2021 (12) TMI 86 - AT - Insolvency and Bankruptcy

Tribunal allows appeal, directs Adjudicating Authority on Moratorium order.

The Tribunal allowed the Appeal, setting aside the Adjudicating Authority's judgment and directed the Adjudicating Authority to pass consequential orders, ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial creditors - financial debt or not - acknowledgment of debt within the meaning of Section 18 of the Limitation Act, 1963 - HELD THAT:- On consideration of documents and correspondences including the Balance Sheets, the conclusion is inescapable that the amount of ₹ 40.75 Crores advanced by the Appellant was nothing but was a financial debt within the meaning of ‘I&B Code’ and the Adjudicating Authority committed error in holding that the Appellant is not a ‘Financial Creditor’. Whether the acknowledgment contained in the Balance Sheets as noted above, the Appellant will have a fresh period of limitation as per Section 18 of the Limitation Act? - HELD THAT:- Even if 01.09.2012 is treated to be the date of default, the three years’ period will be there till 31.08.2015 and there being acknowledgment of the debt in the Balance Sheet for the years 2014-15 upto 2018-19 there shall be fresh period of limitation on each acknowledgment and Application filed on March, 2020 cannot be said to be barred by time - It is true that each Balance Sheet has to be examined on a case to case basis to establish whether acknowledgment of liability in fact has been made. It is noted that all the Balance Sheets referred above clearly establish acknowledgment of liability by the Corporate Debtor. Thus, Section 18 is clearly attracted giving fresh period of limitation even in the event, we accept the submission of the Respondent that default was committed on 01.09.2012. The Adjudicating Authority committed error in rejecting the Application filed by the Appellant under Section 7 - Appeal allowed. Issues Involved:1. Whether Corporate Debtor owed a financial debt to the Appellant in the facts of the present caseRs.2. Whether Balance Sheets for the years 2014-15, 2015-16, 2016-17, 2017-18, and 2018-19, contained acknowledgment of debt within the meaning of Section 18 of the Limitation Act, 1963 so as to give benefit of fresh limitation period to the AppellantRs.3. Whether the Application filed under Section 7 by the Appellant was barred by time and has rightly been rejected by the Adjudicating AuthorityRs.Issue-wise Detailed Analysis:1. Financial Debt Owed by Corporate Debtor:The Appellant advanced various amounts to the Corporate Debtor for the development of the Corporate Debtor's property. Letters dated 03.06.2011, 22.07.2011, 10.10.2011, and 01.02.2012 detailed the financial assistance provided by the Appellant. The Corporate Debtor acknowledged receipt of Rs. 40.75 Crores in its Balance Sheets for the years 2014-15 to 2018-19. The MoU dated 10.10.2011, which was confirmed by both parties, detailed the terms of financial assistance and repayment with interest if the marketing arrangement was terminated. The Tribunal concluded that the amount advanced by the Appellant was a financial debt within the meaning of the I&B Code, and the Adjudicating Authority erred in holding otherwise.2. Acknowledgment of Debt in Balance Sheets:The Balance Sheets of the Corporate Debtor for the years 2014-15 to 2018-19 acknowledged the receipt of Rs. 40.75 Crores as an advance towards project development. This acknowledgment, as per Section 18 of the Limitation Act, 1963, provided a fresh limitation period for the Appellant. The Tribunal referred to the Supreme Court's judgment in 'Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Anr.' (2021) 6 SCC 366, which held that acknowledgment in Balance Sheets is sufficient for attracting Section 18 of the Limitation Act. The Tribunal concluded that the acknowledgment in the Balance Sheets gave the Appellant a fresh period of limitation, making the Section 7 Application timely.3. Application Barred by Time:The Adjudicating Authority held that the Application was barred by limitation, considering the date of default as 01.09.2012. However, the Tribunal noted that the Appellant filed the Commercial Suit on 12.07.2017, and the Respondent's reply in the suit indicated a denial of liability, which could be treated as the date of default. The Tribunal also considered the acknowledgment of debt in the Balance Sheets, which extended the limitation period. Therefore, the Tribunal concluded that the Application filed under Section 7 was within the limitation period, and the Adjudicating Authority erred in rejecting it on this ground.Conclusion:The Tribunal allowed the Appeal, setting aside the Adjudicating Authority's judgment dated 25.01.2021. The Tribunal directed the Adjudicating Authority to pass consequential orders, including the order of Moratorium, within one month from the date of the order. The Tribunal also noted that parties could endeavor to enter into a settlement during this period.