AI Drafter 
TaxTMI 
TaxTMI 
2023 (7) TMI 484
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....de against Uniworth Textile Limited (in short 'UTL') ('Corporate Debtor'). 2. Heard the Counsel for Parties and perused the records made available including cited judgments. 3. Learned Counsel for the Appellant gave the background of the case and circumstances which led to the present appeal. The Appellant i.e. Asset Reconstruction Company (India) Limited (in short 'ARCIL') is registered with RBI under Section 3 of SARFAESI Act, 2002. It is the case of the Appellant that the Corporate Debtor/ UTL had taken loans originally from Industrial Finance Corporation of India Limited ('IFCIL') and Investment Corporation of India Limited ('ICICI') in 1992 of an amount of Rs. 41.50 crores and the loan documents were registered on 09.03.1995 and 12.12.1996 between the Corporate Debtor, IFCIL and ICICI respectively. ICICI assigned the debt to the 'Appellant' on 31.03.2004 and IFCIL assigned the debt on 12.01.2007 and therefore, the underlying securities and incidental rights thereto are vested in favour of the Appellant herein. 4. It is further the case of the Appellant that the Corporate Debtor initiated proceedings under Sick Industrial Companies (Special Provisions Act, 1985) (in sh....
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....ancial year 2006-07 to 2017-18. 9. Learned Counsel for the Appellant stated that despite all efforts, the 'Appellant' was not getting payment of outstanding dues from the Corporate Debtor. Hence, on 22.11.2018, the Appellant issued a letter for Revocation of Terms of Settlement due to non-compliance on the part of Corporate Debtor. 0n 27.11.2018, the Appellant filed an application under Section 7 bearing No. CP (IB) No. 1953/KB/2018 for an amount of Rs. 2,05,83,38,883/-, however, the Adjudicating Authority, vide Impugned Order dated 17.03.2020, dismissed the Company Petition, filed under Section 7 of the Code, primarily on the ground of limitation. Learned Counsel for the Appellant assailed the Impugned Order wherein the Adjudicating Authority did not consider the exclusion of period from limitation period in terms of Section 22(5) of SICA and misinterpreted the judgment of the Hon'ble Supreme Court of India in the matter of Jignesh Shah & Ors. Vs. Government of India and also ignored the provisions of Section 29 of the Limitation Act, 1963. 10. Learned Counsel for the Appellant stated that their application is within Limitation. Learned Counsel for the Appellant submitted th....
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.... that acknowledgment in balance sheets come within the purview of Section 18 of Limitation Act, 1963 and the 'Appellant' relied upon the Judgment in M/s Mahabir Cold Storage Vs. C.I.T. Patna [(1991 Supp (1) SCC 402], A.V. Murthy Vs. B.S. Nagabasavanna [(2002) 2 SCC 642], Usha Rectifier Corporation (India) Limited Vs. Commissioner of Central Excise, New Delhi [(2011) 11 SCC 571] and S. Natarajan Vs. Sama Dharman [MANU /SC/0698/2014] to support his case. 16. Learned Counsel for the Appellant also assailed the order of the Adjudicating Authority who did not take into account submissions made by the Respondents that they were willing to pay Rs. 21 Crores to the Appellant which clearly established the fact regarding debt and due and therefore his application under Section 7 of the Code should have been accepted. 17. Summarising his arguments, Learned Counsel for the Appellant stated that his appeal should be allowed and Impugned Order be set aside. 18. Per-contra, Learned Counsel for the Respondents denied all the averments of the Appellant. 19. Learned Counsel for the Respondents stated that the loan account of Respondents (UTL) was classified as NPA prior to 20.11.2007, as....
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....e Respondents cited the judgment of the B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta and Associates [(2019) 11 SCC 633], Innoventive Industries Ltd. Vs. ICICI Bank [(2018) 1 SCC 407], Jignesh Shah & Anr. Vs. Union of India & Anr. [(2019) 10 SCC 750] and Sagar Sharma Vs. Phoenix ARC (P.) Ltd. [(2019) 110 Taxmann 50 (SC)]. 25. Learned Counsel for the Respondent also assailed the conduct of the Appellant who is seeking to exclude the period during which reference under Section 15 r/w Section 16 of SICA was pending before the BIFR in relation to the Respondent which was abated in 2013 and as per the limitation period need to be computed from the year 2016 i.e., coming into existence of the Code. Learned Counsel for the Respondent stated that such interpretation will lead to absurdity. In this regard, Learned Counsel for the Respondents cited judgment of Jignesh Shah & Anr. (Supra) where it was held that ability or inability of financial creditor to avail separate independent remedy cannot, in any manner, impact the limitation for the purpose of period of limitation for initiating proceeding under Section 7, hence, Learned Counsel for the Respondent submitted that mere operati....
