2024 (11) TMI 801 - AT - IBC

NCLAT upholds Section 7 application admission after corporate debtor's written repayment promise resets limitation period

NCLAT dismissed appeal challenging admission of Section 7 application filed by financial creditor. Tribunal held financial debt was established through ... Admission of Section 7 application filed by the Financial Creditor through Interim Resolution Professional (IRP) - financial debt present in the case or not - Section 10A of the IBC Code - Section 7 application filed by the Financial Creditor dated 20.01.2023 was barred by time, loan having disbursed on 16.12.2016 or not - Section 7 application was barred by Section 10A since as per the letter dated 20.08.2020 issued by the Corporate Debtor and acknowledged by the Financial Creditor the amount was to be paid by the Corporate Debtor by 01.12.2020 and the default if any occurred on 01.12.2020 is hit by Section 10A or not. Whether Financial Creditor has been able to prove that there was financial debt? - HELD THAT:- It is relevant to notice that in Section 7 application, the financial creditor has filed its ledger with regard to corporate debtor which is part of Section 7 application and as per the ledger as on 31.03.2020 amount outstanding was Rs.4,74,48,109/-. The ledgers indicate that there was entry of payment of interest as on 31.03.2017, 31.03.2018, 31.03.2019 and 31.03.2020. Payment of TDS was also mentioned. A perusal of the ledger indicate that the closing balance of amount in the ledger of the corporate debtor as on 31.03.2020 towards the financial creditor was Rs.4,78,69,260/-. There were entries regarding ‘interest on loan’ and ‘TDS on interest’ in the ledger of both the corporate debtor and the financial creditor, hence, there is no doubt that the amount is a financial debt. Further in the letter dated 20.08.2020 which has been written by the corporate debtor to the financial creditor, there is a clear admission of loan - Financial Creditor has successfully proved that there is a financial debt. Whether Section 7 application filed by the Financial Creditor dated 20.01.2023 was barred by time, loan having disbursed on 16.12.2016? - HELD THAT:- In the present case, we have already noted the letter dated 20.08.2020 which was filed by the corporate debtor in the reply to Section 7 application. Reliance has been placed on the said letter by the Appellant also in the present Appeal. The letter dated 20.08.2020 contained a promise to repay the outstanding amount. Even for arguments’ sake, if we accept that three years period as per Article 21 came to end on 15.12.2019, the letter dated 20.08.2020 is clear promise by the corporate debtor to make the payment and as per Section 25 of the Indian Contract Act, 1872, the corporate debtor is bound by the said promise and fresh period of limitation shall commence from 20.08.2020 - Section 25(3) is attracted when a promise is made by letter to make the payment of a time barred debt. In view of Section 25(3), the said promise is enforceable and the promise in writing given by the corporate debtor in letter dated 20.08.2020 will make the said promise enforceable within a period of three years and the application which was filed by the financial creditor dated 20.01.2023 cannot be said to be barred by time. Hence the application under Section 7 cannot be held to be barred by time relying on Article 21 of the Limitation Act. Whether Section 7 application was barred by Section 10A since as per the letter dated 20.08.2020 issued by the Corporate Debtor and acknowledged by the Financial Creditor the amount was to be paid by the Corporate Debtor by 01.12.2020 and the default if any occurred on 01.12.2020 is hit by Section 10A? - HELD THAT:- It is well settled when default has been committed by the Corporate Debtor prior to commencement of Section 10A period, the application filed under Section 7 cannot be held to be barred by Section 10A. In the present case, as per the case of the Appellant, default took place since the loan was payable within three years from the date of grant of the loan i.e. from 16.12.2016 - Notice issued by the IRP was neither replied nor any amount was paid, hence, the financial creditor treated the date of default as 07.12.2022 i.e. 7 days from the notice - thus, the application filed by the financial creditor was not barred by Section 10A. One of the submissions also advanced by Counsel for the Appellant is that in the letter dated 20.08.2020 it was provided that in the event, the payment is not made by the corporate debtor prior to 01.12.2020, the financial creditor will be entitled to two residential premises in the project which is currently being developed by the Director of the company. The letter dated 20.08.2020 cannot extinguish the financial debt on a promise to allot two residential premises which is developed not by the corporate debtor but Director of the company. It is not satisfied that the financial debt shall extinguish by the promise made in the letter dated 20.08.2020. There are no error in the order of the Adjudicating Authority admitting Section 7 application. There is no merit in the Appeal. The Appeal is dismissed. Issues Involved:1. Whether the amount claimed by the Applicant under Section 7 was a financial debt.2. Whether Section 7 application filed by the Financial Creditor dated 20.01.2023 was barred by time, given the loan was disbursed on 16.12.2016.3. Whether Section 7 application was barred by Section 10A since, as per the letter dated 20.08.2020 issued by the Corporate Debtor and acknowledged by the Financial Creditor, the amount was to be paid by 01.12.2020, and the default, if any, occurred on 01.12.2020, is hit by Section 10A.Detailed Analysis:1. Financial Debt:The Tribunal examined whether the amount claimed under Section 7 constituted a financial debt. The Financial Creditor provided ledgers indicating outstanding amounts and interest payments, suggesting a financial debt. The Corporate Debtor's own ledger and the letter dated 20.08.2020 acknowledged the loan, reinforcing the existence of a financial debt. The Tribunal concluded that the Financial Creditor successfully proved the existence of a financial debt.2. Time-Barred Application:The Appellant argued that the application was time-barred under Article 21 of the Limitation Act, which provides a three-year limitation for loans payable on demand. The loan was disbursed on 16.12.2016, suggesting the limitation expired on 15.12.2019. However, the Tribunal noted the letter dated 20.08.2020, where the Corporate Debtor promised repayment, effectively extending the limitation period under Section 25(3) of the Indian Contract Act, 1872. This promise in writing revived the limitation period, making the application filed on 20.01.2023 timely.3. Section 10A Bar:The Appellant contended that the application was barred by Section 10A of the IBC, as the default occurred during the period protected by Section 10A. The Tribunal found this argument unconvincing, noting that the default was based on a demand notice issued on 29.11.2022, with the default date being 07.12.2022, outside the Section 10A period. The Tribunal emphasized that the Corporate Debtor could not retroactively select a default date within the Section 10A period to evade liability.Conclusion:The Tribunal dismissed the appeal, upholding the Adjudicating Authority's decision to admit the Section 7 application. The Tribunal found no merit in the Appellant's arguments regarding the financial debt, time-bar, or applicability of Section 10A, and confirmed the existence and enforceability of the financial debt.