AI Drafter 
TaxTMI 
TaxTMI 
2022 (1) TMI 1136
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....016 (hereinafter referred as 'Code') challenging the Order dated 06.10.2021 passed by Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court-III) admitting the Application being CP. No. 4468/IBC/MB/2018 under Section 7 filed by the Respondent-Standard Chartered Bank, London. 2. The brief facts of the case and sequence of the events necessary to be noted for deciding this appeal are: Appellant-Koncentric Investments Limited, A Company incorporated under the Companies Act, 1956 entered into a Facility Agreement dated 22nd May, 2013 with Respondent No. 1-Standard Chartered Bank, London for disbursal of a Loan up to an amount USD 49 Million as an external commercial borrowing. In Amendment and Supplemental Agreement dated 19th August, 2013 the Facility Agreement was revised for an amount of USD 45 Million only and amount of USD 15 Million was disbursed to the Corporate Debtor in three tranches of USD 5 Million each only on 30th August, 2013, 31st October, 2013 and 31st December, 2013. Certain part-payments were made by the Corporate Debtor towards interest due in each tranches until 15th May, 2017 after which no payment towards interest was made....
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....he petition having been filed on 29.11.2018 was well within three years from the date of default. This Appeal has been filed by Appellant No. 1-Promoter/Shareholder of the Corporate Debtor and by Appellant No. 2- a Member of the Suspended Board of Directors of Khubchandani Hospitals Pvt. Ltd. These Appellants being aggrieved by the Impugned Order has come by this Appeal and has challenged the impugned order on various grounds. 3. We have heard Mr. Ramji Srinivasan, Sr. Advocate for the Appellants and Mr. S. Niranjan Reddy, Sr. Advocate for the Respondent No. 1-Standard Chartered Bank, London. 4. Mr. Ramji Srinivasan, Sr. Advocate for the Appellant submits that limitation for filing an Application under Section 7 of the Code is the date when the right to apply accrues. Admittedly the amount of interest which was payable on 30th June, 2015 was not paid by the Corporate Debtor hence right to apply accrues to the Bank since the Bank could have filed the Application within three years i.e. by 30th June, 2018 and the Application filed on 28th November, 2018 i.e. more than three years from the date of default is clearly barred by time. The date on which Corporate Debtor com....
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.... the right of bank to sue when first instalment became due or when entire loan became due in view of the Acceleration Notice dated 05.01.2017. Section 7 (1) of the Code speaks of default it does not mention first default. To accelerate Financial Facility by the Bank, the permission of Reserve Bank of India was necessary for proceeding for accelerating the facility which permission was also applied on 24th November, 2015 but could be granted only on 07.12.2016 thereafter Notice of Acceleration was given on 05.01.2017 and the entire amount became due, computing the period of limitation from first default of principal amount i.e. 30th November, 2015. The Application filed on 28th November, 2015 was well within three years and the Adjudicating Authority did not commit any error in admitting the Application. 9. On submissions regarding the stamp duty, it is submitted by Learned Sr. Counsel for the Respondent that there is a Registered Mortgage Deed entered between the parties on 4th July, 2013 evidencing the Financial Facility. It is also submitted that the default can be accepted by Adjudicating Authority on the documents filed by Applicant without filing any registered document and....
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....nt On the expiry of a period of 27 (Twenty-Seven) months from the first Utilisation Date (Moratorium Period of MP) the Borrower will repay the Facility in 14 unequal semi-annual instalments as per the below schedule (each a Payment): Repayment Instalments (as % of Total Commitments) Repayment instalment Amount (in USD Million) At MP 1% 0.49 MP+6 months 1% 0.49 MP+12 months 2% 0.98 MP+18 months 2% 0.98 MP+24 months 5% 2.45 MP+30 months 5% 2.45 MP+36 months 7% 3.43 MP+42 months 7% 3.43 MP+48 months 9% 4.41 MP+54 months 9% 4.41 MP+60 months 12% 5.88 MP+66 months 12% 5.88 MP+72 months 14%6.88 MP+78 months 14% 6.88 14. Amendment and Supplemental Agreement to the Facility Agreement was executed on 19th August, 2013 which had modified the original facility agreement table mentioned in Clause 5.1 as noted above was modified in following manner: "2.2. The table mentioned in Clause 5.1-'Replayment' shall stand replaced as follows: On the expiry of a period of 27 (Twenty-Seven) months fr....
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....ayment as per Facility Agreement was to be made per annum. Admittedly the interest due on 30th June, 2015 was not paid which is an admitted fact. The question to be answered is as to whether non-filing of the Application within three years from 30th June, 2015 shall make the Application filed by the Financial Creditor under Section 7 as barred by time since admittedly the Application have been filed on 28th November, 2018. Mr. Ramji Srinivasan, Sr. Advocate has emphatically submitted that according to the Code when the first default has been committed, time shall start running and the Application under Section 7 cannot be filed for time barred debt. He further submits that the Financial Creditor has not filed the Section7 Application within three years from the date i.e. 30th June, 2015 and thus their claim is barred by time and application ought to have been rejected. 17. Now, we may notice certain provisions of the Code in regard to above. Section 3(11) of the Code defines 'Debt' and Section 3(12) defines 'Default' which are as follows: "3(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and op....
