, some-time in Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .00 Lakhs (submit of CC) iv. Term Loan I : Rs.240 Lakhs v. Term Loan II : Rs.334.00 Lakhs vi. Term Loan III : Rs.426.00 Lakhs iv. Conditional WCDL : Rs.200.00 Lakhs Total Exposure : Rs. 2036 Lakhs 10. According to the Appellant Financial Creditor, the Corporate Debtor defaulted in making repayment of its dues to the Financial Creditor. The Appellant Financial Creditor, therefore, declared the Account of the Corporate Debtor as non-performing asset (NPA) on 30th September 2015. On 9th October, 2015, the loan was recalled by the Appellant Financial Creditor. 11. On 19th November 2017, the Appellant Financial Creditor issued statutory notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, hereinafter referred to as the SARFAESI Act. 12. On 12th December 2018, the Corporate Debtor admitted its liability to the Appellant Financial Creditor and offered a one time settlement for a sum of Rs.15,00,00,000/- (Rupees fifteen crores only) to be paid within 31st December, 2018. On 19th December 2018, the Corporate Debtor again admitted its liability to the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time spent in pursuing remedy under the SARFAESI Act or any other recovery law cannot be excluded. It is also well settled that initiation of proceedings under SARFEASI or any other recovery law does not affect the right of a Financial Creditor to initiate CIRP unless its debt is repaid. 17. The Corporate Debtor defaulted in payment of Rs.24,55,00,000/- to the appellant Financial Creditor as agreed. In these circumstances, the appellant Financial Creditor filed the said application being Company Petition No. (IB) 672/MD/2019 in the NCLT. 18. The said application was admitted by an order dated 6th September, 2019 of the Adjudicating Authority (NCLT). The Adjudicating Authority found that the account of the Corporate Debtor with the Appellant Financial Creditor had been declared NPA on 30th September 2015. The Appellant Financial Creditor was, however, relying on the proposal for one time settlement given by the Corporate Debtor on 12th December, 2018 to contend that the existence of financial debt had been admitted by the Corporate Debtor. 19. From the order dated 6th September, 2019 of the Adjudicating Authority, it appears that the Financial Creditor had been relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution Process under I B shows that the amount claimed to be default as on 17.11.2015 was Rs. 18,65,05,035.86 and that the default took place in June, 2015. However, as on 27.11.2018 the outstanding balance was mentioned as Rs. 46,63,35,337.31. xxx xxx xxx 38. It must be borne in mind and Article 62 of the Limitation Act, 1963 relates to enforcing the payment of money procured by mortgaged or otherwise charged upon the immoveable property. A suit to enforce a mortgage is governed by Article 62 and has to be filed within 12 years from the date when the money became due unless the limitation period prescribed was extended under any other provision of the Limitation Act. Article 137 of the Limitation Act constitutes the residuary article as regards the application. To put it succinctly, Article 113 pertains to the Suits , the Article 137 relates to Applications . The language of Article 137 clearly postulates that the applicability of the said article will be restricted to the applications not mentioned in the 3rd division of the schedule to the Limitation Act, 1963. xxx xxx xxx 41. In so far as Section 18 of the Limitation Act 1963 pertaining to the effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght Forum viz. Debt Recovery Tribunal, Delhi for recovery of its dues and Corporate Debtor etc. xxx xxx xxx 47. In regard to the plea of the 1st Respondent/Bank that on 26.03.2016, a complaint was made by the Corporate Debtor against the Bank for not rejecting their debts and in the said letter there was an admission of debt liability, it is to be pointed out that the same cannot come to the rescue of the Bank because of the fact that the debt of non-payment of dues by the Corporate Debtor took place in June, 2015 and Section 7 application was filed by the 1st Respondent / Bank before the Adjudicating Authority on 30.01.2019 which is beyond the period of limitation as enshrined in Article 137 of the Limitation Act. Also that in the decision Kalpana Trading Co. Vs. Executive Officer Town Panchayat AIR 1999 Mad37, it is observed that just sending a letter to the higher authorities to settle the issues does not amount to an Acknowledgement . 24. The operative part of the judgment and order is set out hereinbelow : 54. In the result, the Corporate Debtor M/s Kew Precision Parts Pvt. Ltd. is released from the rigour of the Corporate Insolvency Resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e default occurred, would not save limitation. 