2021 (12) TMI 628 - AT - Insolvency and Bankruptcy

Tribunal Upholds IBC Application Timeline, Declares Moratorium

The Tribunal held that the application under Section 7 of the Insolvency and Bankruptcy Code (IBC) was within the limitation period as the acknowledgment ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Application was filed beyond three years from the date on which the Account was classified as ‘Non Performing Assets’ - demand made under Section 13(2) of SARFAESI Act, 2002 - time limitation - acknowledgment of liability - HELD THAT:- The object of Section 18(2) of the Limitation Act, 1963 is to ascertain the real date written and signed acknowledgment for the purpose of saving limitation and to exclude fraudulent testimony. Apart from that, unconditional acknowledgment is an implied promise to pay the debt, that is the logical inference, if nothing is uttered to the contrary, as opined by this Tribunal. It is by now well settled that the pendency of the proceeding under SARFAESI Act, 2002 is not a bar in initiating ‘CIRP’ under I&B Code, 2016. It is to be borne in mind that the Respondent/Financial Creditor/ Applicant had given a ‘Reply’ on 30.03.2016 for the proposed ‘One Time Settlement’ made by ‘Corporate Debtor’. Continuing further, it is to be remembered that the Respondent/Financial Creditor had addressed Reply letter to the ‘Corporate Debtor’ dated 19.02.2018 for ‘One Time Settlement’ of the loan amount which was accepted by the Respondent based on Terms and Conditions specified in the Sanction Letter dated 28.02.2018 - It cannot be gainsaid that the Respondent/Financial Creditor, after considering the proposal of the Appellant for ‘One Time Settlement’ through its letter dated 19.02.2018 granted said settlement in and by which the ‘Corporate Debtor’ was required to pay ₹ 2 Crores as against its liability of ₹ 17.12 Crores as on 01.12.2015. As such it is crystalline clear that the new contract had come into play on 19.02.2018 and further that the Application was filed by the Respondent/Applicant (under Section 7 of IBC) on 25.10.2018 which is within period of limitation. The ‘OTS’ proposal of the ‘Corporate Debtor’’ dated 28.02.2018 was accepted by the authorised signatory of the ‘Corporate Debtor’ to the Terms and Conditions and it is brought to the fore that through a letter dated 07.06.2018 of the Respondent/Financial Creditor/Applicant addressed to the ‘Corporate Debtor’, the ‘OTS Letter’ was revoked because of the non-payment of settlement sum by the ‘‘Corporate Debtor’’ in spite of there being loss of time. Suffice to it, to the Tribunal to point out that in the present case, as per new contract, the ‘Corporate Debtor’, apart from the fact that it paid ₹ 1 crore, committed a default in regard to the upfront payment of sum of ₹ 9 Crores in response to the settlement of loan amount and in any event, in law, the new promise had given new cause of action enabling the Respondent/’Corporate Debtor’/Applicant to initiate CIRP under IBC resulting in filing of Application under Section 7 of IBC against the ‘Corporate Debtor’, which is well within period of limitation. Appeal dismissed. Issues Involved:1. Limitation Period for Filing the Application2. Acknowledgment of Liability3. Validity of the One Time Settlement (OTS) Proposal4. Admissibility of Financial Statements as EvidenceDetailed Analysis:1. Limitation Period for Filing the Application:The primary contention by the Appellant was that the application under Section 7 of the Insolvency and Bankruptcy Code (IBC) was filed beyond the three-year limitation period from the date the account was classified as Non-Performing Asset (NPA) on 30.06.2012. The Appellant argued that the application was time-barred as it was filed on 03.10.2018, well beyond the three-year period from the NPA classification and subsequent demand notice under Section 13(2) of the SARFAESI Act, 2002 issued on 04.04.2013.2. Acknowledgment of Liability:The Appellant contended that the acknowledgment of debt in the financial statements for the period 2017-18 and the OTS proposal dated 28.02.2018 did not constitute an acknowledgment of liability under Section 18 of the Limitation Act, 1963, as these acknowledgments were made after the expiry of the three-year limitation period. The Respondent, however, argued that the acknowledgment in the financial statements and the OTS proposal extended the limitation period, making the application timely.3. Validity of the One Time Settlement (OTS) Proposal:The Respondent submitted that the OTS proposal dated 28.02.2018, which was acknowledged and signed by the Corporate Debtor, constituted a new contract, thereby extending the limitation period. The Respondent further argued that the Corporate Debtor's failure to comply with the OTS terms led to the revocation of the OTS on 07.06.2018, giving rise to a fresh cause of action.4. Admissibility of Financial Statements as Evidence:The Respondent relied on the financial statements and balance sheets of the Corporate Debtor for the years 2013-17 as evidence of acknowledgment of debt. The Appellant contended that these documents, executed beyond the three-year period, could not be considered as valid acknowledgment of liability.Judgment Analysis:Limitation Period:The Tribunal observed that the acknowledgment of debt in the financial statements for the years 2013-17 and the OTS proposal dated 28.02.2018 constituted valid acknowledgment of liability under Section 18 of the Limitation Act, 1963. The Tribunal noted that the balance sheets for the financial year 2017-18 showed secured borrowings, which constituted acknowledgment of debt, thereby extending the limitation period.Acknowledgment of Liability:The Tribunal held that the acknowledgment of liability in the financial statements and the OTS proposal was sufficient to extend the limitation period. The Tribunal cited various judgments, including the Hon'ble Supreme Court's decision in 'Asset Reconstruction Company (India) Limited V. Bishal Jaiswal and Anr,' which held that acknowledgment of liability in financial statements extends the limitation period.Validity of the OTS Proposal:The Tribunal found that the OTS proposal dated 28.02.2018, which was accepted by the Corporate Debtor, constituted a new contract, thereby providing a fresh cause of action. The Tribunal noted that the Corporate Debtor's failure to comply with the OTS terms led to the revocation of the OTS on 07.06.2018, giving the Respondent a new cause of action to initiate the Corporate Insolvency Resolution Process (CIRP).Admissibility of Financial Statements:The Tribunal held that the financial statements and balance sheets of the Corporate Debtor for the years 2013-17 constituted valid acknowledgment of liability. The Tribunal noted that the balance sheets were duly stamped and signed by the Auditor and the Board of Directors of the Corporate Debtor, thereby extending the limitation period.Conclusion:The Tribunal concluded that the application under Section 7 of the IBC filed by the Respondent was within the limitation period, as the acknowledgment of liability in the financial statements and the OTS proposal extended the limitation period. The Tribunal upheld the Adjudicating Authority's order dated 06.08.2021, admitting the application and declaring a moratorium. The appeal was dismissed, and the connected pending I.A. was closed.