Section 7 Application dismissed as time-barred, Insolvency Professionals directed to return assets

The Tribunal found that the Section 7 Application filed by the Bank was time-barred and erred in admitting it. The actions of the Insolvency Professionals were deemed illegal, and they were directed to hand over assets to the Corporate Debtor's Promoter. The determination of fees and costs was remitted to the Adjudicating Authority. The Tribunal set aside the order, dismissed the Section 7 Application, released the Corporate Debtor from insolvency proceedings, and closed related applications.

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Issues Involved:

1. Whether the Section 7 Application filed by the 2nd Respondent/Bank was barred by limitation.
2. Whether the Adjudicating Authority erred in admitting the Section 7 Application.
3. Whether the actions taken by the Interim Resolution Professional/Resolution Professional/Committee of Creditors were legal.
4. Determination of the fee and costs of the Corporate Insolvency Resolution Process.

Issue-wise Detailed Analysis:

1. Whether the Section 7 Application filed by the 2nd Respondent/Bank was barred by limitation:

The Appellant argued that the loan account of the 1st Respondent/Company was declared as a Non-Performing Asset (NPA) on 31.03.2004, and the recall notice was issued on 11.07.2007. The Section 7 Application under the Insolvency and Bankruptcy Code (IBC) was filed in 2019, which was beyond the three-year limitation period as per Article 137 of the Limitation Act, 1963. The Appellant cited the Supreme Court decision in "B.K. Educational Services Pvt. Ltd. vs. Parag Gupta and Associates" to support the claim that the application was time-barred. The Tribunal concluded that the application filed by the 2nd Respondent/Bank was indeed barred by limitation since the default occurred over three years prior to the filing date.

2. Whether the Adjudicating Authority erred in admitting the Section 7 Application:

The Tribunal found that the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-II) erred in admitting the Section 7 Application filed by the 2nd Respondent/Bank. The Tribunal noted that the Adjudicating Authority is not a 'Court of Law' and cannot determine a money claim. The Tribunal emphasized that the IBC proceedings cannot be initiated based on time-barred claims and that the NPA declaration or default on 31.03.2004 had occurred over three years prior to the filing of the application. Hence, the application was hit by limitation as per Article 137 of the Limitation Act, 1963.

3. Whether the actions taken by the Interim Resolution Professional/Resolution Professional/Committee of Creditors were legal:

The Tribunal declared all actions taken by the Interim Resolution Professional/Resolution Professional/Committee of Creditors as illegal and set them aside. The Tribunal directed the Interim Resolution Professional/Resolution Professional to hand over the records and assets of the 1st Respondent/Corporate Debtor to the Promoter and Directors of the Corporate Debtor forthwith.

4. Determination of the fee and costs of the Corporate Insolvency Resolution Process:

The Tribunal remitted the matter to the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-II) for determining the 'fee and costs' of the Corporate Insolvency Resolution Process incurred by the Interim Resolution Professional, which is to be borne and paid by the 2nd Respondent/Bank (Financial Creditor).

Conclusion:

The Tribunal set aside the impugned order dated 16.12.2019 passed by the Adjudicating Authority (NCLT), Mumbai Bench-II, and dismissed the Section 7 Application filed by the 2nd Respondent/Bank. The 1st Respondent/Corporate Debtor was released from all the rigours of the Corporate Insolvency Resolution Process. The Tribunal allowed the appeal with the aforesaid observations and directions, and closed the related interim applications.

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