2020 (8) TMI 498 - AT - IBC

Financial Creditor's CIRP Initiation Barred for Exceeding 3-Year Limit; Corporate Debtor Freed from Insolvency Process.

Rajendra Kumar Tekriwal (Ex- Director: Pithampur Poly Products Limited) Versus Bank of Baroda (Before merger with Bank was known as “Dena Bank”)

Rajendra Kumar Tekriwal (Ex- Director: Pithampur Poly Products Limited) Versus Bank of Baroda (Before merger with Bank was known as “Dena Bank”) - TMI Issues Involved:1. Limitation period for initiating Corporate Insolvency Resolution Process (CIRP).2. Acknowledgment of debt and its impact on limitation.3. Effect of recovery proceedings and decrees on the limitation period.Issue-wise Detailed Analysis:1. Limitation Period for Initiating CIRP:The primary issue revolves around the applicability of the Limitation Act, 1963, to applications for triggering the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (I&B Code). The judgment emphasizes that Article 137 of the Limitation Act, which prescribes a three-year limitation period, applies to such applications. The right to sue accrues when a default occurs, and if the default has occurred more than three years prior to the filing of the application, the application would be barred by limitation unless the delay is condoned under Section 5 of the Limitation Act.2. Acknowledgment of Debt and Its Impact on Limitation:The appellant argued that the financial debt's default date was 1st May 2000, when the debt was declared as Non-Performing Asset (NPA), and the limitation period should be calculated from this date. The appellant contended that any subsequent acknowledgment of debt would not alter the default date. The judgment clarifies that for an acknowledgment to restart the limitation period, it must be made in writing and signed by the borrower before the expiration of the original limitation period. In this case, the acknowledgment letters dated 31st March 1999, 31st March 2001, and 12th January 2004 were deemed insufficient to extend the limitation period beyond the default date of 1st May 2000.3. Effect of Recovery Proceedings and Decrees on the Limitation Period:The judgment discusses the impact of recovery proceedings and decrees on the limitation period. It was argued that the filing of a recovery suit or obtaining a decree does not shift the default date forward. The default date remains static, and the limitation period for initiating CIRP is not extended by such proceedings. The judgment cites previous rulings to reinforce that the date of default is crucial for computing the limitation period, and subsequent recovery actions do not affect this date.Conclusion:The judgment concludes that the initiation of CIRP by the financial creditor was barred by limitation as it was filed beyond the three-year period from the date of default (1st May 2000). The subsequent recovery proceedings and acknowledgments did not extend the limitation period. The appeal was allowed, and the impugned order admitting the CIRP application was set aside. Consequently, all orders and actions taken pursuant to the impugned order, including the appointment of the Interim Resolution Professional and the moratorium, were declared illegal and set aside. The Corporate Debtor was released from the CIRP process and allowed to function independently through its Board of Directors. The Adjudicating Authority was directed to fix the fee of the Interim Resolution Professional, to be paid by the Corporate Debtor.