TaxTMI 
TaxTMI 
2025 (1) TMI 550
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.... Impugned Order, the learned Adjudicating Authority had proceeded to admit Section 7 proceedings as against the present Appellant, the Respondent therein, in the Company Petition. 2. The prime question which has been argued by the Learned Counsel for the Appellant is that, as to whether, the proceeding under Section 7 of the I & B Code, 2016, could at all be sustained when the claim, which formed the basis for institution of the proceeding under Section 7 of the Code, is allegedly a Time-barred claim. 3. According to the arguments extended by the Learned Counsel for the Appellant, the date of default is that of 21.05.2013 and since, the proceedings under Section 7 of the Code was initiated, thereafter, in 2019, the same would be barred by Limitation, owing to the bar created by Section 18 to be read with Article 137 of the Limitation Act. 4. The precise facts which are required to be dealt with and which had not been brought to the notice of the Court during the course of the argument by the Learned Counsel for the Appellant is that, according to the pleadings which has come on record, the Respondent No. 2 claims himself to be the Financial Creditor who had filed the Application....
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.... the instant controversy pertaining to the determination to be made, as to what would be the cut off date, for admission of the claim, for the purposes of initiation of the proceedings under Section 7 of I & B Code, 2016. 10. On 07.03.2014, the Assignor Bank (Oriental Bank of Commerce) assigned the debt of the Respondent No. 1 in favour of the Respondent No. 2, and Respondent No. 2, had intimated the fact of such assignment of the debt in its favour to Respondent No. 1 vide its communication dated 29.04.2014. 11. Other dates, which would be relevant and which has been also canvassed by the learned counsel for the Respondent No. 2, taking them as to be the basis on which the Respondent No. 2 has initiated the CIRP proceedings are the entries which has been made in the Balance Sheets of the Respondent No. 1, pertaining to the Financial Year 2014-15 to 2017-18, where the Respondent No. 1 is shown to have acknowledged the loan liability of the Consortium Banks. 12. In 2019, the Respondent No. 2, brought the Secured Assets through a Public Auction as per the provisions contained under the SARFAESI Act, 2002, on the basis of the Judgment of the DRT dated 13.12.2012 and the Recovery Ce....
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....lt in remittance of the amount, or complying with the terms of the settlement. 18. The Respondent No. 1, defaulted in making payment, as scheduled under the terms of the settlement and the Memorandum of Compromise dated 21.12.2020. Consequently, the Respondent No. 2, filed the Restoration Application before the learned NCLT on the ground that, since Respondent No. 2 has not adhered to the payment schedule as per the terms of settlement on 15.11.2021 and a default has been committed by Respondent No. 1, for the purposes of revival of the proceedings under Section 7 of I & B Code, 2016, by Respondent No. 2. 19. The said application was registered as RST No. 2 of 2022, in IBA / 930 (CHE) / 2019. The said Restoration Application was allowed on 04.03.2022 and the proceedings were restored back and Respondent No. 1 was admitted to the CIRP, by an order of 12.12.2023. 20. The revival of the proceedings by recall of the order had been in pursuance to the liberty granted by the learned NCLT on 22.12.2020. One aspect which needs deliberation is that, when the request was made for settlement of the dues by way of an O.T.S. proposal, whether it will amount to be an acknowledgment of due, fo....
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....ould be taken as to be the cut off date for the purposes of reckoning of default, for the purposes of initiation of the proceedings under Section 7 of I & B Code, 2016, that the proceedings under Section 7 of I & B Code, 2016, was only revived on 04.03.2022 and was ultimately allowed on 12.12.2023 and that, since both these dates are beyond 3 years from 21.05.2013, the same would be barred by limitation, under Article 137 of the Limitation Act. 25. On the contrary, it has been argued by the learned counsel for the Respondent that, the contentions of the learned counsel for the Appellant is not acceptable for the reason being that, after the determination of the dues to be recovered vide the Recovery Certificate DRC No. 73 / 2013, on the basis of the Judgment of the DRT dated 13.12.2012, the debts were continuously acknowledged in the Balance Sheet entries of 2014 - 2015 to 2017 - 2018, and hence, 21.05.2013 cannot be taken as to be the basis for determining the limitation period for initiation of the proceedings under Section 7 of I & B Code, 2016. Further, the Respondent No. 1 initiated the proceedings of SA No. 42 / 2019, challenging the auction proceedings where he acknowledged....
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....f Section 18 of the Limitation Act, the cause of action or the reason for initiation of the proceedings would be the acknowledgment of liability at the behest of the Appellant, which in the instant case, took place on 30.01.2019, during the course of the proceedings of SA No. 42 / 2019, where Respondent No. 1 sought to challenge the auction. Subsequent thereto, after the filing of the application under Section 7 of I & B Code, on 27.06.2019, the Respondent No. 1 had approached the Respondent No. 2 and other Consortium Members, with a Settlement Proposal and admitted his liability in his communication dated 18.03.2020, accepting the Settlement Proposal and in the Memorandum of Compromise dated 21.12.2020. 28. In fact, it is based upon this Settlement Proposal of 21.12.2020, that the learned NCLT, thought to be worthwhile to permit 2nd Respondent herein to withdraw the proceedings of Section 7 of I & B Code, because the reckoning of default has been admitted by the Appellant on 21.12.2020 and agreed to repay the amount. Since the order of 22.12.2020, had given liberty to the Respondent No. 2, to revive the proceedings under Section 7 of I & B Code, in case of further defaults, hence....
