2025 (4) TMI 1196 - AT - IBC

Section 7 application admission upheld despite limitation defense due to debt acknowledgments extending limitation period

Mallick Heemghar Pvt. Ltd. Versus Central Bank of India & Anr.

NCLAT upheld the Adjudicating Authority's admission of Section 7 application filed by Central Bank against Corporate Debtor, rejecting limitation defense. ... Admission of Section 7 application filed by the Central Bank of India against the Corporate Debtor - application barred by time limitation - whether between 28.01.2014 where corporate debtor has acknowledged and 22.11.2018 which is also another OTS submitted by corporate debtor, there are any material to indicate that there is any acknowledgment within three years from the first acknowledgment? - HELD THAT:- Acknowledgment has to be treated on 28.01.2014 as well as 07.05.2014 and we have to find out whether after 07.05.2014 within three years there are any other acknowledgment because the acknowledgment dated 22.11.2018 is beyond period of three years. The written statement of the Defendant as noticed by the Court is clear acknowledgment of the dues of the bank. OTS amount of Rs.5.78 Crores was noted to be payable with overdue interest at PLR on reducing balance. Defendant further stated that interveners are duty bound to pay the balance amount with overdue interest. The order of the DRT, thus, clearly records the acknowledgment of the corporate debtor about the dues of the bank. The above is also clear acknowledgment of the corporate debtor recorded by the Court on 15.06.2016/ 20.01.2017. Thus, after 07.05.2014 there is acknowledgment within three years. Thus, from the above, it is clear that there are innumerable acknowledgments by the corporate debtor on the record capable of extending the period of limitation and the application which was filed on 13.11.2019 (24.01.2020 as noted by the Adjudicating Authority) is well within the time and cannot be thrown out on this ground. The case of the appellant is that no payment has been made by the appellant after 30.06.2015. Payments made by the appellant are also reflected in the bank statement brought on the record. The entire OTS amount was not paid within time as allowed by the OTS letter dated 07.05.2014. OTS has come to an end. It is also relevant to notice that after receiving OTS letter dated 07.05.2014, as noted above, the corporate debtor has written letter to the bank on 16.05.2019 where the corporate debtor has requested the bank to restore possession to the corporate debtor so it can arrange to pay the OTS amount may be at a time. Appellant is illegally continuing in the possession of the assets of the corporate debtor being not paid any payment after 30.06.2015 i.e. for the last 10 years. It is enjoying possession of cold storage and as noted above, Resolution Professional has filed application for taking possession before the Adjudicating Authority where Adjudicating Authority has directed the Resolution Professional to take possession which could not be taken in view of the interim order passed by this Tribunal. Resolution Professional has also filed an application seeking recovery for amount on account of illegal gains obtained by the appellant by utilising and running the valuable assets of the corporate debtor. The order passed by the Adjudicating Authority admitting Section 7 application against the corporate debtor is upheld. The interim order passed in this appeal on 29.08.2022 is vacated. Resolution Professional to proceed with the CIRP in accordance with law - The period from 29.08.2022 till date is excluded from CIRP period. Conclusion - i) The Adjudicating Authority's order admitting Section 7 application is not liable to be set aside merely on the ground of limitation if the debtor has acknowledged the debt within the limitation period. ii) The Resolution Professional is entitled to take possession of the corporate debtor's assets to carry out the CIRP, and the Court can direct forcible possession if the appellant refuses to hand over possession. Appeal disposed off. Issues Presented and ConsideredThe core legal questions considered by the Tribunal in this appeal include:Whether the Section 7 application filed by the financial creditor (Central Bank of India) against the corporate debtor was maintainable and not barred by limitation.The effect of the settlement agreement (One Time Settlement - OTS) dated 07.05.2014 and subsequent payments made by the appellant on the limitation and acknowledgment of debt.The legal status and rights of the appellant, who claims possession of the corporate debtor's assets under an agreement dated 28.01.2014, and whether the appellant has locus to challenge the initiation of the Corporate Insolvency Resolution Process (CIRP).The entitlement of the Resolution Professional to take possession of the corporate debtor's assets and proceed with the CIRP, given the appellant's possession and alleged illegal occupation.The applicability of limitation laws and whether the Section 7 application was barred by time, considering the dates of NPA, default, and subsequent acknowledgments.Issue-wise Detailed Analysis1. Maintainability and Limitation of Section 7 ApplicationThe legal framework governing the initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) requires the financial creditor to demonstrate existence of debt and default by the corporate debtor. Additionally, limitation principles under the Limitation Act, 1963 apply to such proceedings, whereby the limitation period is three years from the date of default or acknowledgment of debt.The appellant contended that the Section 7 application