2020 (2) TMI 699 - AT - Insolvency and Bankruptcy

Tribunal overturns NCLT order under Insolvency Code, deems actions illegal

The tribunal set aside the NCLT's order admitting the application under Section 7 of the I&B Code, dismissing it as barred by limitation and filed for ... Admissibility of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - time limitation - HELD THAT:- In the present case, there is nothing on record to suggest that the ‘Corporate Debtor’ acknowledged the debt within three years and agreed to pay the debt. The application moved by ‘Corporate Debtor’ to restructure the debt or payment of the interest, does not amount to acknowledgement of debt. There is nothing on record to suggest that the ‘Corporate Debtor’ or its authorized representative by its signature has accepted or acknowledged the debt within three years from the date of default or from the date when the account was declared NPA, i.e., on 31st December, 2013. The Balance Sheet of the ‘Corporate Debtor’ for the year 2016-2017 filed after 31st March, 2017 cannot be termed to be a document of acknowledgement in terms of Section 18 of the Limitation Act - Any dues payable, even if acknowledged after three years of limitation period, cannot be taken into consideration for the purpose of deriving conclusion under Section 18 of the Limitation Act. Admittedly, the ‘Corporate Debtor’ the defaulted in making payments on 20th September, 2013 and the Dena Bank declared the account as NPA on 31st December, 2013. Therefore, the application filed under Section 7 of the I&B Code by the Bank is barred by limitation. The matter is remitted to the Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench to decide the fee and cost of the ‘Corporate Insolvency Resolution Process’ as incurred by the ‘Resolution Professional, which is to be borne and paid by the Dena Bank (Financial Creditor) - appeal allowed by way of remand. Issues Involved:1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) was barred by limitation.2. Whether the acknowledgment of debt by the Corporate Debtor extended the limitation period under Section 18 of the Limitation Act, 1963.3. Whether the application under Section 7 was filed for purposes other than resolution of insolvency or liquidation, thus covered by Section 65 of the I&B Code.Detailed Analysis:1. Barred by Limitation:The primary issue was whether the application under Section 7 of the I&B Code was barred by limitation. The Corporate Debtor defaulted on 30th September 2013, and the debt was classified as Non-Performing Asset (NPA) on 31st December 2013. The appellant contended that the application filed by Dena Bank was beyond the three-year limitation period prescribed under the Limitation Act, 1963.2. Acknowledgment of Debt:The respondent argued that the application was saved by Section 18 of the Limitation Act, 1963, due to the acknowledgment of liability by the Corporate Debtor. The Corporate Debtor had deposited interest on 28th March 2014, sought debt restructuring in January 2015, and acknowledged the debt in its balance sheet for the year 2016-17. However, the tribunal found no evidence that the Corporate Debtor acknowledged the debt within three years from the date of default or from the date the account was declared NPA. The balance sheet filed after 31st March 2017 could not be considered an acknowledgment under Section 18 of the Limitation Act.3. Application for Execution of Decree:The tribunal also examined whether the application under Section 7 was filed for executing a decree passed by the Debts Recovery Tribunal (DRT). It was noted that Dena Bank had already obtained a recovery certificate from the DRT on 25th May 2017, and had declared the Corporate Debtor a willful defaulter on 20th February 2018. The tribunal concluded that the application was filed for purposes other than insolvency resolution or liquidation, thus falling under Section 65 of the I&B Code, which prohibits filing applications for purposes other than those specified in the code.Conclusion:The tribunal set aside the order dated 21st March 2019, passed by the National Company Law Tribunal (NCLT), Bengaluru Bench, which had admitted the application under Section 7 of the I&B Code. The application was dismissed as it was barred by limitation and filed for purposes other than insolvency resolution. The Corporate Debtor was released from the Corporate Insolvency Resolution Process, and all actions taken by the Interim Resolution Professional and Committee of Creditors were declared illegal. The tribunal directed the Resolution Professional to hand over the records and assets of the Corporate Debtor to its Promoters/Directors immediately. The matter was remitted to the NCLT, Bengaluru Bench, to decide the fee and cost of the Corporate Insolvency Resolution Process, to be borne by Dena Bank. The appeal was allowed with no costs.