The Supreme Court on Wednesday ruled that plea by a financial creditor for initiation of insolvency process against a corporate debtor before the adjudicating authority will not get time-barred on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account as NPA.
The bench said, in our considered opinion an application under Section 7 of the Insolvency and Bankruptcy Code (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.
It said that the impugned judgement and order of NCLAT is unsustainable in law and facts and allowed the appeal. The bench said that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with the application under the provision of the IBC in Form-1.In the absence of any express provision which either prohibits 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, it said. The top court, however, said that depending on the facts and circumstances of the case, when there is an 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.
The SC was of the view that 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, it said. They further stated that a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the financial creditor, would give rise to a fresh cause of action, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, if the dues remain unpaid.
It said that the National Company Law Tribunal (NCLT), Bengaluru had rightly admitted the application of the bank by its order dated 21 March 2019. 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, it said.
It said that there is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the NCLT but 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 of the said Act. 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, it said.
Dena bank has moved the top court in an appeal against 18 December 2019 order of NCLAT setting aside an order of 21 March 2019, passed by NCLT, Bengaluru admitting the application of the bank for initiation of insolvency proceedings against company Kaveri Telecom Infrastructure Limited and its director.
On 20 September 2013, the corporate debtor defaulted in repayment of its dues to the bank and the loan account of the company was, therefore, declared Non-Performing Asset (NPA) on 31 December 2013.