The Supreme Court bench comprising Justices Indira Banerjee and J.K. Maheshwari was hearing an Appeal on Monday on the issue of limitation and held that the Application under section 7 of the Insolvency and Bankruptcy Code, 2016, would not be barred by limitation if there is an acknowledgement of the debt by the Corporate Debtor before the expiry of the period of limitation of three years.
In the present case, the amount of the Corporate Debtor was declared NPA on 1st December 2008. By a letter dated 7th February 2011, written well within three years, the Corporate Debtor acknowledged its liability and proposed a settlement. This was followed by several requests for an extension of time to make payment and revised settlements. On 6th April 2013, the Corporate Debtor sought an extension of time to pay Rs.239,88,27,673 outstanding as on 31st March 2013. On 19th April 2013, the Corporate Debtor made a payment of Rs.17,50,00,000/-. On 1st July 2013, the Corporate Debtor acknowledged its liability after the Appellant-Financial Creditor revoked the settlement invoking the default clause. The Corporate Debtor admitted its liabilities in its financial statements from 2008-09 till 2016-17. The application under Section 7(2) of the IBC was filed on 3rd April 2018, well within the extended period of limitation.
The Corporate Debtor apparently acknowledged its liabilities towards the Appellant in its Financial Statements from 2008-09 to 2016-17. The Appellant-Financial Creditor filed an Application to bring on record additional documents which were part of the records below including the copies of the financial statements.
Mr. Neeraj Kishan Kaul, Senior Advocate appearing on behalf of the Appellant, rightly submitted that the Financial Statements provide a true and fair view of the state of affairs of a company in view of Sections 128 and 129 read with Section 134 of the Companies Act 2013 as also Sections 210, 211, 215, 216 and 217 of the Companies Act, 1956.
On 3rd April 2018, the Appellant, as Financial Creditor, filed an application under Section 7(2) of the IBC in the National Company Law Tribunal (NCLT), Mumbai for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor which was registered and numbered CP (IB) No. 532 of 2018.
The Corporate Debtor filed a Miscellaneous Application being Misc. App. No. 693 of 2018 in CP (IB) No. 532 of 2018 before the NCLT, Mumbai praying for dismissal of the application of the Appellant under Section 7(2) of the IBC, inter alia, contending that the application was barred by limitation. By an order dated 1st May 2019, the Adjudicating Authority (NCLT), Mumbai dismissed the said Miscellaneous Application filed by the Corporate Debtor.
By an order dated 31st May 2019, the Adjudicating Authority (NCLT) admitted the said application under Section 7(2) of the IBC and appointed Mr. Anish Nanavaty as the Interim Resolution Professional (IRP). The Committee of Creditors confirmed the appointment of Mr. Anish Nanavaty as the Resolution Professional of the Corporate Debtor.
The Corporate Debtor filed an Appeal being Company Appeal (AT) (Insolvency) No. 525 of 2019 before NCLAT against the order dated 1st May 2019, dismissing the Miscellaneous Application filed by the Corporate Debtor, seeking dismissal of the application of the Appellant Financial Creditor under Section 7(2) of the IBC.
The NCLAT held, “23. In the present case, ‘Asset Reconstruction Company (India) Ltd.’- (‘Financial Creditor’) has failed to bring on record any acknowledgement in writing by the ‘Corporate Debtor’ or its authorised person acknowledging the liability in respect of the debt. The Books of Account cannot be treated as an acknowledgement of liability in respect of debt payable to the ‘Asset Reconstruction Company (India) Ltd.’- (‘Financial Creditor’) signed by the ‘Corporate Debtor’ or its authorised signatory.
In fact, the case of ‘Asset Reconstruction Company (India) Ltd.’- (‘Financial Creditor’) is covered by its own decision in “Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. And Another”, REED 2019 SC 09502.
The Adjudicating Authority has failed to appreciate the aforesaid fact, that the impugned order dated 1st May, 2019 rejecting the objections of the ‘Corporate Debtor’ and the impugned order dated 31st May, 2019 passed by the Adjudicating Authority admitting the application under Section 7 are set aside. ‘V. Hotels Limited’- (‘Corporate Debtor’) is released from all the rigours of law and is allowed to function independently through its Board of Directors from immediate effect. The ‘Interim Resolution Professional’/ ‘Resolution Professional’ will submit its fees and costs of ‘Corporate Insolvency Resolution Process’ before the Adjudicating Authority who will determine the same and amount as is payable is to be paid by ‘Asset Reconstruction Company (India) Ltd.’ who moved an application under Section 7 which was not maintainable. The ‘Interim Resolution Professional’ will hand over the management, assets and records to the Board of Directors.
Both the appeals are allowed. No costs.”
The Supreme Court observed that an Application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA if there were an acknowledgement of the debt by the Corporate Debtor before the expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years.
For the above reasons, the impugned judgment and order were unsustainable in law and facts. The Appeals were, accordingly allowed, and the impugned judgment and order of the NCLAT were set aside.