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TMI Blog2023 (11) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... d the application under Section 7 of the IBC filed by Kotak Mahindra Bank Ltd-present Respondent No.1 and initiated Corporate Insolvency Resolution Process ("CIRP" in short) of the Corporate Debtor - M/s Gwalior Polypipes Ltd. Aggrieved by this impugned order, the present appeal has been filed by the erstwhile Director of the Corporate Debtor. 2. The factual matrix of the present matter is as outlined below: * State Bank of India ("SBI" in short), the original lender granted various financial assistance to the Corporate Debtor from the year 1984, which came to be renewed/enhanced/reduced from time to time. SBI vide its Arrangement Letter sanctioned renewed/reduced credit facilities aggregating to Rs.3.95 crores on 02.02.2002. * The Corporate Debtor executed an Agreement of Hypothecation of Goods and Assets in favour of the Financial Creditor. * The Corporate Debtor was declared to be NPA in 2001 having failed to pay the interest due. SBI issued a Legal Notice on the Corporate Debtor on 18.08.2003 recalling the loan facility for non-payment of dues and in 2004 filed an application against the Corporate Debtor before DRT. * Assignment Agreement came to be executed by and bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating Authority. Such caveats disputing a liability forming part of the balance sheet cannot be taken as an unqualified acknowledgment of debt. Moreover, the Adjudicating Authority has relied upon a One Time Settlement ('OTS' in short) letter to extend the limitation by wrongly assuming that the said OTS was dated 09.07.2018 while it was actually dated as 09.07.2010. Thus, reliance placed on this document was misplaced and incorrect. 5. Rebutting the submissions made by the Appellant, it was submitted by the Learned Counsel for Respondent No.1 that though the financial facility was extended by SBI originally, SBI had assigned the debts along with the underlying securities in favour of KMBL. Based upon the said assignment of debt, KMBL was substituted in place of SBI by the DRT which passed its orders on 11.10.2006 which was not challenged by the Corporate Debtor. The DRT in its order had issued interim recovery certificate which order was based on the admission of liability in the balance sheet in the books of accounts for the year 2004-05 wherein the Corporate Debtor had categorically admitted that an amount of Rs.1.81 crore was due and payable by them. It has been further conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed thereto. This would have at the utmost extended the limitation upto 2008. However, there is nothing on record in the balance sheets of the subsequent years which contained any unequivocal acknowledgment of debt which could have given rise to any fresh periods of limitation by each such acknowledgment and therefore the Adjudicating Authority committed error in rejecting the Section 7 application as barred by time. 10. In support of their contention, it was pointed out that the Hon'ble Supreme Court in the judgment of Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal (2021) 6 SCC 366 ('Bishal' in short) has categorically held that entries made in the balance sheet would amount to acknowledgment only if it is an unequivocal and unconditional entry without any note/caveat attached thereto. It has been further submitted that in the judgment of this Tribunal in CA (AT) (Ins.) 991 of 2020 in ARCIL v. Uniworth Textiles Ltd. ('Uniworth' in short) it has also been held that a caveat in the Director's Report disputing a liability forming part of the balance sheet cannot be taken as an unqualified acknowledgment of debt. Reference was also made to the judgment of this Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 13. Before we start answering as to whether limitation for filing Section 7 application had already come to an end in the present facts of the case when Section 7 petition was filed by the Appellant on 11.10.2019, it may be constructive to have a glance at Section 18 of the Limitation Act which is as reproduced below: "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 section,- (a) an acknowledgment may be sufficient though it omits to specify the exact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the Bishal judgment, the Hon'ble Supreme Court after examining the issue of entry made in the balance sheet in the context of the Limitation Act held at paragraphs 14, 35 and 46 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 " 35. A perusal of the aforesaid sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7). Equally, the auditor' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or FY 2005-06) clearly reflects the secured loan from State Bank of India at Rs. 1,81,40,225/-. In the notes of accounts thereof (Note No. 