2020 (10) TMI 961 - AT - Insolvency and Bankruptcy

Limitation Act Applies to Insolvency Cases: Tribunal Orders Review of Precedents

The Tribunal held that Section 18 of the Limitation Act, 1963 is applicable to insolvency cases, as the Supreme Court did not expressly exclude its ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - Non-performing Asset - time limitation - main ground in the present appeal is that application under section 7 of the I and B Code was filed in December 2018, i. e., after a delay of almost five years - applicability of section 18 of the Limitation Act, 1963 to insolvency cases - HELD THAT:- The corporate debtor's balance-sheet cannot be considered as an acknowledgment under section 18 of the Limitation Act, 1963. The issue was considered explicitly by the five hon'ble Members of this Appellate Tribunal in the case of V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) [2020 (3) TMI 1244 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] and held that the books of account are required to be prepared under the obligation casted under section 92 of the Companies Act, 2013. Therefore, it cannot amount to an acknowledgment for section 18 of the Limitation Act, 1963. The acknowledgment to extend the period of limitation should be voluntary and cannot be given under the compulsion of law or with the threat of any penalty/punishment. We are unable to convince with the argument of learned counsel for the corporate debtor that section 18 of the Limitation Act, 1963 is not applicable to insolvency cases. The judgment in V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) requires reconsideration on following reasons : (I) There is consistent view of the hon'ble Supreme Court and High Court of Allahabad, Calcutta, Delhi, Karnataka, Kerala and Telangana that the entries in the balance-sheet of the company be treated as an acknowledgment of debt for the purpose of section 18 of the Limitation Act, 1963. The majority view in V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) is just contrary to settled law. (II) In V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) minority view is in the line of settled law that balance-sheet of the company, be treated as acknowledgment of debt for the purpose of section 18 of the Limitation Act, 1963. In the majority judgment no reasons have been assigned for disagreement with this view. (III) In support of majority judgment in V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) none of the precedent cited before us. (IV) In V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF), it is discussed that the balance-sheet of the company is prepared pursuant to section 92 of the Companies Act, 2013 and filing of balance-sheet/annual return being mandatory under section 92(4) of the Companies Act, 2013, failing of which attracts penal action under section 92(5) and (6) of the Act. In our humble opinion balance- sheet is not annual return but is a financial statement. Financial statement is defined under section 2(40) of the Companies Act, 2013. (V) In V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) it is held that the balance-sheet is required to be prepared under the obligation casted under section 92 of the Companies Act, 2013. Therefore, it cannot amount to an acknowledgment for section 18 of the Limitation Act, 1963. The acknowledgment should be voluntary and cannot be given under compulsion of law or with the threat of any penalty/punishment. The hon'ble Calcutta High Court in the case of Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, [1961 (4) TMI 113 - CALCUTTA HIGH COURT] held that merely on the ground that the balance-sheet of the company is prepared under the compulsion of law or in discharge of statutory duty, it cannot be held that the balance-sheet of the company cannot amount to an acknowledgment of liability. (VI) The balance-sheet is a material document attached with sanctity that must be submitted to the Registrar of Companies and is used for obtaining a business loan or investments. Relevant provisions in regard to balance-sheet of the company provided in sections 129, 130, 131, 134, 137, 143 and 397 of the Companies Act. Sections 130 and 131 provides that a company cannot reopen its books of account and financial statement without the order made by the court of competent jurisdiction or the Tribunal. Directors of the company after making judgments and estimates that are reasonable and prudent cannot resile without permission of the Tribunal. (VII) Section 397 of the Companies Act, provides that the documents filed for the purpose of the Companies Act, and Rules made thereunder by a company with the Registrar shall be admissible in any proceedings there under. Without proof or production of original as evidence of any contents of the original or of any fact stated therein of which direct evidence is admissible. Thus, with all great respect to the hon'ble Five Members Bench of this Appellate Tribunal that V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) requires reconsideration. Hence, we are referring the matter - the matter be referred to a Bench of five hon'ble Members of this Appellate Tribunal. Issues Involved:1. Applicability of Section 18 of the Limitation Act, 1963 to insolvency cases.2. Whether entries in the company's balance-sheet amount to an acknowledgment of debt under Section 18 of the Limitation Act, 1963.3. Reconsideration of the judgment in V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) [2020].Issue-wise Detailed Analysis:1. Applicability of Section 18 of the Limitation Act, 1963 to Insolvency Cases:The corporate debtor argued that Section 18 of the Limitation Act, 1963, is not applicable to insolvency cases, citing the Supreme Court decision in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries P. Ltd. [2020]. However, the financial creditor contended that the Supreme Court did not explicitly exclude insolvency cases from the purview of Section 18. The Tribunal, after reviewing the Babulal Vardharji Gurjar case, concluded that Section 18 is indeed applicable to insolvency cases, as the Supreme Court's judgment did not categorically exclude its application.2. Whether Entries in the Company's Balance-Sheet Amount to an Acknowledgment of Debt Under Section 18 of the Limitation Act, 1963:The financial creditor argued that entries in the balance-sheet for the years ending March 31, 2015, March 31, 2016, and March 31, 2017, constituted an acknowledgment of debt, thus extending the limitation period. The Tribunal referred to multiple precedents, including judgments from the Supreme Court and various High Courts, which consistently held that entries in the balance-sheet amount to an acknowledgment of debt under Section 18. The Tribunal noted that the acknowledgment in the balance-sheet, even if prepared under statutory compulsion, is valid under Section 18. This view aligns with the settled law that balance-sheet entries are sufficient to extend the limitation period.3. Reconsideration of the Judgment in V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) [2020]:The Tribunal found that the majority judgment in V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) [2020], which held that balance-sheet entries do not amount to an acknowledgment of debt, contradicted settled law. The minority view in Padmakumar, which aligned with the established legal position, was not adequately countered by the majority. The Tribunal highlighted several reasons for reconsideration, including the consistent view of the Supreme Court and various High Courts that balance-sheet entries are acknowledgments of debt, the material nature of balance-sheets in financial and legal contexts, and the lack of substantial reasoning in the majority judgment of Padmakumar.The Tribunal directed that the matter be referred to a Bench of five hon'ble Members for reconsideration, emphasizing the need for judicial discipline and propriety in following established precedents unless there are compelling reasons for deviation.