TaxTMI 
TaxTMI 
2021 (10) TMI 708
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....iled under Section 7 of the Code was admitted. 2. The original status of the Parties in the Company Petition represents them in this Appeal for the sake of convenience. Brief Facts 3. Brief facts of the case are that the 2nd Respondent/Corporate Debtor 'Kaizen Power Limited' availed credit facilities from the Financial Creditor/1st Respondent in the shape of Term Loan, Foreign Letter of credit with bank guarantee facilities in the year 2010. After executing various documents to secure the debt, the Corporate Debtor also availed the other Term Loan Facilities from the Financial Creditor in 2012. However, the Corporate Debtor could not maintain financial discipline in payment of interest and principal amount as agreed. Therefore, the account of Corporate Debtor was classified as Non-Performing Assets on 05.11.2014. As a result, the Financial Creditor issued a notice of recall on 19.11.2014 under Section 13(2) of the SARFAESI Act, 2002, directing the Corporate Debtor and its guarantor to repay the entire loan. After that, the Financial Creditor filed an Original Application being OA No.458/2016 to recover its dues before the Debts Recovery Tribunal (DRT) Mumbai. But n....
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....ebt has to be made before the expiry of the prescribed period of limitation that in the present matter was available up to March 30 2016, being the date on which the period of limitation for the default occurring on March 30, 2013, had expired. 4.5 The Adjudicating Authority further fails to notice that the effect of acknowledgement in writing has to be specific, thereby contemplating a clear and definite admission against a specific entity and in the absence thereof, no amnesty under Section 18 of the Limitation Act, 1963 can be pleaded. 4.6 Respondent No.1 placed reliance on the balance sheet dated March 31 2017, where under the heading "Long Term Borrowings", there is nothing in respect of Long Term Borrowings against the heading of secured loan. As such, there is no admission on the part of the Corporate Debtor that any alleged secured loan was pending clearance against Respondent No.1. In the present case, respondent No.1 has alleged that credit facilities are like term loans. 4.7 Appellant further contends that the impugned Order is erroneous because the Adjudicating Authority has failed to appreciate the facts that Application under Section 7 of the Code had not bee....
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....exemption under Section 4 to 20 Limitation Act, 1963 must provide a factual foundation. In the case of Babulal Vardharji Gurjar Vs Veer Gurjar Aluminium 2020 (15) SCC 1, the Hon'ble Supreme Court held that in the absence of factual foundation of acknowledgement under Section 18 of the Limitation Act in the Form-1, an application made more than three years from the date of default would be barred by limitation. 5.5 The importance of necessary foundation for the Application of exemptions under the Limitation Act has been reiterated by the Hon'ble Supreme Court in the recent cases of: (a) Dena Bank (now Bank of Baroda) versus C. Shivakumar Reddy and Anr 2021 SCC Online 543 (b) Reliance Asset Reconstruction Company v Hotel Poonja International Pvt. Ltd. 2021 SCC Online SC 289 (c) Asset Reconstruction Company (India) Limited v Bishal Jaiswal. 2021 (6) SCC 366 5.6 It is submitted that the judgment passed in the matter of ARCIL Vs. Biswal Jaiswal (supra) is only the Authority for the proposition that the Limitation Act, particularly Section 18, will apply to proceedings under the Code. However, the manner in which it has to be applied is a question....
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....ation Act, as in the present case, an application filed more than 3 years after the date of default ought to be rejected as being barred by limitation. 5.12 No unequivocal acknowledgement and entries in the balance sheet with caveats: Assuming that the Adjudicating Authority could have looked into the Balance Sheet of the CD in the absence of necessary pleadings, even then, the Balance Sheet of the CD for the year ending 31.03.2017 would not extend the period of limitation. 5.13 In ARCIL Vs. Bishal Jaiswal (Supra), the Hon'ble Supreme Court, has discussed the cases in which the issue of acknowledgement in a balance sheet had previously been considered. The same is as under. (a) Bengal Silk Mills Co, v. Ismail Golam Hossain Arif 1961 SCC online Cal 128 (b) Re: Atlantic and Pacific Fibre Importing and Manufacturing Co. Ltd 1928 Ch. 836 (c) In Re Pandam Tea Co. Ltd. 1973 SCC online Calcutta 93 (d) Re: The Coliseum (Burrow) Ltd. (1930) 2 Ch 44 (e) Jones v. Bellgrove Properties Ltd. (1949) 2 KB 700 (f) Kashinath Sankarappa v. New Akol Cotton Ginning & Pressing Co. Ltd. 1949 SCC online MP 123 5.14 From a perusal of the....
