TaxTMI 
TaxTMI 
2021 (9) TMI 1324
X X X X Extracts X X X X
X X X X Extracts X X X X
....ule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,2016. Contentions of the Petitioner: 2. The Corporate Debtor approached the Petitioner at their Eastern Express Highway Brach to grant it credit facilities/ term loans and the Petitioner sanctioned three term loans vide Letter of Arrangements dated 27.08.2010, 26.11.2010 and 24.11.2011 which were duly accepted by the Corporate Debtor by executing various documents, agreements and deeds from time to time to secure the said facilities/ loans. 3. The Corporate Debtor defaulted in repaying the principal, interest and other monies on due dates as agreed in terms of documents, agreements and deeds. The Petitioner then classified the Corporate Debtor's loan account as Non-Performing Asset (NPA) on 28.06.2013. Thereafter, the Petitioner had issued a demand notice under Section 13 of SARFAESI Act, 2002 dated 02.07.2013 to the Corporate Debtor demanding the outstanding debt amount. The Petitioner then again issues a Legal Notice dated 02.05.2014 calling upon the Corporate Debtor to repay the total sum o Rs. 322,08,61,560/- due and payable as on 31.03.2014 within 7 days from receipt of Legal Notice. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....2018. Therefore, the delay from 31.12.2015 to 06.06.2018 was beyond the control of the Petitioner. Although, the Petitioner had initiated various other proceedings against the Corporate Debtor for recovery of its dues. The IA 2508 of 2021 in CP 1382 of 2020 has been filed by the Petitioner under Section 5 of the Limitation Act, 196 to condone the delay in filing the Company Petition 1382 of 2020. 8. The Counsel for the Petitioner submits that the intention of the Code is to provide a justified balance between an interest of all stakeholders of the Company so that they can enjoy the availability of credit and the loss that a creditor might have to bear on account of default. Therefore, it is absolutely necessary that the delay of 1392 days in filing the Company Petition be condoned by exercising the power that the Tribunal has under Section 5 of the Limitation Act, 1963 in the interest of both the parties as well as other stakeholders. Contentions of the Corporate Debtor: 9. The Counsel for the Corporate Debtor submits that the Company Petition No. 1382 of 2020 is extensively time barred and liable to be dismissed at the outset as the Petitioner/ Applicant itself admits in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etitioner 12. Submission No. 1: The Limitation Act in its entirety is applicable to proceedings under the Code, particularly to petitions under Section 7 of the Code i. Section 238-A of the Code, which was inserted in the Code vide the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 provides for applicability of the Limitation Act to proceedings before the Adjudicating Authority under the Code. The said provision is reproduced below for ease of reference: "238A. Limitation. -The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be" ii. The language 'as the case may be' is to be construed to mean 'respectively', and therefore, Section 238-A would include within its ambit, all proceedings before the Adjudicating Authority under the Code. iii. The petitions under Section 7, being proceedings before the Adjudicating Authority, would also be covered under Section 238-A of the Code, and accordingly,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation; (b) that CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor; (c) that intention of the Code is not to give a new lease of life to debts which are time-barred; (d) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues; (e) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs; (f) that default referred to in the Code is that of actual nonpayment by the corporate debtor when a debt has become due and payable; and (g) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and (h) an application under Section 7 of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off or is addressed to a person other than a person entitled to the property or right, (b) the word "signed" means signed either personally or by an agent duly authorised in this behalf, and (c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right." ii. The Supreme Court, in Asset Reconstruction Company (India) Ltd. v Bishal Jaiswal & Anr., has held that Section 18 of the Limitation Act is applicable to petitions filed under Section 7 of the Code. Relevant extract is reproduced below for ease of reference: "10. Nearer home, in Laxmi Pat Surana v. Union Bank of India, Civil Appeal No. 2734 of 2020, a judgment delivered on 26.03.2021, his Court, after referring to various judgments of this Court, including the judgment in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 ["Babulall, then held: "35. The purport of such observation has been dealt with in the case of Babulal Vardharji Gurjar (II) [Babulal Vardharji....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. Explanation. -For the purposes of this section,- (a) an acknowledgement may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right; (b) the word "signed" means signed either personally or by an agent duly authorized in this behalf; and (c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right. "37. Ordinarily, upon declaration of the loan account/ debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 of the Code. However, Section 7 comes into play when the corporate debtor commits "default". Section 7, consciously uses the expression "....
