TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 473
X X X X Extracts X X X X
X X X X Extracts X X X X
....inal status in the company petition represents them in this Appeal for the sake of convenience. 2. Brief Facts The brief facts of the case are as follows: 2.1 The Appellant is the Ex Director and Shareholder of M/s Silver Proteins Pvt Ltd (from now on referred to as 'Corporate Debtor'), being aggrieved by the Impugned Order dated 29.06.2020 passed by the Learned Adjudicating Authority, National Company Law Tribunal, Ahmedabad Bench, in CP (IB) No. 554/7/NCLT/AHM/2018 against the order of admission of an Application filed under Section 7 of the Insolvency & Bankruptcy Code, 2016. 2.2 The Corporate Debtor M/s Silver Proteins Pvt Ltd. had availed credit facilities worth Rs. 19,12,50,000/- from the Respondent Bank for many years, and it was lastly renewed on 01March 2015. However, the Corporate Debtor was facing a liquidity crunch and had defaulted to repay the loan amount. Consequently, the Respondent Bank classified the account of the corporate debtor as 'Non-Performing Asset' (from now on referred to as NPA') on 01.07.2015 and filed a petition under S.7 of the I & B Code ,2016. 3. Appellants Submission 3.1 The Corporate Debtor resisted the Application prima....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n (IRAC) Norms. As per INCA reversal - the unrealised interest in an NPA account is reversed, and this is done monthly. Hence, it is not a payment by any party but an accounting method of the banks to balance the book of NPA accounts. Therefore, such tallying methods in no manner can attract Section 19 of the Limitation Act. g. Further, this Hon'ble Tribunal in the case of Jagdish Prasad Sarada versus Allahabad Bank Company Appeal No. 183 of 2020 Judgment 28 August 2020 (Paras 10-11) has categorically held that the date of default will be the date of declaration of NPA and it would not shift. h. The Gujarat High Court in HiralalChhotalal Shah versus Central Bank of India &Ors 1980 SCC Online Guj 53 Paras 11 to 18 and 35 have held that even if - a debtor makes part payment to a creditor, it will not extend the limitation for enforcement of creditor's remedy against surety u/S. 19 Limitation Act since payment is not done by the surety. i. In the instant case, the limitation will not extend because of the last credit entry of 30 December 2015 since the payment was made by an unrelated party. Even this payment was by mistake, which was returned by the Appellant. 3.4 The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itor under Section 7 of the Code was on the basis of a power of attorney. He relied upon a judgment of the NCLAT in Palogix Infrastructure Private Limited v. ICICI Bank Limited1 in which it was held that an 'authorised person', distinct from a 'power of attorney holder', can file an application under Section 7 and that a 'power of attorney holder' is not competent to file an application on behalf of a financial creditor. According to Mr. Mukherjee, the defect in filing of the Application by an unauthorised person is not curable. Assuming it is curable, the Financial Creditor failed to rectify the defect within the time stipulated under Section 7(5) of the Code, in spite of an order passed by the Adjudicating Authority on 22.01.2020 granting time to the Financial Creditor. He submitted that the person who filed the Application under Section 7 of the Code is not the authorised representative of the Financial Creditor and therefore, the Application was liable to be dismissed. 8. On the other hand, the Financial Creditor contended that the power of attorney was executed in favour of Mr. Praveen Kumar Gupta, which was perused by both the Adjudicating Authority....