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....ged debt of UTL and such admission, if any, have to be within the expiry period of three years from the date of default, which in the present case is long back and therefore it is barred by limitation. 30. Concluding his averments, Learned Counsel for the Respondents pleaded for dismissal of this appeal with cost. 31. From the averments by both the parties, this Appellate Tribunal noted the following issues which are required to be deliberated to decide the present appeal. These main issues are as under :- (I) Whether the application of the Application under Section 7 of the Code before the Adjudicating Authority was barred by limitation or otherwise. (II) Whether the entries in the balance sheets tantamount to acknowledgments of debt for purpose of extending the limitation. (III) Whether the letter dated 11.11.2016 of UTL/ Uniworth Group can be relied upon as an admission of acknowledgment of alleged dues. 32. Since, all these three issued are interconnected, we will deal with them jointly in following discussions. ➢ It is the case of the Appellant that the Corporate Debtor filed the proceedings before BIFR in 2004 which remained pendi....
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....al company, an inquiry under section 16 is pending or any scheme referred 1o under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending then, notwithstanding anything contained in the Companies Act, 1936 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof /and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. (5) In computing the period of limitation for the enforcement of any right, privilege obligation or liability. the period during which it or the remedy for....
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....ppellant and issued a decree. ➢ The Appellant seeks to rely on various acknowledgments of debt due in the books of the Corporate Debtor and entries reflected in the Balance Sheet from the period 31.03.2007 to 31.03.2019. ➢ Per contra, the Respondent has denied that he made any acknowledgments in its books/Balance Sheets. It is the case of the Respondent that merely mentioning of alleged debt cannot and should not be construed as acknowledgments since the same was disputed in the Directors report. As per the Respondent pendency of an original application under the Provision of RDB Act could not in any manner affect the running of period of limitation for initiating proceedings under Section 7 of the Code. ➢ We note from the impugned order that the Adjudicating Authority has discussed applicability of Section 14(1) of the Limitation Act, 1963, according to which the Financial Creditor had to prove that reference to BIFR by the Corporate Debtor was a wrong forum. The Adjudicating Authority held that BIFR was a correct forum and therefore, Section 14(1) and 14(2) of the Limitation Act, 1963 are not satisfied which would entitle the Appellant herein, to exc....
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....C 229], it was observed "2. In the captioned appeal mainly, twin questions of law call for consideration id est :- (i) Whether in computation of the period of limitation in regard to an application filed under Section 9, IBC the period during which the operational creditor's right to proceed against or sue the corporate debtor that remain suspended by virtue of Section 22 (1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22 (5) of SICA? 39. When the limitation period for initiating CIRP under the section 9, is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor, is three years as provided by section 137 of the Limitation Act, 1963 and the same would commence from the date of default and is extendable only by application of section 5 of the Limitation Act, 1963 it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation. 40. As relates Section 5 of the Limitation Act showing 'sufficient cause' i....
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..... In particular, the Appellant relies on the Financial Statement of 2016-2017 which has also shown acknowledgment of entire dues under the loan agreement by the Corporate Debtor. It is the case of the Appellant that the Annual Report of 2016-2017, in Annexure-A to the Auditors Report in (VIII). Following is recorded: "The Company has defaulted in repayment of dues to financial institutions, banks and debenture holders as under: As per Original Agreement, all the following loans have become due for repayments. However, the Company's negotiations with the term lenders for rescheduling/restructuring is in process : Nature of Financial Assistance Amount (Rs. In Lakhs) Term loan Financial Institution ICICI Principal Interest IFCI 2010.262737.21 Principal Interest 1472.26 2919.18 In the same Annual Report of 2016-17 under Notes to the Financial Statements in Note No. 28 following is recorded: a) The Board for Industrial and Financial Reconstruction (BIFR) stands dissolved with effect from 1st December, 2016. Hence all references made by the company to the BIFR/AAIFR and the matters relating the rate and/ or arising of stands cancelled. However....
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....hich enables the judicial forum to recognise such entries in the Balance Sheet as acknowledgement. In this connection, he referred to the same judgment pointed out by the Respondent i.e. Bishal Jaiswal (Supra), where it has been held that entries in the Balance Sheet may amount to an acknowledgement of debt for the purpose of extending limitation under Section 18 of the Limitation Act. ➢ We would like to, therefore, take into consideration the relevant paragraphs from the Bishal Jaiswal (Supra), where the issue whether an entry made in a balance-sheet of a Corporate Debtor would amount to an acknowledgment of liability under Section 18 of the Limitation Act was considered and the Hon'ble Supreme Court in this case decided the issue of acknowledgment in the same case and observed as follows:- "14. Several judgments of this Court have indicated that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgment of liability within the meaning of Section 18 of the Limitation "Act. Thus, in Mahabir Cold Storage v. CIT, 1991 Supp (1) SCC 402, this Court held : 12. The entries in the books of accounts of the appellant woul....