X X X X Extracts X X X X
X X X X Extracts X X X X
....knowledgement of debt, was then set aside by the Supreme Court. The Supreme Court, has therefore, inter alia, held that an entry made in a balance sheet of a corporate debtor would amount to an acknowledgment of liability within the meaning of Section 18 of the Limitation Act. The relevant extract is reproduced below for ease of reference: "43. It is, therefore, clear that the majority decision of the Full Bench in V. Padmakumar (supra) is contrary to the aforesaid catena of judgments. The minority judgment of Justice (Retd.) A.I.S. Cheema, Member (Judicial), after considering most of these judgments, has reached the correct conclusion. We, therefore, set aside the majority judgment of the Full Bench of the NCLAT dated 12.03.2020." iv. The judgment of the Supreme Court in Bishal Jaiswal has also held that the auditor's report filed as part of the financial statements of the Company should also be considered for any caveats with regard to acknowledgments made in the books of accounts including the balance sheet. The relevant extract is reproduced below for ease of reference: "32. A perusal of the aforesaid Sections would show that there is no doubt tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elay in filing time barred suit. The applicability of Section 5 has been excluded specifically to applications which fall under Order XXI, C.P.C. It shows that even when the suit proceedings have come to an end, in execution proceedings also section 5 shall not be applicable. A suit if otherwise is barred by time and is not saved by other provisions of sections 4 and 6 to 24 of Act,1963then it shall not be entertainable by the Court and has to be dismissed in view of the obligation created vide Section 3 of Act, 1963. Section 5 specifically says that it is applicable to an appeal or in application but not to a suit. The suit instituted by filing a plaint and a plaint, in my view, would not be covered by the term "application"." 16. Submission No. 4: Uncertainty in the law concerning application of the Limitation Act to the Code is "sufficient cause" i. The provisions contained in Part II of the Code (IBC) pertaining to Insolvency for Corporate Persons, entitling the Applicant to file petition under Section 7 of the Code, came into force on 1.12.2016. ii. However, since the inception of the Code in 2016 till 2018, various conflicting judgments regarding the appl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....applicable. If there is a debt which includes interest and there is default of debt and having continuous cause of action, the argument that the claim of money by Respondent is barred by limitation cannot be accepted" vii. Judgment of NCLAT in Speculum Plast Private Limited v. PTC Techno Private Limited (7.11.2017): "46.... we find that the scheme of the 'Special Act, i.e. the 786B Code', and the nature of the remedy provided therein are such that the Legislature intended it to be a complete code by itself which alone should govern the several matters provided by it. 47. ....we hold that Section 433 which relates to limitation of the Companies Act, 2013 ipso facto will not be applicable to I &B Code' 60. ...the right to apply accrues under Section 7 or Section 9 or Section 10 only with effect from 1st December, 2016 when 786B Code' has come into force, therefore,...such applications cannot be rejected on the ground that the application is barred by limitation" viii. Judgment of NCLT Chandigarh in Visa Drugs and Pharmaceuticals Private Limited v M/s Swan Aluminiums Private Limited (04.09.2017): "26. With regard to the plea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave carefully examined the issue of limitation. The Respondent has bonafidely prosecuted within limitation period under SARFEASI Act. Therefore, the Respondent is entitled for the exclusion of time period under Section 14(2) of Limitation Act i.e. the period of 3 years and 6 months. After exclusion of this period the application filed under Section 7 of I&B Code is within limitation period. 11. In such circumstances we find that the application under Section 7 is within limitation and there is no force in the argument of Learned counsel for the Appellant that the application is time barred" xiii. The Applicant's submission is supported by the following judgments in which courts/ tribunals have condoned the delay on account of uncertainty in the law under Section 5 of the Limitation Act, finding that the same was 'sufficient cause' for such delay: xiv. Bhagwan Swarup v Municipal Board, Ujhani [1970 All L.T 757 (FB)] "2. The question involved in the case is one of limitation and it arises in this way. The applicant Bhagwan Swarup filed a suit against the opposite parties for the recovery of Rs. 600/- by way of damages on the allegation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as instituted proceedings before the Debt Recovery Tribunal under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 vide the Original Application no. 726 of 2014. Interim orders in favour of the Applicant were passed in the said proceedings, whereby the Respondent was restrained from creating any third party rights on the secured assets. xvii. The Applicant has also filed Securitisation Application under Section 14 of the SARFAESI Act bearing no. 416 of 2014 filed before the Hon'ble District Magistrate Palghar for taking physical possession of certain secured assets mortgaged in favour of the Applicant. Order in favour of the Applicant was passed in the said proceedings, whereby the Tahsildar was appointed to take physical possession of the secured assets. xviii. The Applicant has conducted Forensic Audit on the Respondent's loan account, and based on the findings and observations in the Forensic Audit Report, the Respondent's loan account has been declared as Fraud. Accordingly, the Applicant has also lodged with the CBI, FIR bearing no. RC0682016E0014 against the Respondent. 