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TMI Blog2023 (7) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... ort 'UTL') ('Corporate Debtor'). 2. Heard the Counsel for Parties and perused the records made available including cited judgments. 3. Learned Counsel for the Appellant gave the background of the case and circumstances which led to the present appeal. The Appellant i.e. Asset Reconstruction Company (India) Limited (in short 'ARCIL') is registered with RBI under Section 3 of SARFAESI Act, 2002. It is the case of the Appellant that the Corporate Debtor/ UTL had taken loans originally from Industrial Finance Corporation of India Limited ('IFCIL') and Investment Corporation of India Limited ('ICICI') in 1992 of an amount of Rs. 41.50 crores and the loan documents were registered on 09.03.1995 and 12.12.1996 between the Corporate Debtor, IFCIL and ICICI respectively. ICICI assigned the debt to the 'Appellant' on 31.03.2004 and IFCIL assigned the debt on 12.01.2007 and therefore, the underlying securities and incidental rights thereto are vested in favour of the Appellant herein. 4. It is further the case of the Appellant that the Corporate Debtor initiated proceedings under Sick Industrial Companies (Special Provisions Act, 1985) (in short 'SICA') before the Board for Industrial and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant stated that despite all efforts, the 'Appellant' was not getting payment of outstanding dues from the Corporate Debtor. Hence, on 22.11.2018, the Appellant issued a letter for Revocation of Terms of Settlement due to non-compliance on the part of Corporate Debtor. 0n 27.11.2018, the Appellant filed an application under Section 7 bearing No. CP (IB) No. 1953/KB/2018 for an amount of Rs. 2,05,83,38,883/-, however, the Adjudicating Authority, vide Impugned Order dated 17.03.2020, dismissed the Company Petition, filed under Section 7 of the Code, primarily on the ground of limitation. Learned Counsel for the Appellant assailed the Impugned Order wherein the Adjudicating Authority did not consider the exclusion of period from limitation period in terms of Section 22(5) of SICA and misinterpreted the judgment of the Hon'ble Supreme Court of India in the matter of Jignesh Shah & Ors. Vs. Government of India and also ignored the provisions of Section 29 of the Limitation Act, 1963. 10. Learned Counsel for the Appellant stated that their application is within Limitation. Learned Counsel for the Appellant submitted that in terms of Section 22 (5) of SICA, the limitation for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 18 of Limitation Act, 1963 and the 'Appellant' relied upon the Judgment in M/s Mahabir Cold Storage Vs. C.I.T. Patna [(1991 Supp (1) SCC 402], A.V. Murthy Vs. B.S. Nagabasavanna [(2002) 2 SCC 642], Usha Rectifier Corporation (India) Limited Vs. Commissioner of Central Excise, New Delhi [(2011) 11 SCC 571] and S. Natarajan Vs. Sama Dharman [MANU /SC/0698/2014] to support his case. 16. Learned Counsel for the Appellant also assailed the order of the Adjudicating Authority who did not take into account submissions made by the Respondents that they were willing to pay Rs. 21 Crores to the Appellant which clearly established the fact regarding debt and due and therefore his application under Section 7 of the Code should have been accepted. 17. Summarising his arguments, Learned Counsel for the Appellant stated that his appeal should be allowed and Impugned Order be set aside. 18. Per-contra, Learned Counsel for the Respondents denied all the averments of the Appellant. 19. Learned Counsel for the Respondents stated that the loan account of Respondents (UTL) was classified as NPA prior to 20.11.2007, as the notice under Section 13(2) of SARFAESI Act, 2002 was issued to UTL on 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pta and Associates [(2019) 11 SCC 633], Innoventive Industries Ltd. Vs. ICICI Bank [(2018) 1 SCC 407], Jignesh Shah & Anr. Vs. Union of India & Anr. [(2019) 10 SCC 750] and Sagar Sharma Vs. Phoenix ARC (P.) Ltd. [(2019) 110 Taxmann 50 (SC)]. 25. Learned Counsel for the Respondent also assailed the conduct of the Appellant who is seeking to exclude the period during which reference under Section 15 r/w Section 16 of SICA was pending before the BIFR in relation to the Respondent which was abated in 2013 and as per the limitation period need to be computed from the year 2016 i.e., coming into existence of the Code. Learned Counsel for the Respondent stated that such interpretation will lead to absurdity. In this regard, Learned Counsel for the Respondents cited judgment of Jignesh Shah & Anr. (Supra) where it was held that ability or inability of financial creditor to avail separate independent remedy cannot, in any manner, impact the limitation for the purpose of period of limitation for initiating proceeding under Section 7, hence, Learned Counsel for the Respondent submitted that mere operation of Section 22 (1) of SICA would not stop the period of limitation running during the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the date of default, which in the present case is long back and therefore it is barred by limitation. 