2025 (11) TMI 1203 - AT - IBC

Section 7 IBC plea held time-barred; cash deposit not acknowledgment under Section 19, Section 14 inapplicable

NCLAT dismissed the appeal and upheld rejection of the financial creditor's Section 7 IBC application as time-barred. While acknowledging that loan ... Rejection of Section 7 application filed by the Appellant on the ground that disbursement has not been proved and application is barred by limitation - HELD THAT:- The Appellant has rightly in his submissions has referred to NeSL Certificate, which was not disputed and bank statement which was on the record to prove disbursement. Moreso, the Corporate Debtor not appearing before the Adjudicating Authority and not disputing the disbursement, the Adjudicating Authority ought not to have returned that finding. Time limitation - HELD THAT:- Two submissions have been advanced to contend said argument. First is that the amounts were deposited in the account of the Corporate Debtor on two dates i.e. 25.11.2016 of Rs.89,11,116/- and Rs.1000/- on 17.12.2016. Coming to the amount which are shown in the bank statement, the deposit on 25.11.2016 does not give benefit to the Appellant since application was filed after three years after said date. Coming to the deposit of Rs.1000/- is claimed on 17.12.2016, it is clear that said amount shown is as cash deposit, there is nothing more on the record to come to the conclusion that Bank was entitled for benefit under Section 19 of the Limitation Act. Judgment of the Hon’ble Supreme Court in Sesh Nath Singh & Anr. vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr. [2021 (3) TMI 1183 - SUPREME COURT] was a case where SARFAESI proceeding were initiated which were prima facie without jurisdiction and on the said ground the High Court has already stayed the said proceedings that they are prima facie without jurisdiction, benefit of Section 14 of the Limitation Act was extended in the said background. Present is a case, where benefit of Section 14 of Limitation Act is claimed on the basis of proceedings initiated under Section 19 of the Recovery of Debt and Bankruptcy Act, 1993, which was filed for recovery. It is not case of the bank that the proceedings initiated before the DRT were without jurisdiction or there was any defect of jurisdiction or cause of like nature to extend benefit under Section 14 of the Limitation Act. The judgment of the Hon’ble Supreme Court in Sesh Nath Singh & Anr. is not applicable in the facts of the present case. The Adjudicating Authority has rightly rejected the Section 7 application filed by the Appellant. There is no merit in the appeal. Appeal is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority erred in finding that disbursement of loan amount was not proved where a NeSL certificate and bank statements were on record and the Corporate Debtor did not appear or contest the claim. 2. Whether the Section 7 application was time-barred and, if so, whether any intervening events or proceedings entitled the applicant to exclusion of time under Section 14 of the Limitation Act or other provisions (including reliance on principles laid down in Sesh Nath Singh) so as to render the Section 7 filing within limitation. 3. Whether proceedings initiated under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 (an OA before the DRT) that are pending can, without more, attract exclusion under Section 14 of the Limitation Act for computation of limitation for a subsequent Section 7 IBC application. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Proof of disbursement Legal framework: For a Section 7 application the financial creditor must establish existence of debt and default, typically by producing records such as bank statements and electronic validation certificates (NeSL certificate) evidencing disbursement and a date of default. Precedent Treatment: The Court applied established principles that documentary evidence on record, when unchallenged by the Corporate Debtor, is admissible and sufficient to establish disbursement for purposes of a Section 7 claim. Interpretation and reasoning: The Court observed that the NeSL certificate was not disputed and relevant bank statements were filed. The Corporate Debtor did not appear before the Adjudicating Authority to contest disbursement. Given the uncontroverted documentary proof on record, the Adjudicating Authority ought not to have concluded that disbursement was not proved. Ratio vs. Obiter: Ratio - where an electronic validation certificate and bank statements are on record and undisputed, they constitute sufficient proof of disbursement in a Section 7 proceeding; Adjudicating Authorities should not reject disbursement findings absent challenge or contrary material. Conclusions: The Court held that the Adjudicating Authority erred in rejecting the Section 7 