17. Submission 5: A liberal approach ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... have vested right in injustice being done because of a non-deliberate delay. 5. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 6. there is no presumption that delay is occasioned deliberately or on account of culpable negligence or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. 7. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so. Making a justice-oriented approach from this perspective, there was sufficient cause for condoning the delay in the institution of the appeal....The courts therefore have to be informed with the spirit and philosophy of the provision in the course of the interpretation of the expression "sufficient cause". So also the same approach has to be evidenced in its application to matters at hand with the end in view t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her side cannot claim to have vested right in injustice being done because of a non-deliberate delay. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. Judiciary is not respected on account of its power to legalise injustice on technical grounds but because it is capable of removing injustice and is expected to do so. Making a justice-oriented approach from this perspective, there was sufficient cause for condoning the delay in the institution of the appeal. The fact that it was the State which was seeking condonation and not a private party was altogether irrelevant. The doctrine of equality before law demands that all litigants, including the State as a litigant, are accorded the same treatment and the law is administered in an even-handed manner. There is no warrant for according a step-motherly treatment when the State is the applicant. The delay was accordingly condoned." 19. In G. Ramegowda, Major v. Spl. Land Acquisition Officer [(1988) 2 SCC 142] , it was held that no general principle saving the party....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed u/s 7 & 9 of the IBC shall be governed by Article 137 of the Limitation Act,1963, by which a period of three years has been prescribed as the limitation period for all other applications. 23. The Hon'ble Supreme Court in the judgement of Babulal Vardhari Gurjar V. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. (Civil Appeal No. 6347/2019, Para-30@ Pg-59), the Hon'ble Apex Court was pleased to hold that the intention of the code is not to give a new lease of life to debts which are time barred and that if a default had occurred over three years prior to the date of the filing of the application, the application would be time barred, save and except in those cases where, on facts, the delay in tiling may be condoned and a similar view was adopted in the case of Gaurav Hargovindbhai Dave V. Asset Reconstruction Co. (India) Ltd. (Civil Appeal No. 4952 of 2019, Para6@Pg-3), wherein the Hon'ble Supreme Court stated that the intent of the code could not have been to give a new lease of life to debts which are already time barred. 24. The Hon'ble NCLAT in the judgement of Jagdish Prasad Sarada V. Allahabad, (Company Appeal (AT) (Insolvency) No. 183/2020, Para11@....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the scale of balance of justice in respect of both parties and the said principle cannot be given a total go by in the name of liberal approach. 21.10 (x) If the explanation offered is concocted or the ground surged in the application are fanciful the courts should be vigilant not to expose the other side unnecessarily to face such a litigation." 29. The Hon'ble NCLAT, Delhi in the matter of "Sri Kaustuv Ray vs. State Bank of India & Anr." in Company Appeal (AT) (Insolvency) No. 804 of 2020, dated 20.01.2021, in it is again settled that a strict approach has to be followed on the point of limitation, and any application filed beyond the limitation period of three years will be time bared. The relevant portion reads as under: "Heard learned counsel for the parties. The only issue raised in this appeal is that the claim of Respondent No.1- "State Bank of India" -("Financial Creditor") was barred by limitation as default occurred in the year 2013. After hearing learned counsel for the parties briefly, we find that the account of Corporate Debtor was classified as NPA on 17thJune, 2013. The Corporate Insolvency Resolution Process (CIRP) was triggered b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "the Code") for an amount of Rs. 681.87 crores as on 30.11.2019. It is an admitted position by the Applicant that there has been a delay of 1,392 days in filing the said Company Petition. The Applicant has filed an IA No.2508 of 2021 under Section 5 of the Limitation Act, 1963 r/w Section 238A of the Code for condonation of delay for filing the said Company Petition. The Petition was reserved for Orders on 12.03.2021 and the matter was heard on 30.04.2021 wherein the matter was de-reserved on the basis of the judgement of Hon'ble Supreme Court in Asset Reconstruction (India) Company Ltd. Vs. Bishal Jaiswal and Ors. The matter was again heard on 06.05.2021 and 17.06.2021 and was reserved for orders on 09.07.2021after giving opportunity of filing additional affidavit to both the sides and hearing the counsels on record. 