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....ration of Facility was done by letter dated 05.01.2017 of the Bank and thereafter the entire amount became due. The Application filed on 28th November, 2018 was well within three years as per below: a. Well within first instalment became due on 30th November, 2015 and; b. When entire loan became due after notice acceleration dated 05.01.2017 The Application under Section 7 is well within three years from above two defaults i.e. default of instalment and default for whole. 20. The Application under Section 7 is to be filed in Form-1 as per sub-rule 1 of Rule 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority Rules) 2016 Part-IV requires Particulars of Financial Debt that specifically requires "amount claimed to be in default and the date on which default occurred" if an application is filed within three years from the date on which default occurred the amount claimed shall be amount due and payable if the said Application is filed within three years from the date of default. 21. The Insolvency and Bankruptcy Code including rules and regulations, does not indicate that it is mandatory for the Financial Creditor to rush to file Section 7 A....
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.... in force for the time being as to the limitation on suits. 61. Application of payment where neither party appropriates.-Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each proportionately" These sections also recognise the fact that limitation bars the remedy but not the right. In the context in which Section 60 appears, it is interesting to note that Section 60 uses the phrase "actually due and payable to him..." whether its recovery is or is not barred by the limitation law. The expression "actually" makes it clear that in fact a debt must be due and payable notwithstanding the law of limitation. From this, it is very difficult to infer that in the context of the Contract Act, the expression "due and payable" by itself would connote an amount that may be due even though it is time-barred, for otherwise, it would be unnecessary for Section 60 to contain the word "actually" together with the later words, "wheth....
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....and principles come in operation in the present case nor they enure to the benefit of respondent No. 2 for the fundamental reason that in the application made before NCLT, the respondent No. 2 specifically stated the date of default as '8.7.2011 being the date of NPA'. It remains indisputable that neither any other date of default has been stated in the application nor any suggestion about any acknowledgement has been made. As noticed, even in Part-V of the application, the respondent No. 2 was required to state the particulars of financial debt with documents and evidence on record. In the variety of descriptions which could have been given by the applicant in the said Part-V of the application and even in residuary Point No. 8 therein, nothing was at all stated at any place about the so called acknowledgment or any other date of default." 23. We may also refer to Judgment of the Hon'ble Supreme Court in 'Laxmi Pat Surana Vs. Union of India and Anr.' [(2021) 8 SCC 481] in the above case the default had occurred on 30th January, 2010 which was a date on which loan in question was declared NPA. Supreme Court held that ordinarily date on which Account has been declared NPA is to b....
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....cepted by the Hon'ble Supreme Court itself and the Application was filed on 13th February, 2019 hence the Court held that the Application was barred by time. In the above case, recall notice was issued on 19th February, 2019 demanding total amount including interest and principle and amount was calculated from the date of default. IBC Proceedings are proceedings which are intended to be proceeding for Resolution of the insolvency of the Corporate Debtor, it is for the purpose that when a Corporate Debtor becomes insolvent, proceeding for resolution of insolvency may be commenced. If we accept the submissions of the Learned Sr. Counsel for the Appellant that on every first default even if it small fraction of loan, Financial Creditor has to rush to the IBC for initiating Insolvency Proceeding the same shall not be in accordance with the object of the Code. The Code is not recovery proceeding so as to on fraction of default a creditor rush to IBC Code. Financial Creditor can very well give little more time to borrower or to itself for coming to the conclusion that Corporate Debtor has apparently become insolvent although at the risk of forfeiting its right to claim amount which is ba....
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....of limitation. We may refer to a Full Bench judgment of Allahabad High Court reported in AIR 1952 Alld 900 'Sheo Lal and Ors. Vs. L Devi Das and ors.' where the Allahabad High Court had occasion to consider articles 181 and 182 of the Limitation Act, 1908 and following three questions were referred to: "32. It appears to us, therefore, that the decisions of this Court cannot be reconciled and, in our opinion, the case should be referred to a larger Bench in order that a final and authoritative decision may be given on the following questions: 1. Where a preliminary decree (or money allows instalment and provides that in case of default in payment of any specified number of instalments, the entire amount then remaining unpaid would become payable, whether the words "when the right to apply accrues" in the third column in Article 181, Limitation Act are confined to the first default or include every fresh accrual of the right to apply upon the happening of each successive default and limitation for applying for a final decree for the balance then due may be counted from the accrual of the last default? 2. Whether in such a case the right to apply for a fina....