30. Concluding his averments, Learned Counsel for the Respondents pleaded for dismissal of this appeal with cost. 31. From the averments by both the parties, this Appellate Tribunal noted the following issues which are required to be deliberated to decide the present appeal. These main issues are as under :- (I) Whether the application of the Application under Section 7 of the Code before the Adjudicating Authority was barred by limitation or otherwise. (II) Whether the entries in the balance sheets tantamount to acknowledgments of debt for purpose of extending the limitation. (III) Whether the letter dated 11.11.2016 of UTL/ Uniworth Group can be relied upon as an admission of acknowledgment of alleged dues. 32. Since, all these three issued are interconnected, we will deal with them jointly in following discussions. ➢ It is the case of the Appellant that the Corporate Debtor filed the proceedings before BIFR in 2004 which remained pending till 2013 and subsequently were abated by AAIFR vide order dated 22.05.2013. ➢ We also take into account the avermen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under implementation or where an appeal under section 25 relating to an industrial company is pending then, notwithstanding anything contained in the Companies Act, 1936 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof /and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. (5) In computing the period of limitation for the enforcement of any right, privilege obligation or liability. the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded." (Emphasis Supplied) ➢ These sections of SICA are important reflection for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et from the period 31.03.2007 to 31.03.2019. ➢ Per contra, the Respondent has denied that he made any acknowledgments in its books/Balance Sheets. It is the case of the Respondent that merely mentioning of alleged debt cannot and should not be construed as acknowledgments since the same was disputed in the Directors report. As per the Respondent pendency of an original application under the Provision of RDB Act could not in any manner affect the running of period of limitation for initiating proceedings under Section 7 of the Code. ➢ We note from the impugned order that the Adjudicating Authority has discussed applicability of Section 14(1) of the Limitation Act, 1963, according to which the Financial Creditor had to prove that reference to BIFR by the Corporate Debtor was a wrong forum. The Adjudicating Authority held that BIFR was a correct forum and therefore, Section 14(1) and 14(2) of the Limitation Act, 1963 are not satisfied which would entitle the Appellant herein, to exclude the period of limitation. The Adjudicating Authority also referred to Judgment of 'Jignesh Shah' (supra) wherein it was held that a suit for recovery based upon a cause of action that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion filed under Section 9, IBC the period during which the operational creditor's right to proceed against or sue the corporate debtor that remain suspended by virtue of Section 22 (1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22 (5) of SICA? 39. When the limitation period for initiating CIRP under the section 9, is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor, is three years as provided by section 137 of the Limitation Act, 1963 and the same would commence from the date of default and is extendable only by application of section 5 of the Limitation Act, 1963 it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation. 40. As relates Section 5 of the Limitation Act showing 'sufficient cause' is the only criterion for condoning delay. 