TaxTMI 
TaxTMI 
2020 (5) TMI 7
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....alf of the Financial Creditor has submitted that this was not barred by limitation for the reason that in the financial statement for year-ending 31-3-2018, the amount of loan including interest outstanding to the financial creditor had been shown and this amounted to acknowledgement of debt within the meaning of provisions of Section 18 of the Limitations Act, 1953. Apart from that, in this regard, ld. Counsel drew our attention to the Appendix - II to Annexure to the Auditor's Report for the year-ended 31-3-2018 wherein the default in payment of dues to the financial institutions was mentioned and the name of the financial creditor appeared there. Apart from this, the ld. Sr. Counsel pleaded that the corporate debtor had also submitted OTS proposal which by itself amounted to acknowledgement of liability. Thus, considering these facts, the petition was liable to be admitted. 2. On the other side, ld. Senior Counsel appearing on behalf of the corporate debtor drew our attention to C.A. No. 1016/KB/2019 was filed for dismissal of the said petition filed under section 7 for the reason that all the assets of the corporate debtor whether movable or immovable were attached by the ....
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....ault has occurred. In the present case, these conditions exist and therefore, at this stage, the attachment of assets by E.D does not affect the admissibility of this petition in any manner. After the admission during CIRP, there can be so many developments which will have to be considered by RP in accordance with law. Accordingly, we reject this contention of the corporate debtor. 5. We have considered the submissions made by both sides and the material on record. The amount of debt and default is not in dispute. The second question which arises for our consideration is whether it is time-barred or not. It is not in dispute that such amount of debt due and payable by the Corporate Debtor to the Financial Creditor has is appearing in the financial statements for the year ended 31-3-2018. It is also not in dispute that in the Auditor's Report fact of default by Corporate Debtor in the payment of loan and interest has also been reported. The only plea which has been taken by the Corporate Debtor that such financial statements are for the period which is beyond 3 years from the date of declaration of the amount of corporate debt as NPA in 2013. In our considered view, such plea s....
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....mission of continuing default in the financial statements. It is now a settled judicial position that presentation in the financial statements constitutes acknowledgement of debt within the meaning of provisions of section 18 of the Limitation Act, 1963. This aspect and other related issues as regard to the nature and scope of provisions of section 18 of the Limitation Act, 1963 have come up for consideration in a few cases before us. The relevant findings of this Bench in the case of KotakMahindra Bank Limited v. M/s Sri Balaji Metals and Minerals Pvt. Ltd. passed in (CP(IB) No. 1476/KB/2018 in CA(IB) No. 1005/KB/2019) dated 03-12-2019 are reproduced as under:- "10. We have considered the submission made by both the sides and material on record. The bone of contention is whether debt is barred by limitation or not. In this regard, it is noted that in the financial statements for the year ended 31st March, 2016, the amount of secured loan has been shown. The fact of default has also been mentioned. The said balance sheet also contain figures of such loan in financial year-ended on 31st March, 2015. It has been also noted that in financial years 2011-12 and 2012-13 cheuqes given b....
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....lso not in dispute that there were agreed deduction out of the bills raised by the Operational Creditor to the tune of Rs. 12,43,281/- resulting into impugned sum remaining unpaid. It is also noteworthy that thereafter there have been no supplies or payment by the respective parties. As far as Corporate Debtor is concerned the main plea is that the debt is barred by limitation. For this purpose, the e-mail dated 19th April, 2016 has been claimed as not a proper acknowledgement of debt under section 18 of Limitation Act, 1963. It has been claimed so far the reason that the said e-mail was addressed to Baba Gora Transport and not to the Financial Creditor. On perusal of the records, it is noted that the said e-mail is, in fact, has been addressed to mail ID i.e. [email protected] which is not of the Financial Creditor but statement of account of Financial Creditor has been attached. To express our view about the validity of such e-mail is an acknowledgement of that we consider it necessary to reproduce Section 18 of the Limitation Act, 1963 as under: Section 18(1): Where, before the expiration of the prescribed period for a suit or application in respect of any property....
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....that e-mail has not been sent for and on behalf of the Corporate Debtor. Another aspect which needs to be considered is that though said e-mail to statement of account has only sent and no other facts have been mentioned, hence, can it be said to be an acknowledgement of debt. This question again leads us to Explanation (a) above wherein it has been stated that an acknowledgement maybe sufficient though it omits to specify exact nature of property or right. " 19. In the case of Trinetra Electronics Limited v. McNally Bharat Engineering Co. Limited in CP (IB) No. 1506/KB/2018 Order dated 16/10/2019, this Tribunal has held as under:- "5. We have considered submissions made by both sides and have also perused the materials on record. The question for our consideration arises is that (i) whether debt is barred by limitation or not; (ii) whether the letters dated 29/1/2018 and 30/7/2018 constitute acknowledgement as per provision of sec. 18 of the Limitation Act, 1963. It is not in dispute that these letters have been written by the corporate debtor regarding confirmation of outstanding balance of ICD as on 31/12/2017 and 30/6/2018 as per the books of account of Financial Creditor. ....
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....ary that the letter should be written to the financial creditor only. It is further noteworthy that explanation (a) takes into its ambit the generally accepted commercial practices of communication between the parties whereby acknowledgement of debt can be inferred as no specific format has been prescribed. 6. Having stated so, a question may arise that such communications are in respect of the debt outstanding in the books of account of corporate debtor as on 31/12/2017 and 30/6/2018 and have been sent on 29/1/2018 and 30/7/2018 respectively which are beyond three years period from 30/9/2014, hence, whether requirement of Sec. 18(1) of Limitation Act, 1963 is complied with. To look into this aspect, we have to see whether presentation in the balance sheet by itself constitutes an acknowledgment of debt or not. Now, there have been catena of decisions of NCLT and NCLAT that presentation of debt in the balance sheet constitutes acknowledgment of debt. Since the corporate debtor, in the present case has asked for conformation of balance from the financial creditor as on 31st December 2017 and 30th June 2016 in respect of loan taken in 2014 which itself implies that such loan is con....
