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

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

Asset Reconstruction Company (India) Limited Versus Uniworth Textiles Limited

Asset Reconstruction Company (India) Limited Versus Uniworth Textiles Limited - TMI 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.