2021 (5) TMI 1010 - Tri - Insolvency and Bankruptcy

Debtor's Acknowledgment Extends Limitation Period; Insolvency Process Initiated

The Tribunal found that the Corporate Debtor's acknowledgment of debt in the letter dated 27.09.2017 extended the limitation period under Section 18 of ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time limitation - main defence of Corporate Debtor is that the Petition is barred by limitation as date of guarantee invocation was 08.12.2014 and the period of limitation expired on 08.12.2017 - extension of limitation period or not - Section 18 of Limitation Act - HELD THAT:- The Corporate Debtor has executed corporate guarantee dated 14.01.2014, 25.02.2010, 26.06.2009 wherein the Corporate debtor have agreed to undertake to pay on demand an amount of ₹ 56.70 Crores in case the borrower commits default under the facility agreement. The Principal borrower failed to repay the said amount as on 01.06.2019 amounting to ₹ 60,39,87,991.41/-. Hence, the Petitioner Company had invoked and had issued recall notice to the Principal borrower on November 14, 2014 and also invoke the proceedings under SARFAESI and invoke the guarantees on December 08, 2014 - Essentially all the financial debt u/s. 7 of IBC is complied with further, the claim of the financial creditor is recognised under the guarantee deed and therefore amounts to a debt and there has been default of non-payment of dues by the Principal borrower and thus the Petitioner has rightly invoked the guarantee deed. In J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd. & Anr. [2008 (1) TMI 963 - SUPREME COURT] wherein the Hon‘ble Supreme Court held that Section 18 of Limitation Act, 1963 deals with acknowledgment of writing. Sub-section 1 provides that where before the expiration of period for a suit for application in respect of any rights, an acknowledgment of liability in respect of such right has been made in writing signed by party against whom that it is claimed, a fresh period of limitation shall be computed from the time when acknowledgment was so signed. The explanation to this section was to provide that an acknowledgment may be insufficient though it omits to specify the exact nature of right or averse that the time for payment has not yet come, or is accompanied by refusal to pay or is coupled with claim to set off, or is addressed to a person other than a person entitled to a right. It is a well settled law that a writing of acknowledgment of liability must involve an admission/ conscious affirmation and intention of the Corporate Debtor vide letter dated 27.09.2017 at para 2 had mentioned that the principal borrower Great Indian Nautanki Company Private Limited had failed to pay its dues to IDBI as a result of which IDBI has invoked the above-mentioned guarantee and called upon Wizcraft International Entertainment Private Limited to pay IDBI dues of ₹ 49.39 crores - the Corporate Debtor has sought time which amounts to admission and acknowledgment of liability and also recorded the default of non-payment of money by the Principal Borrower, thus the letter dated 27.09.2017 amounts of acknowledgment of liability in writing and period of limitation is extended from 27.09.2017 to 26.09.2020 under Article 137 of Limitation Act. The judgment in Jignesh shah vs. Union of India [2019 (9) TMI 1121 - SUPREME COURT] correctly hold that the suit for recovery based upon cause of action it is within limitation cannot be in any manner in fact separate an independent remedy of winding up proceedings. In law, when time begins to run, it can only be extended in the manner provided the limitation act. For eg. An acknowledgment of liability u/s. 18 of Limitation Act, 1963 would extend limitation period but a suit for recovery which is independent proceedings distinct from the remedy of windings up, in no manner, in fact the limitation within which winding up proceedings is to be filed, by somehow keeping the debt alive for the purpose of winding up - the Hon‘ble Supreme Court has held that limitation can only be extended in the manner provided u/s. 18 of Limitation Act, 1963. This Bench is of the considered opinion that the letter of the Corporate Debtor dated 27.09.2017 has amounts to acknowledgment of liability and thus extends the limitation periods u/s. 18 of Limitation Act, 1963 and thus all the ingredients of Section 7 of IBC are satisfied and the liability of Corporate Debtor being a Corporate Guarantor is established in view of the admission of liability by the Corporate Debtor vide its Letter 27.09.2017 and the Petition is within 3 years is filed and hence the Petition is admitted - moratorium declared. Issues Involved:1. Whether the limitation period is extended by the letter of the Corporate Debtor dated 27.09.2017.2. Whether Section 18 of the Limitation Act applies to the facts of the present case.Issue-wise Detailed Analysis:1. Whether the limitation period is extended by the letter of the Corporate Debtor dated 27.09.2017:The Petitioner, IDBI Bank Limited, granted financial facilities to Great Indian Nautanki Company Private Limited, which were guaranteed by the Corporate Debtor, Wizcraft International Entertainment Private Limited. The Corporate Debtor failed to honor the guarantee, leading IDBI to invoke the guarantee and recall the loan. On 27.09.2017, the Corporate Debtor acknowledged the default and requested IDBI not to initiate action under the Insolvency and Bankruptcy Code (IBC), 2016, thereby effectively acknowledging the debt. This acknowledgment extends the limitation period under Section 18 of the Limitation Act, 1963, as it constitutes a written acknowledgment of liability.2. Whether Section 18 of the Limitation Act applies to the facts of the present case:Section 18 of the Limitation Act, 1963, provides that an acknowledgment of liability in writing before the expiration of the prescribed period renews the limitation period. The Corporate Debtor's letter dated 27.09.2017, which acknowledged the debt and requested time to present a repayment plan, qualifies as such an acknowledgment. This acknowledgment extends the limitation period from the date of the letter, making the petition filed by IDBI Bank within the limitation period.Findings and Conclusion:The Tribunal found that the Corporate Debtor's letter dated 27.09.2017 extended the limitation period under Section 18 of the Limitation Act, 1963. The acknowledgment of debt in the letter renewed the limitation period, making the petition filed by IDBI Bank within the prescribed limitation period. The Tribunal also confirmed that the debt qualifies as a financial debt under Section 5(8) of the IBC and that there was a default as defined under Section 3(12) of the IBC. Therefore, the petition was admitted, and the Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor.Order:The petition was admitted, and Mr. Vinit Gangwal was appointed as the Interim Resolution Professional (IRP). The provisions of the moratorium under Section 14 of the IBC were made operative, prohibiting any suits or actions against the Corporate Debtor and ensuring the continuation of essential goods and services during the moratorium period. The IRP was directed to carry out the public announcement of the initiation of the CIRP and report the progress to the Tribunal within 30 days.