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.... signs impending insolvency at an early stage. Hence, for this reason also the necessity was felt to make provision of Limitation Act, 1963 applicable to Insolvency & Bankruptcy Code, 2016. It has been settled judicially that sec.238A is applicable since the implication of Insolvency & Bankruptcy Code, 2016. It is evident that sec.238A the word "as far as maybe" have been used which means that the provisions of Limitation Act, 1963 would apply to the extent possible and any provision of Limitation Act, 1963 being inconsistent to the provisions of Insolvency & Bankruptcy Code, 2016 will not be applicable. Further, the technicalities of Limitation Act, 1963 would not be applicable as Insolvency & Bankruptcy Code, 2016 is an economic legislation and functions on the principles of summary procedure. As discussed earlier that explanation (a) of Sec. 18 of Limitation Act. 1963 provides much flexibility and takes into consideration various factors/situations for explaining as to what would constitute acknowledgement and in view of secs.238 and 238A of the Insolvency & Bankruptcy Code. 2016, such provision has to be read farther in conjunction with the wider meaning given to the term "clai....
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....ore the expiry of the original limitation period. In this regard, we are further of the view, that presentation of outstanding loan in the financial statements for the year ended on 31st March, 2016 which also depict the figures of the same as on 31st March,2015 is continuation of such outstanding loan from the earlier financial years as in such a case no other conclusion can be arrived i.e. the outstanding loan continues from earlier years except the figure of the same which may vary due to interest, if any, charged subsequently or due to repayment of loan, if any. 12. We further find no merit in the claim of the Corporate Debtor that no outstanding debt had been shown in CIBIL report or balance had been written off by the Financial Creditor in its books of account, hence, no debt was due and payable for the reason that such action is required as per the guidelines of the RBI as well as the Bank itself and such unilateral action cannot result into waiver of loan or in any way lead to a conclusion that debt is extinguished by financial creditor and no claim is to be made by the financial creditor in accordance with law. This view is further fortified by the fact that financial cr....
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....back, to further lend money to other entrepreneurs for their businesses. This rationale creates an intelligible differentia between financial debts and operational debts, which are unsecured, which is directly related to the object sought to be achieved by the Code. In any case, workmen's dues, which are also unsecured debts, have traditionally been placed above most other debts. Thus, it can be seen that unsecured debts are of various kinds, and so long as there is some legitimate interest sought to be protected, having relation to the object sought to be achieved by the statute in question, Article 19 does not get infracted. For these reasons, the challenge to section 53 of the Code must also fail. Epilogue 85. The Insolvency Code is a legislation which deals with economic matters and, in the large sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, 'trial' having led to repeated 'errors' ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so-called creditors and inequities that have been po....
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....erational creditors. A financial creditor has been defined under section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under section 5(21) means a claim in respect of provision of goods or services". 15. Apart from the above decision, we consider it pertinent to reproduce findings of the Tribunal in the case of Punjab National Bank v. Jas Infrastructure and Power Ltd. CP (IB) No. 1290/KB/2018, dated 1-10-2019 as under:- "7. The first objection raised by the Corporate Debtor in regard to competency of person, who has signed and filed application under section 7ofIBC, 2016. We have perused the contents of the relevant documents, which are wide enough in scope and also authorise the signatory of the petition to initiate Corporate Insolvency Resolution Process against the Corporate Debtor. In this regard particular reference of para d(iv) read with para d(ii) can be taken. We are further of the view that the decision of the Hon&....
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....in the Limitation Act. For example, an acknowledgement of liability under section 18 of the Limitation Act would certainly extend the limitation period, but a suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding up proceeding is to be filed, by somehow keeping the debt alive for the purpose of the winding up proceeding." 10. In the present case, it is not in dispute that in the balance sheet for the financial year ended on 31-3-2016, the Corporate Debtor has categorically admitted the amount outstanding, amount of instalment payable and default in payment of interest. Copy of the relevant pages have been placed on pages 930 and 931 of Paper Book. It is also not in dispute that Corporate Debtor submitted a proposal for revival on 16-2-2015 in which the amount of loan has been admitted. The limitation, if counted from that date, ends on February 15, 2018. As per provisions of Section 18 of the Limitation Act, 1963 if the acknowledgement of debt happens before the expiry of said period, the limitation gets extended. As held in catena of decisions that presentation ....
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....6 get triggered even in case of a default by the debtor in respect of any financial creditor other than the applicant. In the present case, it is not in dispute that there is a default in respect of payment of financial debts. Thus, for this reason also, there is no merit in this contention of the corporate debtor. 17. It is further considered necessary to mention that presentation of a debt as liability in the balance sheet is a statement made by the corporate debtor to the world at large that this amount is payable by the corporate debtor. Even for commercial purposes such as credit ratings/renewals, obtaining of financial assistance or fixation of drawing limits or additional loan facilities etc. such liability is taken into consideration for computing net worth, current ratio, capital gearing debt equity ratio etc., hence, such presentation is of paramount importance from all perspectives. Thus, the same cannot be ignored for the purposes of proceedings under section 7 or 9 of IBC,2016. We are further of the view that after taking into consideration above aspects, such presentation also amount to promise under section 25 (3) of Indian Contract Act, 1872. Unquote 7. In our c....