filed on 13.11.2019 was barred by limitation, since the date of NPA was 27.09.2011 and default occurred on 26.06.2011. It was argued that no acknowledgment under Section 18 or 19 of the Limitation Act was made within the three-year period, and that the OTS request in 2018 could not revive the limitation period.The Court noted that the corporate debtor itself did not raise any limitation objection before the Adjudicating Authority. The reply affidavit of the corporate debtor acknowledged the debt and referred to the settlement agreement with the appellant and payments made. The Tribunal emphasized that limitation objections must be raised by the debtor and cannot be raised by a third party occupier (the appellant) who is not a party to the Section 7 application.Further, the Tribunal examined the record and found multiple acknowledgments of debt by the corporate debtor, including the agreement dated 28.01.2014 acknowledging the debt, and the OTS dated 07.05.2014 sanctioned by the Bank. The OTS required payment of Rs. 12.5 Crores with specified installments and interest, with a clause that default would render the OTS void.The Tribunal also considered the orders of the Debt Recovery Tribunal (DRT), which recorded acknowledgments by the corporate debtor of the dues and the OTS terms, including payments made by the appellant on behalf of the corporate debtor. The DRT orders of 2016 and 2017 confirmed that the corporate debtor acknowledged the debt and the appellant was permitted to intervene, given its payments and possession of assets.These acknowledgments extended the limitation period, rendering the Section 7 application filed in 2019 within time. The Tribunal held that the application was not barred by limitation and was maintainable.2. Status and Rights of the Appellant in Possession of Corporate Debtor's AssetsThe appellant claimed to have taken possession of the corporate debtor's assets pursuant to an agreement dated 28.01.2014, involving payment of Rs. 50 lakhs and the right to run the cold storage business. The appellant argued it had locus to challenge the CIRP initiation and had made payments totaling Rs. 6.74 Crores towards the OTS.The Bank and Resolution Professional opposed this, contending that the appellant was illegally occupying the assets since 2014 without paying the full OTS amount of Rs. 12.5 Crores, which had lapsed due to breach. The appellant's possession was unauthorized and without consent of the Bank.The Tribunal noted that the agreement between the appellant and the corporate debtor was not with the Bank's consent, and the appellant had failed to complete payments under the OTS. The corporate debtor had also requested the Bank to restore possession to it in 2019 to arrange payment of the OTS amount.The Resolution Professional submitted that the appellant had denied access to the corporate debtor's assets for over eight years and had misappropriated the assets, seeking recovery of illegal gains. The Tribunal directed the appellant to hand over possession within 30 days, failing which the Resolution Professional could take possession with administrative and police assistance.3. Application of Law to Facts and Treatment of Competing ArgumentsThe Tribunal applied the principles of acknowledgment under the Limitation Act, noting that the corporate debtor's repeated acknowledgments and the OTS sanctioned by the Bank revived the limitation period. The appellant's argument on limitation was rejected as it was not a party to the Section 7 application and had not raised limitation before the Adjudicating Authority.The Tribunal also rejected the appellant's claim to challenge the CIRP initiation on the basis of possession, holding that the appellant's possession was illegal and unauthorized. The Bank's and Resolution Professional's rights to initiate CIRP and take possession were upheld.The Tribunal carefully considered the DRT orders, the OTS terms, payments made, and correspondence between parties, concluding that the Bank's claim was valid and the appellant's payments were insufficient and incomplete.Significant HoldingsThe Tribunal held:'The debtor having acknowledged the debt time and again and have not pleaded that debt is time barred, it is not open for Appellant, an illegal occupier to plea that there is no acknowledgment within three years from 07.05.2014.''The application which was filed on 13.11.2019 (24.01.2020 as noted by the Adjudicating Authority) is well within the time and cannot be thrown out on this ground.''The order passed by the Adjudicating Authority admitting Section 7 application against the corporate debtor is upheld.''The Appellant is directed to handover possession of the assets of the corporate debtor within 30 days to the Resolution Professional, failing which Resolution Professional may take possession of the assets of the corporate debtor with the help of the district administrative and police authorities.'Core principles established include:Acknowledgments of debt by the corporate debtor revive the limitation period for filing Section 7 applications under the IBC.An illegal occupier of corporate debtor's assets cannot challenge the initiation of CIRP or claim locus to oppose the financial creditor's application.The Adjudicating Authority's order admitting Section 7 application is not liable to be set aside merely on the ground of limitation if the debtor has acknowledged the debt within the limitation period.The Resolution Professional is entitled to take possession of the corporate debtor's assets to carry out the CIRP, and the Court can direct forcible possession if the appellant refuses to hand over possession.