application on the ground that disbursement was not proved. Issue 2 - Limitation: computation and claimed exclusions Legal framework: Section 7 IBC claims are governed by the Limitation Act for computation of limitation; Section 14 (suspension of limitation) may exclude periods during which proceedings are pending in certain circumstances; Section 5 may also be invoked to condone delay for sufficient cause. Precedent Treatment: The Court considered and analyzed the principles in the Supreme Court decision extending Section 14 relief where prior proceedings (e.g., SARFAESI) were pending or stayed on grounds such as lack of jurisdiction, and where exclusion produced a timely subsequent Section 7 filing. Interpretation and reasoning: The Court noted the date of default (19.09.2015) and that the Section 7 application was filed on 10.12.2019 - beyond the three-year limitation. The Court examined claimed intervening deposits (25.11.2016 and 17.12.2016) and found that the larger deposit did not avail the applicant because the Section 7 filing was still beyond three years from that date; the Rs.1,000 cash deposit lacked material to establish entitlement to exclusion. Regarding reliance on a pending OA under Section 19 RDB Act (filed in 2016), the Court held that mere pendency of recovery proceedings before the DRT - absent a finding that those proceedings were lacking in jurisdiction or otherwise defective - does not automatically engage Section 14 suspension as in the SARFAESI context addressed by the Supreme Court precedent. Ratio vs. Obiter: Ratio - where the prior proceeding relied upon for exclusion of limitation is neither shown nor argued to be without jurisdiction or defective in a manner analogous to the precedent, Section 14 exclusion will not apply merely by virtue of pendency; documentary entries of negligible amounts or cash deposits without supporting material will not restart or extend limitation. Conclusions: The Court concluded that the Section 7 application was barred by limitation and that the applicant failed to demonstrate entitlement to exclusion under Section 14 (or sufficient cause under Section 5) in the factual matrix. The Adjudicating Authority's limitation finding was upheld. Issue 3 - Applicability and scope of the cited Supreme Court precedent (Sesh Nath Singh) to Section 19/DRT proceedings Legal framework: The cited precedent permits exclusion under Section 14 where prior proceedings (including certain enforcement actions) were bona fide initiated and were pending or stayed on grounds such as want of jurisdiction, thereby suspending limitation for the period of pendency. Precedent Treatment: The Court accepted the legal proposition of the precedent but distinguished its facts: that case involved SARFAESI proceedings prima facie without jurisdiction and an interim stay, producing exclusion; thus the precedent allowed exclusion because the prior proceedings were effectively defective or stayed on jurisdictional grounds. Interpretation and reasoning: The Court emphasized that the present case involves recovery proceedings under Section 19 RDB Act which were not shown to be without jurisdiction or stayed for such reasons. Absent such factual predicates, the rationale of the precedent does not extend to create an automatic suspension under Section 14. The Court further reiterated that principles of Section 14 can inform Section 5 where necessary, but there must be material showing sufficient cause or analogous defects in prior proceedings. Ratio vs. Obiter: Ratio - the precedent is distinguishable where prior proceedings are not shown to be without jurisdiction or stayed on that basis; such factual distinction precludes applying Section 14 exclusion. Obiter - the Court reiterated that Section 14 and Section 5 principles are complementary and may be invoked purposively, echoing the precedent's broader rule on purposive construction. Conclusions: The Court held that the Supreme Court precedent was inapplicable on the facts; therefore the applicant could not rely on it to exclude the limitation period. Cross-references and final disposition Cross-reference: Issue 1 (disbursement proved) is distinct from Issue 2 (limitation). Although disbursement was established on the record (see Issue 1), the Section 7 claim was dismissed lawfully on limitation grounds because exclusion under Section 14 was not made out (see Issue 2 and Issue 3). Final conclusion: The Court found the Adjudicating Authority erred only in rejecting proof of disbursement but correctly dismissed the Section 7 application as time-barred, with no entitlement to exclusion under Section 14 or other limitation doctrines; the appeal was dismissed. (This conclusion constitutes the operative ratio on limitation and on the limits of applying Section 14 to pending recovery proceedings before the DRT.)