2022 (11) TMI 1532 - AT - IBC

Section 7 insolvency application dismissed as time-barred under Article 137 limitation period despite subsequent acknowledgments

Central Bank of India, Versus Himmat Steel Foundry Limited,

The NCLAT dismissed an appeal challenging rejection of a Section 7 application under the Insolvency and Bankruptcy Code. The appellant argued limitation ... Rejection of Application under Section 7 of Insolvency and Bankruptcy Code, 2016 - application barred by time or not - Appellant contends that computation of limitation ought not be made with effect from 10th April, 2000 when decree was passed by the DRT in favour of the Financial Creditor rather computation of limitation should be taken with effect from 26th July, 2004 when DRT passed decree in favour of another Financial Creditor i.e. IDBI Bank - whether the Application filed by the Appellant under Section 7 on 16.03.2020 was barred by time? HELD THAT:- The law is well settled that limitation for filing the Section 7 Application is limitation as prescribed under Article 137 of the Limitation Act, 1963. The basis of the Application is not the default committed qua IDBI Bank another Financial Creditor. When the Application is not founded on the default of the another Financial Creditor-IDBI Bank although under Section 7 Sub-Section 1 read with Explanation it is permissible for a Financial Creditor to file Section 7 Application on default committed by the Corporate Debtor of any other Financial Creditor and when factually the Application under Section 7 filed not for the default of IDBI Bank rather the Application is specifically filed confined to the default of the Corporate Debtor of the Financial Facilities extended by the Appellant, we do not find any substance in the submission of Learned Counsel for the Appellant that limitation for filing Section 7 Application be computed on the basis of decree of the IDBI Bank passed in favour of IDBI Bank dated 26th July, 2004. The Decree passed by the DRT dated 26th July, 2004 on the Application filed by the IDBI was not even filed before the Adjudicating Authority and for the first time the decree has been filed along with this Appeal. Mere filing decree in this Appeal shall not entitle the Appellant to compute the limitation for filing Section 7 Application in question on the basis of decree dated 26th July, 2004. The decree dated 26th July, 2004 passed in the O.A. of IDBI is irrelevant for the purposes of computation of limitation for filing Section 7 Application by the Appellant. The Adjudicating Authority has rightly come to the conclusion that Section 7 Application which was filed on 16th March, 2020 is barred by time. Limitation which was available to the Appellant on the basis of decree of DRT dated 10th April, 2000 came to an end on 09th April, 2003. It is also relevant to notice that acknowledgement claimed by the Appellant by virtue of OTS or any acknowledgement in the Financial Statement are all acknowledgement which are subsequent to expiry of limitation i.e. subsequent to 09th April, 2003. Acknowledgement under Section 18 can be relied on only when acknowledgement is within time and limitation. The Application filed by the Appellant was clearly barred by time and has rightly been rejected by the Adjudicating Authority. There are no merit in the appeal - appeal dismissed. Issues Involved:1. Whether the application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, was barred by time.2. The applicability of Section 18 of the Limitation Act regarding acknowledgment of debt.3. The relevance of Section 25(3) of the Indian Contract Act in extending the limitation period.4. The effect of the decree passed by the Debt Recovery Tribunal (DRT) in favor of another financial creditor on the limitation period for the appellant.Detailed Analysis:1. Barred by Time:The primary issue addressed in the judgment was whether the application filed by the appellant under Section 7 of the Insolvency and Bankruptcy Code (IBC) was barred by time. The application was dismissed by the National Company Law Tribunal (NCLT) on the grounds that it was filed beyond the limitation period prescribed under Article 137 of the Limitation Act, 1963, which provides a three-year limitation period from when the right to apply accrues. The appellant argued that the limitation period should be computed from a later date, specifically from a decree passed by the DRT in favor of another financial creditor, IDBI Bank, on 26th July 2004. However, the tribunal held that the relevant decree for computing limitation was the one passed in favor of the appellant on 10th April 2000, and the application filed on 16th March 2020 was well beyond the three-year limitation period, making it time-barred.2. Acknowledgment of Debt and Section 18 of the Limitation Act:The appellant contended that acknowledgments in the balance sheet of the corporate debtor and proposals for One Time Settlement (OTS) constituted acknowledgment of debt, thereby extending the limitation period under Section 18 of the Limitation Act. However, the tribunal noted that these acknowledgments occurred after the expiry of the original limitation period, which ended on 9th April 2003. According to Section 18(1), an acknowledgment must occur before the expiration of the prescribed period to extend the limitation. Therefore, the tribunal concluded that these acknowledgments could not revive the limitation period.3. Section 25(3) of the Indian Contract Act:The appellant also invoked Section 25(3) of the Indian Contract Act, arguing that the OTS offers amounted to a promise to pay a time-barred debt, thus extending the limitation period. However, the tribunal refused to consider this argument, noting that it was not raised before the adjudicating authority or in the grounds of appeal. It was only mentioned in the rejoinder-affidavit and during oral submissions. The tribunal emphasized that such submissions require consideration of facts and evidence and cannot be entertained in the appeal without a proper foundation.4. Effect of DRT Decree in Favor of Another Creditor:The appellant argued that the limitation period should be computed based on the decree passed in favor of IDBI Bank, another financial creditor, on 26th July 2004, as per the explanation to Section 7(1) of the IBC, which allows for a default in respect of a financial debt owed to any financial creditor to be considered. However, the tribunal held that the application was specifically filed based on the default of the appellant's financial facilities, not the default of IDBI Bank. Since the application was not founded on the default of another financial creditor, the decree in favor of IDBI Bank was deemed irrelevant for computing the limitation period.Conclusion:The tribunal upheld the decision of the NCLT, concluding that the Section 7 application was time-barred, and dismissed the appeal. The tribunal found no merit in the appellant's arguments regarding the computation of the limitation period and the applicability of Sections 18 and 25(3) of the Limitation Act and the Indian Contract Act, respectively.