33. The Term Loan and Cash Credit Facility at the applicable rates of interest the total due as on 30.11.2019 stands at Rs. 681.87Crores. The date of default is 31.03.2013 and date of NPA is 28.06.2013. This Bench notes that the facts relating to the amount of debt, the date of default and the date of NPA has not been disputed by the Respondent, i.e., M/s. Shreem ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7. The Corporate Debtor also pointed out that the financial creditor has failed to show as to how the balance sheet captures the acknowledgment of debt due to the financial creditor, it casually states at para 8 that Corporate Debtor has acknowledged the dues to the Financial Creditor in its last audited balance sheet for the year 2014-15. The Petitioner has relied upon the audited balance sheet of 31.03.2015 and the limitation period in the present case extended till 31.03.2018 in accordance with section 18 of Limitation Act. Therefore, the Petition is barred by Limitation. 38. In view of the aforesaid narration of facts, the primary issues before this Bench are: (a) Whether the application under section 5 of the Limitation Act, seeking condonation of Delay is maintainable in an Application filed under Sec7 of IBC? (b) Whether the Petitioner has shown sufficient cause for condonation of delay? 39. Keeping in view the fact that the 'debt' and 'default' have not been disputed by the Respondent side, the only issue of consideration before the Bench is as mentioned in the above paragraph, i.e. regarding applicability of limitation to the proceedings of the Code....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ay be applied to condone the delay in filing such application. 43. Upon conjoint reading of provisions of Limitation Act 1963 read with Insolvency & Bankruptcy Code 2016 and settled principles of law in plethora of judgements, the question which remains to be answered is whether the Petitioner has established a sufficient cause to seek condonation of delay under Sec.5 of Limitation Act 1963. 44. The Adjudicating Authority while exercising the discretion to condone the delay must have a liberal approach and apply judicious mind to meet the ends of justice. In order to meet substantial justice this bench needs to carefully examine the sufficient reasons for delay in filing the present Application. In the instant case the petitioners have demonstrated sufficient causes/ reasons claiming condonation of delay as follows: a. Uncertainty in law with regard to applicability of the Limitation Act is a 'sufficient cause' under Section 5 of the Limitation Act. The provisions of part II of IBC came in to the force on 01.12.2016, a plethora of conflicting judgements of NCLT namely in Sanjay Bagrodia v Satyam Green Power Pvt. Ltd., wherein it was held that the limitation act was a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sec.5 of Limitation Act 1963, in the judgement of Hon'ble Supreme Court in Collector (LA). v. Katiji [(1987) 2 SCC 107: 1989 SCC (Tax) 172], a two-Judge Bench observed that: (SCC p. 108, para 3) "3. The legislature has conferred the power to condone delay by enacting Section 5 of the Indian Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on merits. The expression 'sufficient cause' employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice-that being the life-purpose for the existence of the institution of courts." 47. It is also relevant to refer to the authority in Oriental Aroma Chemical Industries Ltd. V. Gujarat Industrial Development Corpn. Reported in (2010)SCC459, where a two-Judge Bench of this Court has observed that: (SCC p. 465, para 14) "14. ... The law of limitation is founded on public policy. The legislature does not prescribe limitation with the object of destroying the rights of the parties but to ensure that they do not resort to dilatory tactics and seek remedy without delay. The i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s inaction or negligence are relevant factors to be taken into consideration. It is so as the fundamental principle is that the courts are required to weigh the scale of balance of justice in respect of both parties and the said principle cannot be given a total go by in the name of liberal approach. (x) If the explanation offered is concocted or the grounds urged in the application are fanciful, the courts. should be vigilant not to expose the other side unnecessarily to face such a litigation. (xi) It is to be borne in mind that no one gets away with fraud, misrepresentation or interpolation by taking recourse to the technicalities of law of limitation, (xii) The entire gamut of facts are to be carefully scrutinised and the approach should be based on the paradigm of judicial discretion which is founded on objective reasoning and not on individual perception. (xiii) The State or a public body or an entity representing a collective cause should be given some acceptable latitude. 49. This bench also relies on the Hon'ble Supreme Court in the matter of Dena Bank(now Bank of Baroda) v. C Shivkumar Reddy and Anr. judgement dated 4.08.2021 at para....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itted. 53. This Bench, on perusal of the documents filed by the Financial Creditor, is of the view that the Premier Limited and the Corporate Debtor defaulted in repaying the loan availed. In the light of above facts and circumstances, the existence of debt and default is reasonably established by the Petitioner as a major constituent for admission of a Petition under Section 7 of the Code. Therefore, the Petition under sub-section (2) of Section 7 is taken as complete, accordingly this Bench hereby admits this Petition prohibiting all of the following of item-(I), namely: (I) (a) The institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitization and Reconstruction of Financial ....