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....e Hon'ble Apex Court has determined the aspect, as to how the limitation, would be determined where there is a reckoning of the default. The relevant paragraph is extracted hereunder: "139. 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 [Gaurav Hargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd., (2019) 10 SCC 572 : (2020) 1 SCC (Civ) 1] 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 acknowledgment 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 21-3-2019" 31. The learned counsel for the Respondent has ....
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....by limitation because, being an Appellate Tribunal, we have to consider the entire contours of the case in its totality where apparently and admittedly the Appellant himself has acknowledged the debt, till the settlement was arrived at on 21.12.2020. Hence, in the light of the ratio of Kotak Mahindra Bank, to be read with the ratio of Dena Bank Judgment, the initiation of proceeding under Section 7 of I & B Code, would not be barred by limitation, which has vehemently been argued by the learned counsel for the Appellant. 34. There is another aspect which has to be considered by this Appellate Tribunal. The learned counsel for the Appellant, has strongly harped upon the entries made in the Balance Sheet for the year 2014-2015 to 2017-2018, where there is no specific amount acknowledged in favour of Respondent No. 2 to prove his contention that since the date of issue of Recovery Certificate i.e. 21.05.2013, he has not acknowledge the dues of Respondent No. 2. The same issue has been dealt by the Hon'ble Apex Court in a Judgment reported in 2024 SCC OnLine SC 2993 Vidyasagar Prasad v. UCO Bank & Anr., where it was dealing with the issue as to when the loan amount has fallen due to b....
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....wever, section 7 comes into play when the corporate debtor commits 'default'. Section 7, consciously uses the expression 'default'-not the date of notifying the loan account of the corporate person as non-performing assets. Further, the expression 'default' has been defined in section 3(12) to mean non-payment of 'debt' when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. In cases where the corporate person had offered guarantee in respect of loan transaction, the right of the financial creditor to initiate action against such entity being a corporate debtor (corporate guarantor), would get triggered the moment the principal borrower commits default due to non-payment of debt. Thus, when the principal borrower and/or the (corporate) guarantor admit and acknowledge their liability after declaration of the non-performing assets but before the expiration of three years therefrom including the fresh period of limitation due to (successive) acknowledgments, it is not possible to extricate them from the renewed limitation accruing due to the effect of section 18 of the Limitation A....
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.... of three years." ( emphasis supplied ) 7.2. A reference must also be made to a three judge Bench decision in Rajendra Narottamdas Sheth v. Chandra Prakash Jain [(2021) 16 Comp Cas-OL 241 (SC); (2022) 5 SCC 600.] which succinctly observed [ See page 253 of 16 Comp Cas-OL.] : "It is no more res integra that section 18 of the Limitation Act is applicable to applications filed under section 7 of the Code. In case the application under section 7 is filed beyond the period of three years from the date of default and the financial creditor furnishes the required information relating to the acknowledgment of debt, in writing by the corporate debtor, before the Adjudicating Authority, with such acknowledgment having taken place within the initial period of three years from the date of default, a fresh period of limitation commences and the application can be entertained, if filed within this extended period." ( emphasis 3 supplied ) 36. As observed, the Balance Sheet has to be prepared in a Statutory format as per the Schedule III of the Companies Act. If the provisions contained under the Schedule III of the Companies Act, is taken into consideration, since, it does not provide ....
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.... NPA, if there were an acknowledgment of the debt by the corporate debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years." 39. In the aforesaid Judgment of Vidyasagar Prasad (Supra), the Hon'ble Apex Court has also dealt with the ratio which was laid down in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal & Anr. as reported in 2021 Vol. 6 SCC 366. In Para 35 of the said Judgment, it is provided that, the Balance Sheet, no doubt, is a relevant document, but which has to be prepared in accordance with the III Schedule of the Companies Act, and filing and preparation of the Balance Sheet must be done strictly in accordance with the provisions of the Companies Act is also mandatory, and that in case of any transgression or non-compliance of the statutory procedure of preparation of the Balance Sheet, which has been particularly relied on in the instant case, the entries in the said Balance Sheet, cannot be taken into consideration as to be the basis to contend that the same could be taken, as to be an aspect for determining the limitation for drawing the proceedings unde....
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....emorandum of Compromise, will constitute acknowledgment in writing by the Corporate Debtor. Further, the last `Acknowledgement' of debt, would be reckoned for the Appellant from the date of compromise and thereafter, admittedly the default has been committed, which has necessitated to file the Restoration Application, for revival of the proceedings, which stood admitted under Section 7 of I & B Code, on 12.12.2023. 41. In that eventuality, the proceedings under Section 7 of I & B Code which has been drawn herein, cannot be said to be barred by limitation, owing to the ratios as laid down in the Judgment of Dena Bank (Supra) and particularly, owing to the peculiar facts and circumstances of the instant case, wherein there is an admitted contract to pay a time barred debt under Section 25(3) of the Contract Act. There is a very fine distinction, which has been drawn between the `acknowledgment' and `promise'. `Acknowledgment', is relevant for the purposes of determining the period of Limitation under Section 18 of the Limitation Act, while, for the purposes of a `promise', Section 25(3) of the Contract Act, will come into play, which may not be relevant for the purposes of determina....