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....rm a basis for the demand for excise duty by the Central Excise Commissioner. d. In the matter of S. Natarajan v. Sama Dharman 2014 SCC online SC 1812, Para 8 and 9, once again by placing reliance upon the judgment rendered in the matter of AV Murthy. BS Nagabasavanına (Supra), the Hon'ble Supreme Court held that whether the debt was time-barred or not can be decided only after the evidence is adduced, it being a mixed question of law and fact and no final opinion about the acknowledgement of debt in the balance sheet of the Company was expressed. 5.16 In the present case, the only acknowledgement relied upon by the Financial Creditor was one allegedly in the Balance Sheet of the Corporate Debtor have for the year ending 31.03.2017. However, the said Balance Sheet would not extend the Limitation period because there is no explicit, unequivocal acknowledgement. Furthermore, the Balance Sheet relied upon by the Financial Creditor does not even mention the name of the Financial Creditor, let alone any details of any amount payable to the Financial Creditor. 5.17 The Financial Creditor has also relied on the Balance Sheets of the CD for the year ending 31.03.2019. The....
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....f Section 25(3) of the Contract Act, 1872 ("Contract Act"). 5.22 This stand of the FC is also unsustainable for the following reasons: (a) The FC laid no pleading or foundation in the Section 7 Application about Section 25(3) of the Contract Act. (b) The Supreme Court considered the applicability of Section 25 of the Contract Act in B. K. Educational Services (P) Ltd. v. Parag Gupta & Associates (2019)11 SCC 633 . The Court held that the limitation of applications under the Code would be governed by Article 137 of the Limitation Act. Therefore, the only delay that could be condoned would be in terms of the Limitation Act. (c) The provisions of the Contract Act do not apply to the Code; applications under the Code are not recovery proceedings. Therefore, the provisions of the Contract Act cannot be applied to proceedings under the Code, let alone to extend the period of limitation. Moreover, Section 238 of the Code expressly states that the provisions of the Code would have an overriding effect on any other law. 5.23 In the facts of the present case, the Application under Section 7 of the Code was filed more than three years after the date of default....
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....ich would clearly show that the Corporate Debtor admitted and acknowledged its outstanding against the credit facilities extended by the UCO Bank/Respondent No.1-further contended that there was neither any Qualification nor any Exception Note in such Balance Sheet as on March 31, 2017, of the Corporate Debtor. 6.4 In the balance sheet, for the year ending March 31 2019 (Annexure B page 14 of Reply Affidavit of UCO Bank, at page 21), in the column Note (viii), it is clearly stated that the Company has defaulted in payment of interest and repayment of the principal amount along with the retirement of acceptance. Accordingly, the Account of the Company is classified as Non Performing Assets by Banks. Further, in the said Balance-Sheet @ pg. 25: Long Term Borrowings Rs. 12,699.60 14,542 (amount in Lacs) Long Term Loan and Advances Rs. 56.67 1,140.09 22,498,46 Further, in the said Balance-Sheet @ pg. 28: Secured Loan Rs. in Lacs Rupee Term Loans From Banks 19,496.22 19,496.22 6.5 The Company has made certain defaults in repayment of Term Loans and Interest. The continui....
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....ment 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." 6.11 Therefore, the Hon'ble Supreme Court opined that acknowledgement of liability under Section 18 of Limitation Act, 1963 would extend the period of Limitation under IBC, 2016. 6.12 ACKNOWLEDGEMENT MADE IN LETTER DATED 07.06.2016 It is further submitted that the Letter dated 07.06.2016, Annexure A @pg. 11 of Reply Affidavit of UCO Bank, wherein the Corporate Debtor has given OTS proposal, acknowledges liability. As per the ratio of the judgment in the case of Lakshmirattan Cotton Mills Co. Ltd. v. Aluminium Corpn. of India Ltd., (1971) 1 SCC 67, there is an acknowledgement of subsisting liability of the Corporate Debtor. However, it may not necessarily specify the exact nature of the liability. It indicates that the jural relationship between the Parties and the same can also be de....