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....rs earlier. Thus the first principle to be remembered is that when we speak of 'the right to apply', what is intended is the right to apply for a particular cause of action bearing in mind always that there may be more than one causes of action under one decree." 28. The answer to the above three questions were given by Full-Bench in Paragraph 65 is to the following effect: "65. By the Court--The answers to the questions referred to the Full Bench are as below: 1. The words "when the right to apply accrues" in the third column in Article 181, Limitation Act must mean the first default giving rise to the particular cause of action on the basis of which the application for a final decree is made, unless there has been a waiver, express or implied of the first default in which case the words "when the right to apply accrues" would mean the next succeeding default which is not waived, but the decree-holder will have a right to apply for realisation of each successive instalment as it falls due, provided the decree is not so worded that the only right left to the decree-holder after the first default is to realise the whole decretal amount. 2. The a....
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....tional Debt. It is also interesting to note that Part IV of the Application under Section 9 mentions the 'date of default' as 'June 30, 2017'; for an amount of Rs. 2,39,85,521.35/-. It is seen from the record that the date of first default is March 2011 and the cumulative amount claimed is Rs. 2,39,85,521.35/-. Section 9 Application emanates from the Demand Notice under Section 8(1). Both have to be read conjointly and the date of default cannot be construed to be different merely because it is differently mentioned as '2011' in Section 8 Notice and '2017' in Application under Section 9. 22. As can be seen from Section 8, reproduced above, the moment there is an occurrence of a default, copy of an invoice demanding payment of the amount involved in the default is to be delivered by way of a Demand Notice to the 'Operational Creditor'. Form III gives the details of the invoices. In the instant case, the 'Operational Creditor' has given the details of invoices from (pages 399 to 406 of Volume II) and has also crystallized the amount at Rs. 2,39,85,521.35/-, which is unpaid from 2011. Therefore, the argument of the Learned Counsel for the 'Operational Creditor' that the perio....
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....ion 9 Proceeding, but the above judgment cannot be read to hold that if from the date of default as claimed in the Section 9 Application the Proceeding is initiated within three years the same shall also be held to be barred by time. 31. The Adjudicating Authority has already relied on a Judgment of Delhi High Court of 'Kotak Mahindra Bank Limited Vs. Anuj Kumar Tyagi' wherein paragraph 12.2 following was laid down: "12.2. ... ... ... Quite clearly, the period of limitation, would, relate back to last defaulted EMI as, vide the aforementioned notice the appellant gave a final opportunity to the respondent to repay the amount, which was due and payable on the date of notice. The right to sue would occur, in my opinion, each time when, there is a default in payment of an EMI on its due date... ... ..." 32. We thus conclude that non-filing of the Application under Section 7 of the Code by the Appellant on default of interest which occurred on 30th June, 2015 shall not foreclose the right of the Financial Creditor to file an Application under Section 7 of the Code when default on first instalment occurred on 30th November, 2015 and when entire loan became due by notice d....
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....d of the pendency of a suit or arbitration proceedings, which is pre-existing - i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise." 36. The above preposition is again reiterated by Hon'ble Supreme Court in [(2018) 1 SCC 363] 'Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited' wherein paragraph 37 following was observed: "37. It is now important to construe Section ....
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....n and to secure the Facility Agreement the corporate debtor created security interest by a mortgage of the Mortgage Property detailed in the mortgage deed. The present is the case where borrower in his pleading has not denied disbursement of amount of Five Million Dollars on 30th August, 2013, 31st October, 2013 and 31st December, 2013. The detail correspondences between the Respondent brought on record by the Financial Creditor including the No-Objection of Reserve Bank of India for accelerating the entire financing, all reflected the taking finance by Corporate Debtor. Adjudicating Authority had substantial materials on record to come to the conclusion that default has been committed by the Corporate Debtor and the amount as claimed is due. 38. Now we may notice two judgments of Hon'ble Supreme Court relied on by the Learned Sr. Counsel for the Appellant. Learned Sr. Counsel for the Appellant has placed reliance on Judgment of Hon'ble Supreme Court in 2020 8 SCC 531 'Committee of Creditors of Essar Steel Ltd. Vs. Satish Kumar Gupta and Ors' reliance has been placed on paragraph 152 and 153 which is to the following effect: "152. So far as Civil Appeal No. 7266 of 2019....
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....been sent by the Resolution Professional. The present was the case where the Adjudicating Authority was to satisfy that default has been committed by the Corporate Debtor in payment of debt. As noted above there were umpteen materials on record to prove that debt was due and was not paid by the Corporate Debtor. The present is the case where Financial Creditor has by materials on record in addition to Facility Agreement dated 22nd May, 2013 and 19th August, 2013 has proved the Financial Debt which remained unpaid. 40. The next Judgment relied on by Learned Sr. Counsel for the Appellant is Judgment of Hon'ble Supreme Court of India in 2021 4 SCC 379 'M/s. N.N.Global Mercantile Pvt. Ltd. Vs. Indo Unique Flame Pvt. Ltd. & Ors'. In this case, the Hon'ble Supreme Court of India had occasion to consider Section 8 and Section 11 of the Arbitration and Conciliation Act, 1996. In paragraphs 21 to 23 Hon'ble Supreme Court of India laid down as under: "21. The issue which has arisen in the present case is whether the arbitration agreement incorporated in the unstamped Work Order dated 28.09.2015, would also be legally unenforceable, till such time that the Work Order is subjected ....