5), it is mentioned that the State Bank of India at Gwalior with whom the company was enjoying as credit facilities for its working capital requirement have since cancelled the limit and recalled the facility for its working capital requirement on 18.08.2003; and that the bank has filed a suit for a recovery of the loan before the DRT Jabalpur and the proceedings are in progress before the DRT. The same balance sheet of FY 2005-06 also reflects the corresponding figures as on 31.03.2005 also. Though the balance sheet for FY 2004-05 has not been enclosed, it has been stated that the Hon'ble DRT had issued an interim recovery certificate dated 15.03.2007 on the basis of the balance sheet for FY 2004-05. Even otherwise it is also noted that the default date is stated to be since 31.03.2001. Following that, on 02.02.2002, the Financial Creditor had revised limits and reduced that to Rs. 3.5 crores only. On 05.02.2002, the Board of Directors of Corporate Debtors had also given its ascent. But then due to further default, the Financial Creditor ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dra Bank Limited for settlement of its dues whereby it had proposed to enter into an OTS (One Time Settlement) by making a lump sum amount payment of Rs. 90 Lac. We also find that the said amount has also reflected in the balance sheet as on 31.03.2017 also and as per note No. 4.2 given in the disclosure of significant accounting policies, it has stated that the interest on unsecured loan payable to Kotak Mahindra Bank Limited has not been provided for the year as the liability amount and transfer of a security interest has been disputed. For a ready reference the entire note at 4.2 (b) is reproduced here as under: 4.2 (b) (i) Financial liabilities and borrowings: - Working capital facilities were originally sanctioned by State Bank of India Gwalior. The said loan was secured by first on all assets of the company and a personal guarantee by Managing Director, a Promoter and two Former Directors of the Company. The said working capital facilities were further secured by mortgage of land, building and plant and machinery of the units of the company. (ii) During August, 2003, State Bank of India had cancelled the limits and recalled the loans and filed a suit before the DRT Jaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in full. We are thus of the view that there is a debt above threshold limit, the payment of which is defaulted by the Corporate Debtor. The acknowledgment through balance sheet does extend the limitation period and as such we hold that the application is well within the extended limitation period and the same is maintainable. The application otherwise is complete and is in order." 19. The Adjudicating Authority has concluded after scrutinizing the balance sheet and the caveats/notice attached thereto that acknowledgments contained in the balance sheet extends the limitation period and hence the Section 7 application is well within the extended limitation period and thus maintainable. We now proceed to examine whether this finding of the Adjudicating Authority is sustainable. 20. We notice that until 31.03.2007 the outstanding amount of Rs.1.81 crore was figuring in the balance sheet of the Corporate Debtor as 'Secured Loans' as at page 785 of Appeal Paper book ('APB' in short). In the balance sheet as on 31.03.2009, the same amount continues to be shown as part of Loan Fund but as 'Unsecured Loan' as at page 793 of APB. We also find that the reason for reclassifying the loan as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom SBI, the original lender and assignment of the said debt to KMBL. To our mind, merely because the notes to the account and the director's report narrate the different stages of subsequent litigation with respect to the said unsecured loan, it cannot be said that these notes in any manner diminish the relevance and import of the debt which finds mention in the balance sheets for the purposes of Section 18 of the Limitation Act. Such caveat/information, read together with the balance-sheet do not negate the acknowledgment of that liability. Hence, in view of the facts of this case we are of the considered opinion that the judgements of this Tribunal in Uniworth supra and Abhiruchi supra do not come to the aid of the Appellant. 24. The Adjudicating Authority therefore committed no error in holding that the Section 7 application filed by the Respondent No. 1 was not barred by time there being continuous acknowledgment in their respective balance sheets of the Corporate Debtor which acknowledgment was within the meaning of Section 18 of the Limitation Act extending the period of limitation by fresh period of limitation by each acknowledgment. 25. We would however like to add that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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