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....pecified in the various columns of the Form. There is no scope for elaborate pleadings. An application to the Adjudicating Authority (NCLT) under Section 7 of the IBC in the prescribed Form, cannot therefore, be compared with the plaint in a suit. Such Application cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law. 74. Section 7(3) requires a financial creditor making an application under Section 7(1) to furnish records of the default recorded with the information utility or such other record or evidence of default as may be specified; the name of the resolution professional proposed to act as an Interim Resolution Professional and any other information as may be specified by the Insolvency and Bankruptcy Board of India. 75. Section 7(4) of the IBC casts an obligation on the Adjudicating Authority to ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor within fourteen days of the receipt of the Application under Section 7. As per the proviso to Section 7(4) of the IBC, inserted by amendment, by Act 26 of 2019, if the....
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....es of the Corporate Debtor to the Financial Creditor, upon payment of Rs. 5.5 crores. The Appellant Bank has also relied upon financial statements up to March 31, 2018 apart from the final judgment and Order dated March 27, 2017 in O.A. 16/2015 and the subsequent Recovery Certificate No. 2060/2017 dated May 25, 2017 which constituted cause of action for initiation of proceedings under Section 7 of the IBC. 111. Babulal Vardharji Gurjar (supra) is not an authority for the proposition that there can be no amendment of pleadings at the fag end of the NCLT proceeding. Moreover, in this case, the amendments were not made at the fag end of the proceedings but within 2/3 months of their initiation, before admission of the petition under Section 7 of the IBC. 112. It is not necessary for this Court to examine the relevance of all the documents filed by the Appellant Bank pursuant to its interim applications being I.A. No. 27 of 2019 and I.A. No. 131 of 2019. Suffice it to mention that the documents enclosed with the applications being I.A. No. 27 of 2019 and I.A. No. 131 of 2019 and the pleadings in the supporting affidavits, made out a case for computation of limitation ....
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....tter if the petitioner Company approached this Court for winding-up of the opposite party No. 1, after obtaining a decree from the Calcutta High Court in Suit No. 1073 of 1987, and the decree remaining unsatisfied, as provided in clause (b) of sub-section (1) of Section 434." 130. In effect, this Court speaking through Nariman J., approved the proposition that an application under Section 7 or 9 of the IBC may be time barred, even though some other recovery proceedings might have been instituted earlier, well within the period of limitation, in respect of the same debt. However, it would have been a different matter, if the applicant had approached the Adjudicating Authority after obtaining a final order and/or decree in the recovery proceedings, if the decree remained unsatisfied. This Court held that a decree and/or final adjudication would give rise to a fresh period of limitation for initiation of the Corporate Insolvency Resolution Process. 131. It is true that the finding of Patna High Court in Ferro Alloys Corporation Limited v. Rajhans Steel Limited (supra) was rendered in the context of Section 434(1)(b) of the Companies Act 1956, which provided that a co....
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.... Section 7 of the IBC. 136. On or about March 05 2019, the Appellant Bank filed another application for permission to place on record additional documents including inter alia financial statements, Annual Report etc. of the period from April 01 2016 to March 31 2017, and again, from April 01 2017 to March 31 2018 and a letter dated March 03 2017 proposing a One Time Settlement. This Application was also allowed on March 06 2021. The Adjudicating Authority, took into consideration the new documents and admitted the petition under Section 7 of the IBC. 137. Even assuming that documents were brought on record at a later stage, as argued by Mr. Shivshankar, the Adjudicating Authority was not precluded from considering the same. The documents were brought on record before any final decision was taken in the Petition under Section 7 of IBC. 138. A final judgment and order/decree is binding on the judgment debtor. Once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of Recovery is also issued authorising the creditor to realise its decretal dues, a fresh right accrues to the creditor to recover the amount of the fi....
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....rs. 143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid. 144. There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with Application under Section 7 of the IBC in Form-1. In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in perm....
