2021 (1) TMI 1105 - SC - Companies Law

Supreme Court affirms NCLAT decision on time-barred IBC application, emphasizes CIRP purpose

M/s. Reliance Asset Reconstruction Company Ltd. Versus M/s Hotel Poonja International Pvt. Ltd.

The Supreme Court upheld the NCLAT's decision that the application under Section 7 of the IBC was time-barred due to limitation. It emphasized that the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to repay the loan obtained from the Assignor Bank - Non Performing Asset - Financial Debt - time limitation - HELD THAT:- It is well settled by a catena of decisions of this Court, that Article 137 of the Limitation Act gets attracted to applications filed under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application under Section 7 of the IBC, the application would be barred under Article 137 of the Limitation Act. At the highest, limitation started ticking on 27th March 2003, when a Recovery Certificate was issued by the DRT. The appellant has not disclosed any material in its application under Section 7 of the IBC to demonstrate that the application is not barred by limitation. In its application under Section 7 of the IBC, the Appellant has not shown that the debt due to the Appellant from the Corporate Debtor is not barred by limitation. The right to sue accrued on 1st April 1993 when the amount of the Corporate Debtor with the Assignor Bank was declared NPA. In Part IV of its application under Section 7 of the IBC, the Appellant declared the date of default as 1st April, 1993. The claim is apparently barred by limitation - Under Section 18 of the Limitation Act, 1963, the acknowledgement of liability in writing, signed by a party in respect of any right or property claimed by such party within the prescribed period of limitation to file a suit and/or application, leads to computation of the period of limitation afresh, from the time when the acknowledgement is so signed. It is reiterated that in its application under Section 7 of the IBC, the Appellant declared the date of default as 1st April, 1993. At the highest, limitation started running from 27th March, 2003, when the Recovery Certificate was issued by the DRT in favour of the Assignor. The NCLAT has rightly held that the application of the Appellant under Section 7 of the IBC barred by limitation - In any case, there are pending proceedings in the DRT, in respect of the dues of the Corporate Debtor. The Appellant has been substituted in place of the Assignor Bank in the execution proceedings in the DRT. There is an amended Certificate issued by the DRT. Orders have, from time to time, been passed in the Execution Proceedings. The Appellant is not without remedy against the Corporate Debtor. There is no infirmity in the judgment and order of the NCLAT under appeal that calls for interference of this Court - appeal dismissed. Issues Involved:1. Applicability of the Insolvency and Bankruptcy Code (IBC) for recovery of outstanding dues.2. Bar of limitation for filing an application under Section 7 of the IBC.3. Acknowledgment of liability and its impact on the limitation period.4. Availability of alternative remedies for the Appellant.Issue-wise Detailed Analysis:1. Applicability of the Insolvency and Bankruptcy Code (IBC) for recovery of outstanding dues:The NCLT, Bengaluru, dismissed the Appellant's petition under Section 7 of the IBC, stating that the IBC provisions could not be invoked for the recovery of outstanding dues but only to initiate the Corporate Insolvency Resolution Process (CIRP) for just reasons. The NCLAT upheld this view, emphasizing that the IBC is not intended to be a substitute for a recovery forum. This position aligns with the Supreme Court's judgment in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, which categorically stated that IBC is not a substitute for a recovery forum.2. Bar of limitation for filing an application under Section 7 of the IBC:The NCLAT found that the Appellant's application under Section 7 of the IBC was barred by limitation. The account of the Corporate Debtor was declared a Non-Performing Asset (NPA) on 1st April 1993. The right to sue accrued on this date, and the application under Section 7 of the IBC was filed over 15 years later, making it time-barred under Article 137 of the Limitation Act. The Supreme Court reiterated that the limitation period for applications under Sections 7 and 9 of the IBC is three years from the date of default, as established in B.K. Educational Services Private Limited v. Parag Gupta and Associates and Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd.3. Acknowledgment of liability and its impact on the limitation period:The Appellant argued that the limitation period should be computed afresh based on the Corporate Debtor's balance sheet dated 16th August 2017 and a letter dated 23rd April 2019, which they claimed acknowledged the debt. However, the Supreme Court found no evidence that these documents were signed before the expiry of the prescribed limitation period. Moreover, the balance sheet and the letter did not constitute acknowledgments of liability. The balance sheet explicitly stated that claims were not acknowledged as debts, and the letter from the Corporate Debtor offered a settlement without admitting liability. Therefore, these documents did not reset the limitation period under Section 18 of the Limitation Act.4. Availability of alternative remedies for the Appellant:The Supreme Court noted that there were ongoing proceedings in the Debt Recovery Tribunal (DRT) concerning the dues of the Corporate Debtor. The Appellant had been substituted in place of the Assignor Bank in the execution proceedings in the DRT, and there was an amended Recovery Certificate issued by the DRT. The Court emphasized that the Appellant was not without remedy against the Corporate Debtor and could pursue appropriate remedies in accordance with the law before the competent forum.Conclusion:The Supreme Court dismissed the appeal, upholding the NCLAT's judgment that the application under Section 7 of the IBC was barred by limitation. The Court reiterated that the IBC is not intended to be a substitute for a recovery forum and that the Appellant had alternative remedies available in the DRT. The appeal was dismissed, and no interference was warranted with the NCLAT's judgment.