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....o with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act." 46. It is, therefore, clear that the majority decision of the Full Bench in V. Padmakumar [V. Padmakumar v. Stressed Assets Stabilisation Fund, 2020 SCC OnLine NCLAT 417] 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 NCLAT dated 12-3-2020 [V. Padmakumar v. Stressed Assets Stabilisation Fund, 2020 SCC OnLine NCLAT 417] . (Emphasis Supplied) ➢ In this connection, since the above judgment of Hon'ble Supreme in Bishal Jaiswal (Supra) upheld the minority view of Justice A.I.S. Cheema, it would be desirable to note the relevant paras of minority judgement of Justice A.I.S. Cheema in NCLAT Judgement which reads as under :- "40. Thus, I find it is settled law appearing from the Judgments of the High Court of Delhi and ....
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....n/ debt has been taken and acknowledged by the Corporate Debtor. We also take into consideration the Director's Report where it has been indicated that company is exploring possibility for a suitable resolution scheme through NCLT and also exploring other options available in the law. The Director's Report further also recorded that they are disputing the repayment of dues and therefore figures of borrowed amount in the Balance Sheet could not be considered as of the claims of lender. ➢ On the face of these facts and recording by the management, it cannot be straight away considered as clear unconditional acknowledgement of debt. Therefore, this Appellate Tribunal would like to go into further records connected with the same debt i.e., pre 2016-17 Balance Sheet and post 2016-17 Balance Sheet with a view to understand whether such dispute has been recorded by the management from day one or can be construed as single/ few/ stray/ isolated caveats. ➢ In the said Balance Sheet of 2015-16 in Annexure A to the Auditor's Report to the members of Uniworth Textile Ltd. for the period ended 31st March, 2016 in Para VIII, the Corporate Debtor has recorded 'the company has ....
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....dmission and depiction of debts in Balance Sheets or the same was denied and disputed by the Corporate Debtor from the beginning. Following are excerpts from various balance sheets of the Corporate Debtor as noted from record placed before us. ➢ On a quick perusal of perusal of various Balance Sheets from 2006-07 to Balance Sheets of 2013-14, this Appellate Tribunal do not find any apparat denial of debts by the Corporate Debtor. ➢ Therefore, we take into account following excerpts from the Balance Sheets from 2014-15 to 2018-19 (excerpts taken from various documents marked in Appeal Paper Book) :- Year Directors Report (Objection) 2014-15 Pg.- 1554 Director's Report (Board View): During the year Under Review the Company continued to be under BIFR as a Sick Industrial Undertaking. The matter is sub-judice before the Court of Law. All compliances with the stock exchanges are updated and in respect of the status of the company being shown as "Suspended" by BSE Limited and the Calcutta Stock Exchange Limited, the company has taken up the matter with both the exchanges as the company is in compliance with the Listing Agreement. The Company has disp....
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....ntinued to be under BIFR as a Sick Industrial Undertaking. The matter is sub-judice before the Court of Law. All compliances with the stock exchanges are updated and in respect of the status of the company being shown as "Suspended" by BSE Limited and the Calcutta Stock Exchange Limited, the company has taken up the matter with both the exchanges as the company is in compliance with the Listing Agreement. The Company has disputed the repayment of due. The loss and damages caused to the borrower by the lender is much more than the amount lent. Hence, figures of the borrowed amount shown in the balance sheet after due adjustments with the said loss and damages may result in Do Debt Due, rather the borrower is entitled to recover substantial amount from the lender. Under those facts and circumstances, the figures of borrowed amount in this balance sheet cannot be considered as admission, if any, of the claim of lender(s). Pg- 1665 Independent Auditor's Report (viii) The Company has defaulted in repayment of dues to financial institutions, banks and debenture holders as under: As per Original Agreement, all the following Loans have become due for repayments. However, the Co....
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....ntitled to recover substantial amount from the lender. Under these facts and circumstances the figures of borrowed amount In this balance sheet cannot be considered as admission, if any, of the claim of lender(s). ➢ Excerpts taken from various documents marked in Appeal Paper Book:- 2017-18 Pg-1792 Directors Report (Boards View) The company is exploring other options available under the law for enforcement of specific performance of the argument on the same line as in the case of major lenders. The company has disputed the claims of the lenders or creditors being unsustainable. 2018-19 Pg- 1890 Directors Report (Boards View) The company has filed suit for enforcement of specific performance of the Agreement on the same line as in the case of major lenders. The company has disputed the claims of the lender or creditors being unsustainable. ➢ It is seen that in Balance Sheets from 2007-08 to 2013-14 apparently no dispute regarding that seem to have been recorded in absolute terms. We have already noted that in the Balance Sheet of the period 2014-15 to 2015-16, indeed in the Director's Report the ....