2020 (5) TMI 65 - AT - Insolvency and Bankruptcy

Appeal dismissed, Tribunal upholds order under Insolvency and Bankruptcy Code

The appeal was dismissed by the Appellate Tribunal, upholding the Adjudicating Authority's order admitting the application under Section 7 of the ... Limitation - acknowledgment in writing and fresh period of limitation under Section 18(1) of the Limitation Act - exclusion of time during suspension of remedy while company remained within SICA proceedings - application under Section 7 of the I&B Code as falling within residuary Article 137 of the Limitation Act - completeness and authorization of Form 1 for admission of section 7 application - admission at the stage of section 7 limited to existence of debt and defaultLimitation - application under Section 7 of the I&B Code as falling within residuary Article 137 of the Limitation Act - Whether the Section 7 application was barred by limitation - HELD THAT: - The Tribunal held that it is obligated under Section 3 of the Limitation Act to decide limitation even if not pressed below. An application under Section 7 is governed by the residuary Article 137 prescribing three years from accrual of the right to sue. The period during which the corporate debtor remained subject to SICA (direction dated 16th July, 2009) is excluded for computation of limitation because remedies for enforcement were suspended under SICA; Section 7 could not be invoked prior to 1st December, 2016 when the I&B Code became effective. The Section 7 application filed in May 2018 was therefore within three years counted from the time Section 7 became enforceable and not time-barred on that ground. [Paras 6, 7, 8, 9]The Section 7 application was not barred by limitation on account of the exclusion of the SICA period and timely filing after enforcement of Section 7.Acknowledgment in writing and fresh period of limitation under Section 18(1) of the Limitation Act - Whether acknowledgment by the corporate debtor revived the claim and affected limitation - HELD THAT: - The Tribunal found an express written acknowledgment by the corporate debtor in the form of the letter dated 4th August, 2018 offering an OTS, which amounted to an acknowledgment of liability in writing. Such acknowledgment operates to start a fresh period of limitation from the date of the acknowledgment. Given that the acknowledgment was made before the debt became time-barred and the Section 7 application was filed within the prescribed period computed from that date, the claim was not barred by limitation. [Paras 8, 10]The corporate debtor's written OTS letter constituted an acknowledgment reviving the limitation period; the claim thus remained enforceable.Completeness and authorization of Form 1 for admission of section 7 application - admission at the stage of section 7 limited to existence of debt and default - Whether the Section 7 application was defective for want of authorization or incompleteness and whether admission required determination of the exact quantum of debt - HELD THAT: - The Adjudicating Authority correctly examined the record and found Form 1 signed by the Chief Manager to be in order and the signer duly authorized to file the litigation; the power of attorney dated earlier did not become ineffective because the underlying authority to pursue recovery (including by new statutory mechanisms) was granted. The Tribunal noted that at the admission stage the test is limited to whether there is a financial debt and a default and the minimum jurisdictional threshold; quantification and verification of claims fall to the Resolution Professional at a later stage. Consequently, technical objections regarding alleged incompleteness or want of authorization were rejected. [Paras 3, 11]The application was complete and filed by an authorized person; the admission requirement is limited to existence of debt and default, not adjudication of quantum.Final Conclusion: The appeal is dismissed. The admission of the Section 7 application was upheld: the claim was not time barred (SICA period excluded and written acknowledgment revived limitation), the application was filed by an authorized person and was sufficiently complete for admission, and challenges to quantum are matters for the Resolution Professional. No order as to costs. Issues Involved:1. Existence of default.2. Quantification of debt and default.3. Rectification of defects.4. Competence of the person triggering the Corporate Insolvency Resolution Process.5. Claim being barred by limitation.Issue-wise Detailed Analysis:1. Existence of Default:The initiation of the Corporate Insolvency Resolution Process (CIRP) was based on the Financial Creditor, Punjab National Bank, advancing loans to the Corporate Debtor, NRC Limited. The loan included working capital fund-based limits, non-fund-based limits, corporate term loans, and short-term loans. The Financial Creditor issued a notice under Section 13(2) of the SARFAESI Act on 31st December 2016, claiming an outstanding amount of Rs. 273,09,68,793 as of 31st March 2018. The Corporate Debtor's objections were overruled by the Adjudicating Authority, which found the application complete and the default established.2. Quantification of Debt and Default:The Corporate Debtor argued that the Financial Creditor failed to quantify the debt or its default and that the application lacked material information regarding the occurrence of default. The Adjudicating Authority found that the Financial Creditor had provided sufficient details, including loan sanctions, statements of accounts, and interest debited, in Form 1. The Financial Creditor also filed certificates under the Banker’s Books Evidence Act and the Information Technology Act, which the Adjudicating Authority found satisfactory.3. Rectification of Defects:The Corporate Debtor contended that despite directions from the Adjudicating Authority, the Financial Creditor failed to rectify defects in the application. However, the Adjudicating Authority found that the application was complete in all respects. The objections regarding the application not being signed by the authorized person were also dismissed, as the Chief Manager of the Financial Creditor was deemed duly authorized.4. Competence of the Person Triggering the CIRP:The Corporate Debtor questioned the competence of the person who filed the application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code). The Adjudicating Authority found that the Chief Manager of the Financial Creditor, who signed Form 1, was duly authorized. The argument that the power of attorney was executed before the enactment of the I&B Code and could not extend to filing the application under the Code was dismissed as irrelevant.5. Claim Being Barred by Limitation:The core issue requiring consideration was whether the claim was barred by limitation. The Corporate Debtor was declared a Sick Industrial Unit under SICA, with directions under Section 22(1) of SICA preventing creditors from taking coercive action without BIFR's permission. The period from 16th July 2009 to 1st December 2016, when SICA was repealed, was excluded from the limitation period. The application under Section 7 of the I&B Code was filed in May 2018, within three years from the enforcement date of Section 7. Additionally, there was an acknowledgment of the outstanding debt by the Corporate Debtor in a letter dated 4th August 2018, agreeing to settle dues on a One Time Settlement (OTS) basis. This acknowledgment extended the limitation period. The Financial Creditor's rejection of the OTS proposal on 30th October 2018 did not affect the validity of the claim.Conclusion:The appeal was dismissed, with the Appellate Tribunal finding no merit in the arguments presented by the Appellant. The Adjudicating Authority's order admitting the application under Section 7 of the I&B Code was upheld, and all objections raised by the Corporate Debtor were overruled. The Tribunal emphasized that the debt was not barred by limitation and that the application was complete and filed by a duly authorized person.