'Sufficient Cause' is the cause for which a party could not be blamed. We have already taken note of the legal bar for initiation of proceedings against an industrial company by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16-2017, in Annexure-A to the Auditors Report in (VIII). Following is recorded: "The Company has defaulted in repayment of dues to financial institutions, banks and debenture holders as under: As per Original Agreement, all the following loans have become due for repayments. However, the Company's negotiations with the term lenders for rescheduling/restructuring is in process : Nature of Financial Assistance Amount (Rs. In Lakhs) Term loan Financial Institution ICICI Principal Interest IFCI 2010.262737.21 Principal Interest 1472.26 2919.18 In the same Annual Report of 2016-17 under Notes to the Financial Statements in Note No. 28 following is recorded: a) The Board for Industrial and Financial Reconstruction (BIFR) stands dissolved with effect from 1st December, 2016. Hence all references made by the company to the BIFR/AAIFR and the matters relating the rate and/ or arising of stands cancelled. However, the Company is exploring possibilities of registering with the National Company Law Tribunal (NCLT) with a suitable resolution scheme. b) The Secured lenders of the Company have assigned their debts, together with all security interests and rights, to Asset Reconstr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt for the purpose of extending limitation under Section 18 of the Limitation Act. ➢ We would like to, therefore, take into consideration the relevant paragraphs from the Bishal Jaiswal (Supra), where the issue whether an entry made in a balance-sheet of a Corporate Debtor would amount to an acknowledgment of liability under Section 18 of the Limitation Act was considered and the Hon'ble Supreme Court in this case decided the issue of acknowledgment in the same case and observed as follows:- "14. Several judgments of this Court have indicated that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgment of liability within the meaning of Section 18 of the Limitation "Act. Thus, in Mahabir Cold Storage v. CIT, 1991 Supp (1) SCC 402, this Court held : 12. The entries in the books of accounts of the appellant would amount to an acknowledgment of the liability to M/s 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....." "22. A perusal of the aforesaid Sections would show that there is no doubt that the filing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed Assets Stabilisation Fund, 2020 SCC OnLine NCLAT 417] is contrary to the aforesaid catena of judgments. The minority judgment of Justice (Retd.) A.I.S. Cheema, Member (Judicial), after considering most of these judgments, has reached the correct conclusion. We, therefore, set aside the majority judgment of the Full Bench of NCLAT dated 12-3-2020 [V. Padmakumar v. Stressed Assets Stabilisation Fund, 2020 SCC OnLine NCLAT 417] . (Emphasis Supplied) ➢ In this connection, since the above judgment of Hon'ble Supreme in Bishal Jaiswal (Supra) upheld the minority view of Justice A.I.S. Cheema, it would be desirable to note the relevant paras of minority judgement of Justice A.I.S. Cheema in NCLAT Judgement which reads as under :- "40. Thus, I find it is settled law appearing from the Judgments of the High Court of Delhi and other High Courts that Balance Sheets can be looked into to see if there is acknowledgement of debt. Perusing Judgments of Hon'ble Supreme Court I find that even Hon'ble Supreme Court has looked into Balance Sheets and Books of Account to see if there is Acknowledgement of Liability. If the amount borrowed is shown in the Balance Sheet, it ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of dues and therefore figures of borrowed amount in the Balance Sheet could not be considered as of the claims of lender. ➢ On the face of these facts and recording by the management, it cannot be straight away considered as clear unconditional acknowledgement of debt. Therefore, this Appellate Tribunal would like to go into further records connected with the same debt i.e., pre 2016-17 Balance Sheet and post 2016-17 Balance Sheet with a view to understand whether such dispute has been recorded by the management from day one or can be construed as single/ few/ stray/ isolated caveats. ➢ In the said Balance Sheet of 2015-16 in Annexure A to the Auditor's Report to the members of Uniworth Textile Ltd. for the period ended 31st March, 2016 in Para VIII, the Corporate Debtor has recorded 'the company has defaulted in repayment of dues through financial institutions, banks and debenture holders as under:- "As per original agreement, all the following loans have become due for repayments. However, the company's negotiations with the term lenders for rescheduling/ restructuring is in process.' In the same, in para VIII, the name of ICICI has been clearly recorded. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat denial of debts by the Corporate Debtor. ➢ Therefore, we take into account following excerpts from the Balance Sheets from 2014-15 to 2018-19 (excerpts taken from various documents marked in Appeal Paper Book) :- Year Directors Report (Objection) 2014-15 Pg.