2022 (8) TMI 324 - AT - Insolvency and Bankruptcy

Acknowledgment of debt in balance sheets saves application from limitation; exclusion of BIFR period considered. Appeal allowed.

Stressed Assets Stabilisations Funds (SASF) Versus Sky Lead Chemicals Ltd

Stressed Assets Stabilisations Funds (SASF) Versus Sky Lead Chemicals Ltd - TMI Issues Involved:1. Whether the application was barred by the Limitation Act, 1963.2. The applicability of Section 18 of the Limitation Act, 1963 concerning the acknowledgment of debt in the balance sheets.3. The impact of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) proceedings on the limitation period.Detailed Analysis:1. Limitation Act, 1963:The primary issue was whether the application filed by the financial creditor was time-barred under the Limitation Act, 1963. The Adjudicating Authority observed that the application was filed after 14 years from the date of default, making it 'hopelessly time-barred' and hence not maintainable. The Hon'ble Supreme Court's judgment in 'B.K. Education Services Private Limited Vs. Parag Gupta and Associates' was cited, which held that Article 137 of the Limitation Act applies to applications filed under Sections 7 and 9 of the Insolvency and Bankruptcy Code (IBC). The right to sue accrues when a default occurs, and if the default occurred over three years before the filing date, the application would be barred unless Section 5 of the Limitation Act is applied to condone the delay.2. Acknowledgment of Debt in Balance Sheets:The financial creditor argued that the acknowledgment of debt in the balance sheets extended the limitation period under Section 18 of the Limitation Act. The balance sheets from 2004-05 to 2016-17 disclosed and acknowledged the outstanding liability owed by the corporate debtor. The Hon'ble Supreme Court in 'A V Murthy v. B S Nagabasavanna' held that entries in balance sheets could qualify as acknowledgment for the purposes of Section 18. The balance sheets were signed by the directors, which constituted an acknowledgment of debt, thus extending the limitation period.3. Impact of SICA Proceedings:The appellant contended that the period during which the corporate debtor was under the purview of the Board of Industrial & Financial Reconstruction (BIFR) should be excluded from the limitation period. The corporate debtor was declared a sick industrial company, and the proceedings under SICA were pending until its repeal on 01.12.2016. The period between the BIFR reference date and the BIFR dissolution date should be excluded for calculating the limitation period. Section 22 of SICA suspended legal proceedings, which should be considered while calculating the limitation period.Observations and Judgment:- It was undisputed that IDBI Bank transferred the loan account to the appellant, and the matter was referred to BIFR.- The financial creditor initiated CIRP under Section 7 of the IBC on 07.01.2019.- The balance sheets from 2004-05 to 2016-17 acknowledged the outstanding liability, which constituted an acknowledgment of debt under Section 18 of the Limitation Act.- The Hon'ble Supreme Court's judgments in various cases, including 'B.K. Educational Services Pvt. Ltd. v. Parag Gupta' and 'Dena Bank v. C. Shivakumar Reddy,' established that balance sheet entries act as acknowledgment of debt under Section 18, making the initiation of CIRP permissible under Section 7 of the IBC.Conclusion:The application was not barred by limitation due to the acknowledgment of debt in the balance sheets and the exclusion of the period during which the corporate debtor was under BIFR. The appeal was allowed, and the impugned order was set aside. The proceedings were disposed of with no order as to costs.