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....ction. It is a mere acknowledgment of the liability in respect of the right in question; it need not be accompanied by a promise to pay either expressly or even by implication. The statement on which a plea of acknowledgment is based must relate to a present subsisting liability though the exact nature or the specific character of the said liability may not be indicated in words. Words used in the acknowledgment must, however, indicate the existence of jural relationship between the parties such as that of debtor and creditor, and it must appear that the statement is made with the intention to admit such jural relationship. Such intention can be inferred by implication from the nature of the admission, and need not be expressed in words. If the statement is fairly clear then the intention to admit jural relationship may be implied from it. The admission in question need not be express but must be made in circumstances and in words from which the Court can reasonably infer that the person making the admission intended to refer to a subsisting liability as at the date of the statement. In construing words used in the statements made in writing on which a plea of acknowledgment rests ....
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.... Director's report and Auditors report to determine if any entry made in the balance sheet qua any particular creditor is unequivocal or not. The balance sheet, like other documents, have to be read as a whole to determine whether there was an acknowledgement qua a specific creditor. It is further argued that unless the Financial Creditor makes necessary amendments in Form-1, the argument about the extension of limitation cannot be considered. It is further argued that whether an entry amounts to an acknowledgement depends on the facts of each case. 10. It is important to mention that the Hon'ble Supreme Court, in a recent judgement in the case of Rajendra Narottamdas Sheth & Anr. Civil Appeal No.4222 of 2020 Rajendra Narottamdas Sheth & Anr. Vs. Chandra Prakash Jain & Anr. Date of judgment: 30.09.2021 has held that; "15. Section 7(1) of the Code enables a financial creditor to file an application for initiating corporate insolvency resolution process against a corporate debtor before the adjudicating Authority when a default has occurred. Sub-section (2) thereof provides that the Application shall be in the Form and manner as prescribed. Sub-section (3) obligat....
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.... V of the Application were not furnished by the financial creditor. As no foundation was laid in the Application suggesting any acknowledgment or any other date of default, the financial creditor was not permitted to make submissions at a later stage to the effect that the Application filed was with the limitation period. In the said fact situation, this Court in Babulal Bardharji Gurjar (supra) held that Section 18 of the Limitation Act and the principles thereof were not applicable. In Dena Bank v. C. Shivkumar Reddy & Anr., this Court had occasion to deal with the pleadings and the documents required to be filed at the time of making of an application under Section 7 of the Code. It was observed therein that the financial creditor can only fill in the particulars as mentioned in Form 1 and there is no scope for elaborate pleadings. This Court was of the view that an application under Section 7 cannot be compared with a plain in a suit. It was further held in the said judgment that there is no bar for filing of documents as required under Section 7, until a final order either admitting or dismissing the Application has been passed. While concluding, this Court had opined that in ....
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....ns of the Limitation Act applicable to the proceedings before the Adjudicating Authority, as far as may be. Therefore, the Adjudicating Authority is duty-bound to scrutinise the Application filed under Section 7 of the Code and come to a conclusion on whether such Application is barred by limitation, even in the absence of any plea with respect to limitation. (See: Noharlal Verma v. District Cooperative Central Bank Limited, Jagdalpur) 20. There can be no doubt that it is the responsibility of the financial creditor to give all particulars relating to the debt due and the date of default, along with the requisite documents, at the time of filing of an application under Section 7 of the Code. A plain reading of Section 7, Rule 4 of the 2016 Rules and Form 1 makes it clear that the Adjudicating Authority may admit an application under Section 7 only if he is satisfied that a default has occurred. The definition of 'default' under Section 3(12) of the Code refers to non-payment of debts which are "due and payable" in law, meaning thereby that an application under Section 7 of the Code is maintainable only with respect to debts that are not time-barred. (See: B.K. Educ....
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....for the satisfaction of the Adjudicating Authority with respect to the occurrence of the default. 11.4 Hon'ble Supreme Court in the case of Rajendra Narottamdas (supra) has further held that the burden of prima facie proving occurrence of default and that the Application filed under Section 7 of the Code is within the period of limitation is entirely on the Financial Creditor. While the decision to admit an application is typically made on the basis of material furnished by the Financial Creditor, the Adjudicating Authority is not barred from examining the material placed on record by the Corporate Debtor to determine that such Application is not beyond the period of limitation. The plea of Section 18 of the Limitation Act not having been raised by the Financial Creditor in the Application filed under Section 7 cannot come to the rescue of the Appellant's in the facts of the case. It is further observed that if the documents constituting acknowledgement of their debt had not been brought on record, the Application filed under Section 7 of the Code would be liable to be dismissed. 11.5 Therefore, in the instant case, the balance sheet that has been brought on record in....