2020 (10) TMI 824 - Tri - Insolvency and Bankruptcy

Application to Initiate Corporate Insolvency Process Dismissed as Time-Barred & Lacking Debt Acknowledgment

The Tribunal dismissed the application under Section 7 of the Insolvency and Bankruptcy Code to initiate Corporate Insolvency Resolution Process against ... Maintainability of application - initiation of CIRP - Corporate Debtor had committed default in repayment and thereby the loan was recalled by issuing of Section 13(2) notice under the SARFAESI Act 2002 on 20th November 2017 by classifying the account of the Corporate Debtor as NPA - existence of debt and dispute or not - time limitation - HELD THAT:- Admittedly, the Corporate Debtor has issued the letter dated 11.11.2016. It is a letter addressed to the CEO and Managing Director of ARCIL, in reply to the letter dated 19.9.2016 issued by the ARCIL to the Corporate Debtor. A reading of the letter reveals that it was issued by the Corporate Debtor without any prejudice. The subject matter of this letter is related to a proposal for settlement and acceptance of the proposal for the settlement. As per the letter, the Corporate Debtor along with the Group Companies proposed terms of settlement for the acceptance of the Financial Creditor. The Uniworth Group agreed to settle the entire debt amount for an amount of ₹ 75,00,00,000/- and tendered an amount of ₹ 11,25,00,000/-. The Ld. Sr. Counsel for the Corporate Debtor further would submit that ₹ 38,85,00,000/-also paid thereafter and balance payable is ₹ 23, 90, 00,000/- and showed its readiness to pay the balance in compliance of the part of the obligation on the side of the Financial Creditor 50% of the agreed amount the Financial Creditor shall release the charge of assets of the Corporate Debtor acquired by the Financial Creditor and since the charge was not released as per the understanding the balance payable as per the settlement has not been paid. According to him, suppressing the said payment towards the debt payable as agreed the Financial Creditor filed this application and, therefore, this application is liable to be dismissed. One another objection raised on the side of the Corporate Debtor is that O.A. No. 162/2014 filed by the ARCIL has been decreed on 06.02.2019 during the pendency of the present proceedings and Review Petition challenging the said decree has been filed before the DRT, Nagpur and it is pending for consideration. Therefore, recourse to be taken by the Financial Creditor would be to execute the decree got in favour of the Financial Creditor and without having such recourse, filing this application amounts to recovery of the decreed amount which does not come within the objectives of the Code and thus liable to be dismissed. Thus, the claim of the Financial Creditor being found time barred, it can be held that the debt even if it is due, is not payable in law. Accordingly this application is liable to be dismissed - application dismissed. Issues Involved:1. Application under Section 7 of the Insolvency and Bankruptcy Code (IBC) for initiating Corporate Insolvency Resolution Process (CIRP).2. Allegation of default in repayment of loan.3. Assignment of debt and its implications.4. Limitation period for filing the application.5. Acknowledgment of debt in financial statements.6. Settlement agreements and their impact on the application.7. Legal proceedings and their effect on the limitation period.Detailed Analysis:1. Application under Section 7 of IBC for initiating CIRP:The Financial Creditor, Asset Reconstruction Company (India) Limited (ARCIL), filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, to initiate the Corporate Insolvency Resolution Process (CIRP) against Uniworth Textiles Limited (Corporate Debtor). The application was based on the alleged default in repayment of a loan originally availed from Industrial Finance Corporation of India Limited (IFCIL) and ICICI Bank, which was later assigned to ARCIL.2. Allegation of default in repayment of loan:The Corporate Debtor allegedly defaulted on a loan amount of Rs. 41,50,00,000 availed from IFCIL and ICICI Bank. The debt was classified as Non-Performing Asset (NPA) on 20th November 2007, and a demand notice under Section 13(2) of the SARFAESI Act was issued. ARCIL claimed that the outstanding amount due was Rs. 205,83,38,883.3. Assignment of debt and its implications:The debt was assigned to ARCIL through deeds of assignment dated 12.01.2007 and 31.03.2004. ARCIL filed the application on the strength of these assignment deeds, claiming the Corporate Debtor's liability to repay the outstanding amount.4. Limitation period for filing the application:The Corporate Debtor contended that the application was barred by limitation, as the default occurred on 20.11.2007, and the application was filed on 27.11.2018. The Tribunal referred to the Supreme Court's decision in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates, which held that Article 137 of the Limitation Act applies to applications under Sections 7 and 9 of the IBC, and the right to sue accrues when a default occurs. Since the application was filed beyond the three-year limitation period, it was prima facie barred by limitation.5. Acknowledgment of debt in financial statements:The Financial Creditor argued that the Corporate Debtor acknowledged its debt in its balance sheets from 2012 to 2019, which should restart the limitation period under Section 18 of the Limitation Act. However, the Tribunal found that the balance sheets did not constitute an unequivocal acknowledgment of debt, as the Corporate Debtor disputed its liability in the Director's Report accompanying the balance sheets.6. Settlement agreements and their impact on the application:The Corporate Debtor argued that a settlement agreement was reached, and payments were made towards the settlement. The Financial Creditor allegedly breached the terms of the settlement by not releasing the charge on the assets. The Tribunal noted that the settlement was not fully complied with by either party, and the Financial Creditor's application was based on the original default, not the settlement.7. Legal proceedings and their effect on the limitation period:The Financial Creditor contended that the limitation period should be extended due to the pendency of proceedings before the BIFR, AAIFR, and DRT. However, the Tribunal held that these proceedings did not suspend the limitation period under Section 14 of the Limitation Act, as they were not for the same relief and were not prosecuted with due diligence before a wrong forum.Conclusion:The Tribunal concluded that the application was barred by limitation, as the default occurred on 20.11.2007, and the application was filed beyond the three-year limitation period. The balance sheets did not constitute an acknowledgment of debt under Section 18 of the Limitation Act, and the settlement agreement did not impact the application. Consequently, the application was dismissed.