2020 (8) TMI 381 - AT - Insolvency and Bankruptcy

Appeal allowed, Corporate Debtor released, IRP to return management to Board of Directors.

The appeal was allowed, and the application under Section 7 of the IBC filed by the Financial Creditor was dismissed. The Corporate Debtor was released ... Maintainability of application - initiation of CIRP - Period of limitation after default - Corporate debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT:- Apparently, dispute regarding the assignment is being contested in City Civil Court and in summary proceeding before the Adjudicating Authority when the Financial Creditor and bank are supporting each other, it is not possible for the Adjudicating Authority to decide the dispute which would be a matter of Suit - Before us, not much stress was laid on this aspect and we do not find any reason to differ from the Adjudicating Authority on this count. Time Limitation - HELD THAT:- The date of default is stated to be 31st December, 2013 and NPA was declared on 30th March, 2014. The Adjudicating Authority found that the claim was within limitation - the Adjudicating Authority relied on the balance sheet to hold that there was acknowledgement and thus, the claim was within limitation. Whether in the Balance Sheet which is being relied on, what is seen in the statement and if the same could be read as acknowledgement? - HELD THAT:- The statement recorded by the Auditor with regard to the pending litigation in the facts of the present matter, we find, cannot be read as an acknowledgement by Company under Section 18 of the Limitation Act. The Adjudicating Authority did not go into the particulars. In present matter, we are not deliberating whether entry in Balance Sheet can be termed Acknowledgement in law - In our view, even if we are to consider that contents in Balance Sheet could be read as acknowledgment even then if we read the contents in balance sheet in the matter, for reasons stated above, we do not find that the Corporate Debtor acknowledged as such the liability to pay the alleged outstanding debt. It is stated that the Application under Section 19(4) of SARFAESI Act filed by the Bank on 29th June, 2015 is still pending adjudication before DRT-3, Kolkata. The default dated 31.12.2013 which was declared NPA on 30th March, 2014, was time barred for the purpose of filing of Application under Section 7 of IBC on 31st October, 2018. The Application thus should not have been admitted - application dismissed. Issues Involved:1. Legality of the Assignment Agreement.2. Limitation period for filing the application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016.Detailed Analysis:1. Legality of the Assignment Agreement:The Respondent No.1, UV Asset Reconstruction Company Ltd. (Financial Creditor), filed an application under Section 7 of the IBC against M/s. Kalpataru Cold Storage Pvt. Ltd. (Corporate Debtor), claiming a debt and default of Rs. 21,61,12,013/-. The debt was assigned from Respondent No.2, United Bank of India, to the Financial Creditor on 29th March 2017. The Adjudicating Authority (National Company Law Tribunal, Kolkata Bench) admitted the application on 30th September 2019, despite disputes regarding the assignment's validity. The Corporate Debtor challenged the assignment, alleging fraud, insufficient stamp, and lack of registration. The Adjudicating Authority held that the deed of assignment, prepared on Rs. 100/- stamp paper and registered, was legal and valid. The Tribunal noted that any deficiency in stamp duty could be rectified with a penalty and that such issues could not be decided during the admission of the application under Section 7. The Tribunal affirmed that the Financial Creditor was within the meaning of Section 5(7) of the IBC.2. Limitation Period for Filing the Application:The primary dispute was whether the application under Section 7 was within the limitation period. The default occurred on 31st December 2013, and the account was declared NPA on 30th March 2014. The application was filed on 31st October 2018. The Adjudicating Authority held that the claim was within limitation based on the Corporate Debtor's balance sheet for the year ending March 2016, which acknowledged the debt. The Tribunal cited various judgments, including 'Sheetal Fabrics vs. Coir Cushions Ltd.' and 'The Commissioner of Income Tax-III vs. Shri Vardhman Overseas Ltd.,' to support that an acknowledgment of debt in the balance sheet amounts to an acknowledgment under Section 18 of the Limitation Act. However, upon review, the Tribunal found that the balance sheet and the Directors’ Report did not constitute an acknowledgment of debt. The Auditor's statement that the Company had not defaulted in repayment and the pending litigation before the DRT could not be read as an acknowledgment. Consequently, the Tribunal concluded that the application was time-barred.Conclusion:The appeal was allowed, and the application under Section 7 of the IBC filed by the Financial Creditor was dismissed. The Impugned Order was quashed, and the Corporate Debtor was released from the proceedings, allowed to function independently through its Board of Directors. The Interim Resolution Professional (IRP)/Resolution Professional (RP) was directed to hand back the records and management to the Board of Directors. The IRP/RP was also instructed to submit particulars regarding CIRP costs and fees to the Adjudicating Authority for the Financial Creditor to pay. The appeal was disposed of with no costs.