27. It is the case of the Appellant Financial Creditor that on 12th December 2018 the Corporate Debtor made an offer of one time settlement at Rs.15 Crores. This offer was not accepted. On 19th December 2018, the Corporate Debtor revised its offer to Rs.20 Crores for one time settlement. This offer was also not accepted. On 20th December 2018, the Corporate Debtor again revised its offer for one time settlement. This time the Corporate Debtor offered to settle the outstanding dues of the Financial Creditor upon payment of Rs. 24,55,00,000/- to be paid within 31st December 2018. This offer was accepted, and terms of settlement were signed. 28. Section 25 of the Indian Contract Act provides as follows :- 25. Agreement without consideration, void, unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law.-An agreement made without consideration is void, unless-An agreement made without consideration is void, unless- (1) It is expressed in writing and registered under the law for the time being in force for the registration of documents, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears that Section 25(3) of the Indian Contract Act was not brought to the notice of the NCLAT. The NCLAT also did not consider the aforesaid Section. 30. In this appeal, it is contended that the last offer of 20th December, 2018 was followed by an agreement. Whether there was such agreement or not would have to be considered by the Adjudicating Authority. To invoke Section 25(3), the following conditions must be satisfied:- (i) It must refer to a debt, which the creditor, but for the period of limitation, might have enforced; (ii) There must be a distinct promise to pay such debt, fully or in part; (iii) The promise must be in writing, and signed by the debtor or his duly appointed agent. 31. Under Section 25(3), a debtor can enter into an agreement in writing, to pay the whole or part of a debt, which the creditor might have enforced, but for the limitation of a suit in law. A written promise to pay the barred debt is a valid contract. Such a promise constitutes novation and can form the basis of a suit independent of the original debt, for it is well settled that the debt is not extinguished, the remedy gets barred by passage of time as held by this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 239 read with Sections 7, 8, 9 and 10 of the IBC, a financial creditor is required to apply in the prescribed Form 1 for initiation of the Corporate Insolvency Resolution Process, against a Corporate Debtor under Section 7 of the IBC, accompanied with documents and records required therein, and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, hereinafter referred to as the 2016 IB Board of India Regulations. 37. Statutory Form 1 under Rule 4(1) of the 2016 Adjudicating Authority Rules comprises Parts I to V, of which Part I pertains to particulars of the Applicant, Part II pertains to particulars of the Corporate Debtor and Part III pertains to particulars of the proposed Interim Resolution Professional. Parts IV and V which require particulars of Financial Debt with Documents, Records and Evidence of default, is extracted hereinbelow:- PART IV PARTICULARS OF FINANCIAL DEBT 1 TOTAL AMOUNT OF DEBT GRANTED DATE(S) OF DISBURSEMENT 2 AMOUNT CLAIMED TO BE IN DEFAULT AND THE DA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 noncompliance 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. 40. 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 is pending against the proposed resolution professional, it may, by order, reject such application, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends. 44. IBC has overriding effect over other laws. Section 238 of the IBC provides that the provisions of the IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law, for the time being in force, or any other instrument, having effect by virtue of any such law. 45. Unlike coercive recovery litigation, the Corporate Insolvency Resolution Process under the IBC is not adversarial to the interests of the Corporate Debtor, as observed by this Court in Swiss Ribbons Private Limited v. Union of India (supra). 46. On the other hand, the IBC is a beneficial legislation for equal treatment of all creditors of the Corporate Debtor, as also the protection of the livelihoods of its employees/workers, by revival of the Corporate Debtor through the entrepreneurial sk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n within the period prescribed by limitation. 