- 1554 Director's Report (Board View): During the year Under Review the Company continued to be under BIFR as a Sick Industrial Undertaking. The matter is sub-judice before the Court of Law. All compliances with the stock exchanges are updated and in respect of the status of the company being shown as "Suspended" by BSE Limited and the Calcutta Stock Exchange Limited, the company has taken up the matter with both the exchanges as the company is in compliance with the Listing Agreement. The Company has disputed the repayment of due. The loss and damages caused to the borrower by the lender is much more than the amount lent. Hence, figures of the borrowed amount shown in the balance sheet after due adjustments with the said loss and damages may result in entitlement to recover substantial amount from the lender. Under these facts and circumstances, the figures of borrowed amount In this balance sheet cannot be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ender is much more than the amount lent. Hence, figures of the borrowed amount shown in the balance sheet after due adjustments with the said loss and damages may result in Do Debt Due, rather the borrower is entitled to recover substantial amount from the lender. Under those facts and circumstances, the figures of borrowed amount in this balance sheet cannot be considered as admission, if any, of the claim of lender(s). Pg- 1665 Independent Auditor's Report (viii) The Company has defaulted in repayment of dues to financial institutions, banks and debenture holders as under: As per Original Agreement, all the following Loans have become due for repayments. However, the Company's negotiations with the term lenders for rescheduling / restructuring Is In process: Nature of Financial Assistance Amount (In Lacs) Period of Default Whether the company has defaulted in repayment of loans or borrowing to a financial institution, bank , Government or dues to debenture holders ? If yes, the period and the amount of default to be reported (in case of defaults to banks, financial institutions, and Government, lender wise details to be provided). a. Term Loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsustainable. 2018-19 Pg- 1890 Directors Report (Boards View) The company has filed suit for enforcement of specific performance of the Agreement on the same line as in the case of major lenders. The company has disputed the claims of the lender or creditors being unsustainable. ➢ It is seen that in Balance Sheets from 2007-08 to 2013-14 apparently no dispute regarding that seem to have been recorded in absolute terms. We have already noted that in the Balance Sheet of the period 2014-15 to 2015-16, indeed in the Director's Report the amount was disputed in parallel to the recording the facts regarding intention of the Corporate Debtor to seek resolution of the dispute along with these denial of claim. In 2016-17 Balance Sheet Board of Directors took note of the fact regarding repealing of SICA and their intention to explore possibility of registering with the NCLT with a suitable Resolution Scheme and the similar intent was express in the Balance Sheet of 2017-18. ➢ It is seen that there have been no remarks pertaining to debt being disputed in the Director's Report of the Financial Year 2018-19. ➢ Therefore, it may be inferred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore out of which Rs. 51.10 Crores was paid. These letters were issued by the individual companies of the Uniworth Group, may be on behalf of all Group companies, however offering company wise specific settlement amount. In view of true spirit of such genuine desire to settle on behalf of the Corporate Debtor, the alleged difference between individual corporate settlement versus group settlement is found to be rather technical in nature and is not found appropriate legal barrier in treating such letters as acknowledgement letters, thereby extending the limitation period fresh from issue of such letter. 33. In view of detailed analysis and taking into account the various judgments of Hon'ble Supreme Court of India, this Appellate Tribunal and various provisions of the relevant laws, we hold that the Adjudicating Authority erred in rejecting the application filed under Section 7 of the Code by the Appellant on the ground of limitation. 34. We also make it clear that we are not expressing any opinion(s) regarding the merit(s) of the case and the same need to be decided by the Adjudicating Authority uninfluenced by any of the observations of this Appellate Tribunal. 35. The Appeal th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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