X X X X Extracts X X X X
X X X X Extracts X X X X
....abandon, submit to judgement or become non-suited, in any such suits or proceedings, to appoint advocate, solicitors and pleaders as occasion shall require and to make sign, execute, present and file all applications, plaints, petitions, written statements, vakalatnamas or any other papers expedient or necessary ... to be made, signed, executed, presented or filed". 11. The NCLAT, in its judgment in Palogix Infrastructure (supra), held that a 'power of attorney holder is not competent to file an application under Section 7 on behalf of the financial creditor. However, the NCLAT made certain further observations, as reproduced below: "41. In so far as the present case is concerned, the 'Financial Creditor'- Bank has pleaded that by Board's Resolutions dated 30May, 2002 and 30October, 2009, the Bank authorised its officers to do needful in the legal proceedings by and against the Bank. If general authorisation is made by any 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant' in favour of its officers to do needful in legal proceedings by and against the 'Financial Creditor'/'Operational Creditor'/'Corporate Applicant&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nable." (emphasis supplied) 4.2 In the instant case, the Application under section 7 of the Code was filed by the Assistant General Manager, who happens to be the principal officer of Respondent number 1 Bank. Accordingly, the said officer is duly authorised through a General Power of Attorney in his favour on 27 September 2011, which is still valid and effective. 4.3 Under the said Power of Attorney, the said officer of the bank is authorised to grant the loan, execute documents for and on behalf of the bank, recover loans, if necessary and further, entitled to initiate proceedings under the Insolvency and Bankruptcy Code. Additionally, Respondent number 1 Bank has also filed a copy of the permission letter dated 11 June 2018, which categorically allows the bank to file the present Application under section 7 of the Code. The signatory to the Application is well authorised to sign the Application given the law laid down by the Hon'ble Supreme Court in the case, RajendraNarottamdasSheth and Another (supra). 5. Whether the Application/Petition filed u/s 7 of the I& B Code is barred by limitation? 5.1 The Appellants claims that the account of the Corporate Debtor was cla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t has to be proved in a particular way, and a written or signed acknowledgement is the only proof of payment. Oral testimony is excluded unless there is acknowledgement in the required form (Sant Lal Mahton v. Kamla Prasad A.I.R. 1951 S.C. 477). 5.5 In reply to the above, the Learned Counsel for the Respondent, Central Bank of India, submits that the financial facility was sanctioned under Sanction Letters dated 17 December 2003. The loan was renewed, revised, and enhanced on several occasions. It was lastly on 30 September 2013 that the loan amount was revised and sanctioned. Thereafter, on 30 December 2015, a sum of Rs. 5,99,760/- and Rs. 87,57,769/-(Page 94-95 of the Appeal) was deposited in the Bank by the Corporate Debtor and/or for and on behalf of the Corporate Debtor. 5.6 Further, the balance sheets as of 31 March 2017, 31 March 2018 and 31 March 2019, the amount due and payable to the Respondent No.1 Bank is recorded under long term borrowings (in respect of term loan) and short term borrowing in respect of cash credit) (Ref page no. 72, 74, 102 and 104 of the Reply). Further, in both the balance sheets, there is a note stating, "loan from Central Bank of India towards p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the effect of Section 18 of the Limitation Act to proceedings initiated under the IBC. 116. In Asset Reconstruction Company (India) Limited. v. BishalJaiswal (supra) where this Court speaking through Nariman J. relied, inter alia, on SeshNath Singh (supra) and Laxmi Pat Surana (supra) and held that the question of applicability of Section 18 of the Limitation Act to proceedings under the IBC was no longer res integra. 117. In Khan Bahadur ShapoorFredoom Mazda v. Durga Prasad Chamaria17, this Court held:- "6. It is thus clear that acknowledgment as prescribed by Section 19 merely renews debt; it does not create a new right of action. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owledging liability. The balance-sheet contains admissions of liability; the agent of the company who makes and signs it intends to make those admissions. The admissions do not cease to be acknowledgements of liability merely on the ground that they were made in discharge of a statutory duty. I notice that in the Nagpur case the balance-sheet had been signed by a director and had not been passed either by the Board of Directors or by the company at its annual general meeting and it seems that the actual decision may be distinguished on the ground that the balance-sheet was not made or signed by a duly authorised agent of the company." ................. 11. To come under section 19 an acknowledgement of a debt need not be made to the creditor nor need it amount to a promise to pay the debt. In England it has been held that a balance-sheet of a company stating the amount of its indebtedness to the creditor is a sufficient acknowledgement in respect of a specialty debt under section 5 of the Civil Procedure Act, 1833 (3 and 4 Will - 4c. 42), see Re : Atlantic and Pacific Fibre Importing and Manufacturing Co. Ltd., [1928] Ch. 836......." 120. In Re Pandem Tea Co. Ltd. (supra),....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te the exact nature or the specific character of the liability. The words used in the statement in question must, however, relate to a present subsisting liability and indicate the existence of a jural relationship between the parties such as, for instance, that of a debtor and a creditor and the intention to admit such jural relationship. Such an intention need not, however, be in express terms and could be inferred by implication from the nature of the admission and the surrounding circumstances. Generally speaking, a liberal construction of the statement in question should be given. That of course did not mean that where a statement was made without intending to admit the existence of jural relationship, such intention should be fastened on the person making the statement by an involved and farfetched reasoning. In order to find out the intention of the document by which acknowledgement was to be construed the document as a whole must be read and the intention of the parties must be found out from the total effect of the document read as a whole. ..." 