52. The condition precedent for condonation of the delay in filing an application or appeal, is the existence of sufficient cause. Whether the explanation furnished for the delay would constitute sufficient cause or not would be dependent upon facts of each case. 53. Section 5 of the Limitation Act, 1963 does not speak of any application. The section enables the court to admit an application or appeal if the applicant or the appellant, as the case may be, satisfies the court that he had sufficient cause for not making the application and/or preferring the appeal, within the time prescribed. A Court/Tribunal may exercise its discretion to condone delay, even in the absence of a formal application. 54. In Sesh Nath Singh Anr. Vs. Baidyabati Sheoraphuli Cooperative Bank Ltd. (2021) 7 SCC 313, authored by one of us (Indira Banerjee, J.), this Court held:- 64. Similarly under Section 18 of the Limitation Act, an acknowledgment 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 of a fres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section. 55. There is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the Adjudicating Authority (NCLT). An application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the Schedule to the said Act. Under Article 137 of the Schedule to the Limitation Act, the period of limitation prescribed for such an application is three years from the date of accrual of the right to apply. 56. There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default. In Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. (2019) 10 SCC 572 authored by Nariman, J. this Court held:- 6. ...The present case being an application which is filed under Section 7, would fall only within the residuary Article 137. 57. In B. K. Educational Services Private Limited (supra), this Court speaking through Nariman, J. held:- 42. It is thus clear that since the Limitation Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ji Gurjar (supra) was rendered in the facts and circumstances of that case where there were no pleadings at all. As held by this Court in Dena Bank (supra), an application under Section 7 of the IBC in statutory form which requires filling in of particulars cannot be judged by the same standards as a plaint or other pleadings in a court of law. Additional affidavits filed subsequent to the filing of the application, by way of additional affidavits or applications would have to be construed as pleadings, as also the documents enclosed with or relied upon in the application made in the statutory format. Furthermore, pleadings can be amended at any time during the pendency of the proceedings. 62. 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 by implication. However, the acknowledgement must be made before the relevant per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal and Anr. AIR 2021 SC 5249 (supra) authored by Nariman, J. this Court quoted with approval the judgments, inter alia, of Bengal Silk Mills Co. v. Ismail Golam Hossain Arif, AIR 1962 Cal 115 and in Re Pandem Tea Co. Ltd. AIR 1974 Cal 170 , the judgment of the Delhi High Court in South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana ILR (1972) 2 Del 712 and the judgment of Karnataka High Court in Hegde Golay Ltd. v. State Bank of India ILR 1987 Kar 2673 and held that an acknowledgement of liability that is made in a balance sheet can amount to an acknowledgement of debt. In this Case, the Appellant Financial Creditor has not relied on any books of accounts or Balance Sheets of the Corporate Debtor. 65. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Tribunal (NCLAT erred in closing the CIRP proceedings without giving the Appellant Financial Creditor the opportunity to explain if there was sufficient cause for the delay in approaching the NCLT. An appeal being the continuation of original proceedings, the provision of Section 7(5)(b) of the IBC, of notifying the Financial Creditor before rejection of a claim, would be attracted. If notified of the proposal to close the proceedings, the Appellant Financial Creditor might have got the opportunity to rectify the defects in its application under Section 7 by filing additional pleadings and/or documents. As held in Dena Bank (supra), documents can be filed at any time until the application for CIRP is finally dismissed. 71. The appeal is, therefore, allowed. The impugned judgment and order of the NCLAT is set aside to the extent that the CIRP proceedings have been closed. The Adjudicating Authority shall consider the application for CIRP afresh, in accordance with law, in the light of the observations made above, after giving the Appellant and the Respondent opportunity to file additional affidavits disclosing documents/additional affidavit in response. - - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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