2022 (12) TMI 979 - AT - Insolvency and Bankruptcy

Appeal allowed due to debt acknowledgments; NCLT order set aside

The Tribunal allowed the appeal, holding that the Section 7 application was not barred by limitation as there were consistent acknowledgments of debt by ... Initiation of CIRP - Period of limitation - Financial Creditors - existence of debt and dispute or not - Time Limitation - whether the Adjudicating Authority was justified in dismissing the Application filed under Section 7 of the Code as barred by Limitation and also holding that there was no default? - HELD THAT:- The issue of Limitation is to be tested on the touchstone of the ratio of the Hon’ble Apex Court in DENA BANK (NOW BANK OF BARODA) VERSUS C. SHIVAKUMAR REDDY AND ANR. [2021 (8) TMI 315 - SUPREME COURT], wherein the Hon’ble Apex Court has clearly laid down that Judgement/decree for money or Certificate of Recovery or Arbitral Award in favour of the ‘Financial Creditor’, constitutes an ‘acknowledgement of debt’ and gives rise to a fresh cause of action, provided it is within three years of the default. In the instant case, it is the main case of the Respondent/‘Corporate Debtor’ that the date of NPA is 2009 and hence has to be construed as the ‘date of default’. It is also seen from the Balance Sheets that there has been an acknowledgement of liability upto the years 2018-19. The contention of the Learned Counsel for the Respondent that the Restructuring Letters were sanctioned beyond three years of the date of NPA and therefore is barred by Limitation is untenable as at the cost of repetition we hold that as per the ratio of the Hon’ble Apex Court in ‘LAXMI PAT SURANA VERSUS UNION BANK OF INDIA & ANR. [2021 (3) TMI 1179 - SUPREME COURT] the date of default cannot be strictly construed as the date of NPA. The material on record shows that the Corporate Debtor has been consistently acknowledging its debt from 31.03.2010 onwards by way of letters in Restructuring Packages, and also by way of communication the Appellant/Financial Creditor for Restructuring, apart from the liability being shown in the Balance Sheets. The Section 7 Application is not barred by Limitation, and that there is a debt and default, and the facts of the instant case are squarely covered by the ratio of the Hon’ble Apex Court in Dena Bank (now Bank of Baroda) - appeal allowed. Issues Involved:1. Whether the Section 7 application filed under the Insolvency and Bankruptcy Code (IBC) was barred by limitation.2. Whether there was a default by the Corporate Debtor.Issue-wise Detailed Analysis:1. Limitation Period of Section 7 Application:The primary issue was whether the Section 7 application filed by Edelweiss Asset Reconstruction Company Limited (the Appellant) was barred by limitation. The National Company Law Tribunal (NCLT) had dismissed the application on the grounds that it was filed beyond the three-year limitation period. The NCLT observed that the cause of action arose on 31.03.2009 or 28.06.2012, and since the application was filed on 08.03.2020, it was beyond the limitation period as per the Limitation Act, 1963.The Appellant argued that the liability was acknowledged through various restructuring letters, request letters, and balance sheets, which should extend the limitation period. The Appellant cited several judgments, including 'Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy & Anr.' (2021) 10 SCC 330, to support the contention that acknowledgments of debt in the balance sheets and other documents extended the limitation period.The Respondent contended that the acknowledgments relied upon by the Appellant were outside the three-year limitation period from the date of NPA (Non-Performing Asset), which was 30.06.2009. They argued that the restructuring letters and recovery certificates were obtained in contravention of the restructuring package and were beyond the limitation period.The Tribunal referred to the Supreme Court's judgment in 'Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy & Anr.' (2021) 10 SCC 330, which held that a judgment, decree, or recovery certificate constitutes an acknowledgment of debt and gives rise to a fresh cause of action within three years of the default. The Tribunal also referred to the judgment in 'Laxmi Pat Surana Vs. Union Bank of India & Anr.' (2021) 8 SCC 481, which clarified that the date of default does not strictly mean the date of NPA but rather the non-payment of debt that has become due and payable.The Tribunal concluded that the Section 7 application was not barred by limitation as there were consistent acknowledgments of debt by the Corporate Debtor through restructuring packages, balance sheets, and other communications.2. Existence of Default by the Corporate Debtor:The second issue was whether there was a default by the Corporate Debtor. The NCLT had found that there was no default as the restructuring package envisaged payment from operational cash flows, and the Corporate Debtor had not defaulted in repayment of loans or borrowings to banks and financial institutions.The Appellant argued that the restructuring packages, balance sheets, and other communications evidenced a default by the Corporate Debtor. They pointed to the revocation letters dated 22.09.2016 and 01.06.2018, demand notices, and letters from the Corporate Debtor acknowledging their inability to comply with the restructuring terms.The Respondent argued that there was no default as the payments were linked to operational cash flows, and the account was declared an NPA in 2009. They contended that the restructuring packages and recovery certificates were obtained beyond the limitation period and did not constitute a default.The Tribunal referred to the Supreme Court's judgment in 'Laxmi Pat Surana Vs. Union Bank of India & Anr.' (2021) 8 SCC 481, which clarified that the date of default is the non-payment of debt that has become due and payable. The Tribunal found that the Corporate Debtor had consistently acknowledged its debt through restructuring packages, balance sheets, and other communications.The Tribunal concluded that there was a default by the Corporate Debtor, and the Section 7 application was valid. The Tribunal allowed the appeal, set aside the NCLT's order, and directed the Adjudicating Authority to proceed in accordance with the law.Conclusion:The Tribunal allowed the appeal, holding that the Section 7 application was not barred by limitation and that there was a default by the Corporate Debtor. The NCLT's order was set aside, and the Adjudicating Authority was directed to proceed in accordance with the law.