2021 (9) TMI 930 - AT - Insolvency and Bankruptcy

Debt not time-barred due to acknowledgments, SBI authorized to initiate insolvency proceedings. Appeal dismissed.

The Tribunal upheld the Adjudicating Authority's decision that the debt was not time-barred, as acknowledgments reset the limitation period. It affirmed ... Right of a Financial Creditor to initiate Corporate Insolvency Resolution Process under Section 7 of the IBC - Applicability of the Limitation Act to proceedings under the IBC and effect of written acknowledgment on limitation - Effect of acknowledgment in writing in restarting limitation period (Section 18 of the Limitation Act) - Primacy of the Insolvency and Bankruptcy Code over inconsistent laws and instruments - Consortium inter-se arrangements and nomination of a lead bank cannot oust statutory remedy of other financial creditors under the IBCRight of a Financial Creditor to initiate Corporate Insolvency Resolution Process under Section 7 of the IBC - Consortium inter-se arrangements and nomination of a lead bank cannot oust statutory remedy of other financial creditors under the IBC - Primacy of the Insolvency and Bankruptcy Code over inconsistent laws and instruments - Whether the State Bank of India, though part of a consortium and despite inter-se/lead-bank arrangements, had the statutory right to file an application under Section 7 of the IBC against the Corporate Debtor. - HELD THAT: - The Tribunal applied the statutory scheme of the IBC and its overriding provision to hold that a financial creditor whose debt is due and in default has the statutory right to initiate the corporate insolvency resolution process under Section 7 of the IBC either by itself or jointly. Private arrangements between lenders, including inter-se agreements conferring roles on a lead bank or nomination of an agent, cannot extinguish or qualify the statutory right of an individual financial creditor to file under Section 7. The reasoning emphasises the primacy of the Code over inconsistent contractual or regulatory arrangements so that other members of a consortium are not left without remedy if a lead bank does not initiate proceedings. The Adjudicating Authority's admission on this basis was therefore sustained. [Paras 8]The State Bank of India had the statutory right to file the Section 7 application notwithstanding consortium/lead-bank arrangements, and the Adjudicating Authority correctly proceeded to admit the application.Applicability of the Limitation Act to proceedings under the IBC and effect of written acknowledgment on limitation - Effect of acknowledgment in writing in restarting limitation period (Section 18 of the Limitation Act) - Whether the Section 7 application filed by the State Bank of India on 5th March, 2018 was within limitation having regard to the date(s) of NPA and subsequent acknowledgments by the Corporate Debtor. - HELD THAT: - The Tribunal examined the dates relied upon and the communications from the Corporate Debtor. The Corporate Debtor's letter dated 21 May 2015 referring to the executed loan documents and Master Restructuring Agreement, together with the proposal/acknowledgment dated 15 June 2016 addressed to the lending banks, were held to qualify as acknowledgments in writing for the purposes of restarting the period of limitation. Applying the established principles governing the applicability of the Limitation Act to IBC proceedings (as explained by the Supreme Court in recent authorities), the Tribunal concluded that the Section 7 application filed on 5 March 2018 was within the fresh period of limitation computed from such acknowledgments and therefore the Adjudicating Authority rightly found the application time barred. [Paras 9, 10, 11, 12]The Section 7 application was within limitation in view of the Corporate Debtor's written acknowledgments, and the Adjudicating Authority's conclusion that the application was not time barred is upheld.Exclusion of time under appellate rules in relation to Section 12 of the IBC - Whether the interim period during which this appeal restrained constitution of the Committee of Creditors should be excluded for the purposes of Section 12 of the IBC. - HELD THAT: - The Tribunal noted its earlier interim order restraining constitution of the Committee of Creditors and exercised its powers under Rule 11 of the NCLAT Rules to exclude the period from 29 November 2019 until the date of the order for the computation under Section 12 of the IBC. The interim order previously granted was held not to survive; however the period during which that interim relief operated is excluded for statutory time computation purposes. [Paras 14, 15]The interim order restraining constitution of the Committee of Creditors is vacated and the period from 29 November, 2019 to the date of the judgment is excluded for the purpose of Section 12 of the IBC.Final Conclusion: Appeal dismissed; the admission of the Section 7 application by the Adjudicating Authority is upheld as within limitation and properly maintainable by the State Bank of India; the interim restraint on constitution of the Committee of Creditors is vacated and the period during which interim relief operated is excluded for the purpose of Section 12 of the IBC. No costs. Issues Involved:1. Whether the debt was barred by limitation.2. Whether the State Bank of India (SBI) had the authority to initiate proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC).3. Applicability of Section 18 of the Limitation Act, 1963.Issue-wise Detailed Analysis:1. Whether the debt was barred by limitation:The Corporate Debtor argued that the debt was time-barred, claiming the original amounts became Non-Performing Assets (NPA) on 15.01.2013, and the CDR Package failed in August 2015. However, the Adjudicating Authority found that the debt was within limitation based on acknowledgments in the correspondence and balance sheets of the Corporate Debtor. The Appellate Tribunal confirmed this finding, noting acknowledgments of debt in letters dated 21st May 2015 and 15th June 2016, which reset the limitation period. The Application under Section 7 of IBC filed on 5th March 2018 was thus within the limitation period as per Section 18 of the Limitation Act, 1963.2. Whether the State Bank of India (SBI) had the authority to initiate proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC):The Appellant contended that only the Lead Banker, Canara Bank, could initiate recovery or restructuring proceedings based on the Inter Se Agreement. However, the Tribunal emphasized Section 238 of IBC, which overrides any inconsistent provisions in other laws or instruments. Section 7 of IBC allows any Financial Creditor to initiate the Corporate Insolvency Resolution Process (CIRP) when a default occurs. The Tribunal held that SBI, as a Financial Creditor, had the statutory right to file the application under Section 7 of IBC, irrespective of the Inter Se Agreement or RBI guidelines.3. Applicability of Section 18 of the Limitation Act, 1963:The Tribunal referred to Section 18 of the Limitation Act, which provides that an acknowledgment of liability in writing before the expiration of the prescribed period resets the limitation period. The Tribunal cited recent Supreme Court judgments clarifying the applicability of Section 18 to IBC proceedings. The Corporate Debtor's letters to the banks acknowledging the debt on 21st May 2015 and 15th June 2016 were sufficient to reset the limitation period, making the application filed by SBI timely.Conclusion:The Tribunal dismissed the appeal, confirming the Adjudicating Authority's decision that the application was within the limitation period and that SBI had the right to initiate proceedings under Section 7 of IBC. The interim order preventing the constitution of the Committee of Creditors was lifted, and the period from 29th November 2019 to the date of the judgment was excluded for the purpose of Section 12 of IBC.