2020 (2) TMI 396 - AT - Insolvency and Bankruptcy

Bank's IBC application dismissed due to limitation, Corporate Debtor released from CIRP, IRP fees to be determined.

Munish Kumar Bhunsali And Anr. Versus Kotak Mahindra Bank Ltd. & Anr.

The Tribunal dismissed the Bank's application under Section 7 of the IBC as it was barred by limitation. Consequently, actions taken by the IRP and CoC ... Admissibility of petition - CIRP process - corporate debtor failed to make repayment of its debt - period of limitation - HELD THAT:- Admittedly, the 1st Respondent / Bank has filed OA 576/2016 before the ‘Debt Recovery Tribunal’, New Delhi in which the ‘Corporate Debtor’ had remained absent and a decree was passed on 21st May, 2019. In fact, an application for execution of decree is pending before the ‘Debt Recovery Tribunal’. After passing of the decree by the ‘Debt Recovery Tribunal’ in OA 576/2016 the ‘Corporate Debtor’ projected a counter claim of ₹ 111.75 crores on 27.06.2019 claiming damages, loss of profit (including loss of opportunity) on the basis of non-restructuring of its dues. In view of the fact that the default made by the ‘Corporate Debtor’ took place in June, 2015 and that the application u/s 7 of the ‘I&B’ Code was filed by the 1st Respondent of the Bank before the Adjudicating Authority on 30.01.19 and that the account of the ‘Corporate Debtor’ was declared as NPA on 30.09.15, it is held by this Tribunal that the application filed by the Bank before the Adjudicating Authority is barred by Limitation. The ‘Corporate Debtor’ ‘M/s Kew Precision Parts Pvt. Ltd.’ is released from the rigour of the ‘Corporate Insolvency Resolution Process’. All actions taken by the ‘Interim Resolution Professional’ / ‘Resolution Professional’ and ‘Committee of Creditors’, if any, are declared illegal and set aside. The ‘Resolution Professional’ is directed to hand over the records and assets of the ‘Corporate Debtor’ to the promoter/Directors of the ‘Corporate Debtor’ forthwith - the matter is remitted to Adjudicating Authority (‘National Company Law Tribunal’) New Delhi Bench to determine the ‘Fee and Cost’ of ‘Corporate Insolvency Resolution Professional’ as incurred by him, which is to be borne and paid by 1st Respondent / Bank - appeal allowed. Issues Involved:1. Limitation period for filing the application under Section 7 of the Insolvency and Bankruptcy Code (IBC).2. Continuous cause of action and acknowledgment of debt.3. Applicability of Section 14 and Section 18 of the Limitation Act, 1963.4. Suppression of facts regarding SARFAESI proceedings.5. Legality of actions taken by the Interim Resolution Professional (IRP) and Committee of Creditors (CoC).Issue-wise Detailed Analysis:1. Limitation period for filing the application under Section 7 of the Insolvency and Bankruptcy Code (IBC):The primary issue was whether the application filed by the Bank under Section 7 of the IBC was barred by limitation. The default occurred in June 2015, and the account was declared as Non-Performing Asset (NPA) on 30.09.2015. The application was filed on 30.01.2019, which was beyond the three-year limitation period prescribed under Article 137 of the Limitation Act, 1963. The Tribunal referred to the Supreme Court's decision in B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates, which held that the right to sue accrues when the default occurs, and applications filed beyond three years from the date of default are barred by limitation.2. Continuous cause of action and acknowledgment of debt:The Bank argued that there was a continuous cause of action and relied on the One Time Settlement (OTS) letter dated 12.12.2018 as an acknowledgment of debt to revive the limitation period. However, the Tribunal noted that the OTS proposal was not accepted by the Bank, and the default occurred in June 2015. The Tribunal held that the application was barred by limitation as the acknowledgment of liability must be made within the limitation period, and the OTS letter dated 12.12.2018 was issued after the limitation period had expired.3. Applicability of Section 14 and Section 18 of the Limitation Act, 1963:The Bank sought exclusion of time under Section 14 of the Limitation Act for the period during which SARFAESI proceedings were pending. The Tribunal noted that the parties had approached the right forums (Debt Recovery Tribunals) and obtained necessary reliefs. Therefore, the plea for exclusion of time under Section 14 was not applicable. Regarding Section 18, the Tribunal emphasized that an acknowledgment of liability must be in writing, signed by the party, and made within the limitation period. The acknowledgment given after the expiry of the limitation period does not revive a barred claim.4. Suppression of facts regarding SARFAESI proceedings:The Corporate Debtor contended that the Bank had suppressed the fact of SARFAESI proceedings initiated against it. The Tribunal noted that the Bank had initiated recovery proceedings under SARFAESI Act and obtained a decree from the Debt Recovery Tribunal. However, the Bank did not disclose these proceedings in its application before the Adjudicating Authority. The Tribunal found that the Bank's actions were not in good faith and amounted to suppression of material facts.5. Legality of actions taken by the Interim Resolution Professional (IRP) and Committee of Creditors (CoC):The Tribunal held that since the application under Section 7 of the IBC was barred by limitation, all actions taken by the IRP and CoC were declared illegal and set aside. The Tribunal directed the IRP to hand over the records and assets of the Corporate Debtor to its promoters/directors forthwith.Conclusion:The Tribunal set aside the impugned order dated 06.09.2019 passed by the Adjudicating Authority and dismissed the application filed by the Bank under Section 7 of the IBC. The Corporate Debtor was released from the rigour of the Corporate Insolvency Resolution Process (CIRP). The Tribunal remitted the matter to the Adjudicating Authority to determine the fee and cost of the IRP, which was to be borne by the Bank. The dismissal of the application did not preclude the Bank from pursuing appropriate remedies before the competent forum for redressal of its grievances. The appeal was allowed with the aforementioned observations and directions, and the connected interlocutory applications were closed.