121. In South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana (supra), this Court observed:- "46. Sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of a company cannot operate at all as acknowledgements of liability as contended by Shri Rameshwar Dial." 122. In Hegde&Golay Limited v. State Bank of India reported in ILR 1987 Kar 2673, the Karnataka High Court held: "43. The acknowledgement of liability contained in the balance-sheet of a company furnishes a fresh starting point of limitation. It is not necessary, as the law stands in India, that the acknowledgement should be addressed and communicated to the creditor." 123. In Reliance Asset Reconstruction Co. Ltd. v. Hotel Poonja International Pvt. Ltd.22, the Appellant had relied on two documents in the Paper Book, that is, (i) the Balance Sheet of the Corporate Debtor dated 16 August, 2017 and (ii) a letter dated 23 April, 2019 issued by the Corporate Debtor to contend that the proceedings under Section 7 of the IBC were not barred by limitation, as limitation would start running afresh for a period of three years from the respective dates of those documents in acknowledgment of liability. 124. This Court, however, did not accept the balance sheet dated 16 August, 2017 and 23 April, 2019 for two reasons, the first reason being that there was no evidence or materi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly or by an authorised agent. 128. In the instant case, Rs. 111 lakhs had been paid towards outstanding interest on 28 March, 2014 and the offer of One Time Settlement was within three years thereafter. In any case, NCLAT overlooked the fact that a Certificate of Recovery has been issued in favour of Appellant Bank on 25 May 2017. The Corporate Debtor did not pay dues in terms of the Certificate of Recovery. The Certificate of Recovery in itself gives a fresh cause of action to the Appellant Bank to institute a petition under Section 7 of IBC. The Petition under Section 7 IBC was well within three years from 28 March 2014. 129. In Jignesh Shah v. Union of India (supra), this Court relied upon a judgment of the Patna High Court in Ferro Alloys Corporation Limited v. Rajhans Steel Limited23, the relevant portion whereof is extracted hereinbelow:- "....In my opinion, the contention lacks merit. Simply because a suit for realisation of the debt of the petitioner Company against Opposite Party 1 was instituted in the Calcutta High Court on its Original Side, such institution of the suit and the pendency thereof in that Court cannot enure for the benefit of the present winding-u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It is not in dispute that the Respondent No. 2 is a Corporate Debtor and the Appellant Bank, a Financial Creditor. The question is, whether the Petition under Section 7 of the IBC has been instituted within 3 years from the date of default. 'Default' is defined in Section 3(12) to mean "nonpayment" of a debt which has become due and payable whether in whole or any part and is not paid by the Corporate Debtor". 134. It is true that, when the Petition under Section 7 of IBC was filed, the date of default was mentioned as 30 September 2013 and 31 December 2013 was stated to be the date of declaration of the Account of the Corporate Debtor as NPA. However, it is not correct to say that there was no averment in the Petition of any acknowledgment of debt. Such averments were duly incorporated by way of amendment, and the Adjudicating Authority rightly looked into the amended pleadings. 135. As observed above, the Appellant Bank filed the Petition under Section 7 of the IBC on 12 October 2018. Within three months, the Appellant Bank filed an application in the NCLT, for permission to place additional documents on record including the final judgment and order/decree dated 27.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Limitation Act are also applicable to proceedings under the IBC. 141. Section 18 of the Limitation Act cannot also be construed with pedantic rigidity in relation to proceedings under the IBC. This Court sees no reason why an offer of One Time Settlement of a live claim, made within the period of limitation, should not also be construed as an acknowledgment to attract Section 18 of the Limitation Act. In Gaurav Hargovindbhai Dave (supra) cited by Mr. Shivshankar, this Court had no occasion to consider any proposal for one time settlement. Be that as it may, the Balance Sheets and Financial Statements of the Corporate Debtor for 2016-2017, as observed above, constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certificate of Recovery was issued in favour of the Appellant Bank in May 2017. The NCLT rightly admitted the Application by its order dated 21 March, 2019. 142. To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch is beyond a period of three years even after taking into account the debit balance confirmation letter dated 07.04.2016, the Application was barred by limitation. However, the Corporate Debtor had, in its reply before the Adjudicating Authority, placed on record a letter dated 17.11.2018, which detailed the amount repaid till 30.09.2018 and acknowledged the amount outstanding as on 30.09.2018. On the basis of this letter and the record showing that the Corporate Debtor had executed various documents amounting to acknowledgement of the debt even in the financial year 2019- 20, the NCLT was of the opinion that the Application was filed within the period of limitation. The said view was upheld by the NCLAT. 25. We have already held that the burden of prima facie proving occurrence of the 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 under Section 7 is typically made on the basis of material furnished by the financial creditor, the Adjudicating Authority is not barred from examining the material that is placed on record by the corporate debtor....