2020 (8) TMI 395 - AT - Insolvency and Bankruptcy

Debt Recovery Application Dismissed Due to Limitation Period

The Appellate Tribunal upheld the dismissal of a Financial Creditor's application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against a ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - time limitation - impugned order assailed on the ground that the debt was payable in law as the same had been acknowledged by the ‘Corporate Debtor’ in its balance-sheet of financial years commencing from 2010 to 2016 which for purpose of Section 18 of the Limitation Act amounted to acknowledgement of liability on the part of the Respondent (Corporate Debtor) - HELD THAT:- The determination of the claim of the proceedings before the DRT would neither extend the time nor exclude the period of limitation. The limitation commenced from the date of default reckoned on the basis of classification of Corporate Debtor’s account as NPA would not admit of any extension or exclusion on the basis of pursuit of a remedy under the ‘SARFAESI Act, 2002 or in a recovery proceedings before the DRT. The date of default computed with effect from the date of account of the ‘Corporate Debtor’ being classified as NPA would not shift as in the instant case proceedings taken before the DRT for recovery of the ‘financial debt’ would not be a proceeding being pursued before a wrong forum nor would that be a continuation of the cause of action. The argument advanced on behalf of the Appellant to find fault with the impugned order on the ground of limitation being extended on account of the financial debt being reflected in the balance-sheet/annual return of the Corporate Debtor for the relevant period has to be repelled - the default in respect of the ‘financial debt’ admittedly declared as NPA occurred on 20th February, 2010 and the debt was barred by limitation - Appeal dismissed. Issues:- Dismissal of Financial Creditor's application under Section 7 of the Insolvency and Bankruptcy Code, 2016 due to limitation.- Whether acknowledgment of liability by Corporate Debtor in balance-sheet extends limitation period.- Impact of pursuing recovery proceedings before Debt Recovery Tribunal on limitation period.- Interpretation of acknowledgment of debt in balance-sheet under Section 18 of the Limitation Act.Analysis:The judgment pertains to the dismissal of a Financial Creditor's application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against a Corporate Debtor due to limitation. The Adjudicating Authority dismissed the application on the grounds of the claim being time-barred and lack of proof of continuous acknowledgment of debts by the Corporate Debtor. The Financial Creditor appealed, arguing that the debt was acknowledged in the Corporate Debtor's balance-sheet from 2010 to 2016, thus extending the limitation period under Section 18 of the Limitation Act.The Appellate Tribunal examined the timeline of events, noting that the account of the Corporate Debtor was classified as Non-Performing Account (NPA) on 20th February, 2010, which marked the date of default. It was established that no written acknowledgment was made by the Corporate Debtor within three years from the date of default, leading to the application being time-barred under Article 137 of the Limitation Act. The Tribunal emphasized that the date of default, i.e., NPA classification, is crucial for computing the limitation period under Section 7.Regarding the impact of pursuing recovery proceedings before the Debt Recovery Tribunal (DRT) on limitation, the Tribunal clarified that such actions do not extend or exclude the limitation period. Pursuing remedies under the SARFAESI Act or recovery proceedings before the DRT does not alter the date of default or shift the limitation period for initiating insolvency resolution processes.The Tribunal further addressed the interpretation of acknowledgment of debt in the Corporate Debtor's balance-sheet. Referring to a previous judgment, the Tribunal held that filing balance sheets or annual returns, mandated by the Companies Act, cannot be considered as acknowledgment under Section 18 of the Limitation Act. Therefore, the argument that acknowledgment in balance-sheets extends the limitation period was rejected, affirming the Adjudicating Authority's decision that the debt was time-barred.In conclusion, the Appellate Tribunal dismissed the appeal, upholding the view that the debt was indeed barred by limitation, emphasizing the importance of the date of default and rejecting the argument that acknowledgment in balance-sheets extends the limitation period. The judgment sets a precedent regarding the interpretation of acknowledgment of debt in financial documents and its impact on limitation periods in insolvency proceedings.