TaxTMI 
TaxTMI 
2025 (10) TMI 973
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.... a shareholder of the Corporate Debtor, under Section 61 (1) of the Insolvency & Bankruptcy Code, 2016 ("IB Code") against the Impugned Order dated 15.02.2023, passed by the National Company Law Tribunal, Mumbai (Bench - V) in Company Petition (IB) No. 1358 of 2020 filed by the Respondent No.1 under Section 7 of the IB Code for initiation of Corporate Insolvency Resolution Process against Privilege Power Infrastructure Limited ("PPIL") Submissions of the Appellant 2. NCLT overlooked the fact that it was the Financial Creditor /Respondent No. 1 who had made the averments in Form 1 (Application by Financial Creditor) that credit facility of Rs.81.50 Cr. was disbursed on 12.03.2007. But no such amount was disbursed on 12.03.2007. Only the sum of Rs.11,81,66,116.90 was disbursed from 12.03.2007 - 31.03.2007 to the Corporate Debtor for which no sanction letter was issued nor were the terms of disbursal with respect to time value and money. Date of NPA pleaded by the Financial Creditor, Respondent No.1 herein was 31.08.2012. 3. But the Financial Creditor issued sanction letter on 16.08.2018 for an amount of Rs.81.50 Crores to correct the fraud of Financial Creditor for not being....
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.... in the event the document required for taking appropriate legal action against the Corporate Debtor is fraudulently concealed by the other party. In this case, all the documents required for taking any legal action were readily available with the Financial Creditor and the question that arose was - why the bank/Financial Creditor did not take any action in F.Y. 2012 when the account of the Corporate Debtor was NPA. These are the internal policy decisions of the Financial Creditor and certainly the Corporate Debtor had no role to play. 7. Financial Creditor itself has filed an FIR before the EOW and has alleged collusion / conspiracy between the Corporate Debtor and management of the Financial Creditor. This certainly is not the object of the legislature which has been relied by NCLT in the present case. Even the EOW in C.R. No. 86/2019 (Bhandup Police Station C.R. No. 375/2019) of the Chargesheet explicitly states that the loan documents executed by the Financial Creditor are invalid and that the RBI norms and conditions were not followed by the Financial Creditor while sanctioning and disbursing the loan to the Corporate Debtor. 8. Impugned Order suffers from non-applicatio....
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....cial Creditor-USFBL, till the date USBFL discovered the default of PPIL, along with the documents evidencing such default, which were fraudulently concealed by erstwhile management of PMC Bank as well as the Appellant. In or around 23 September 2019, on account of the irregularities in conduct of business of PMC Bank, RBI took over the charge of PMC Bank's management by way of supersession of Board of Directors under Section 36AAA of the Banking Regulation Act, 1949. An Administrator was appointed by the RBI in exercise of the powers conferred on RBI India under Sub-sections 1 & 2 of Section 36AAA read with Section 56 of the Banking Regulation Act, 1949. Moreover, an Advisory Committee comprising of senior bankers/ chartered accountant was also appointed to assist the Administrator. Further, PMC Bank was placed under All- Inclusive Directions (AID) under Sub-section (1) of Section 35-A read with Section 56 of the Banking Regulation Act, 1949 with effect from on 23 September 2019 vide RBI's Directive DCBS.CO.BSD-I/D-1/12.22.183/2019-20 dated 23 September 2019 on account of fraud which led to steep deterioration in the net- worth of the bank. Further, the Administrator appointed an a....
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....t of India on 25 January 2022. By way of the scheme of amalgamation, the Financial Creditor took over the assets and liabilities of PMC. An Interim Application being 624 of 2022 was preferred before this Hon'ble Tribunal to substitute the name of PMC with the Respondent herein in the Company Petition vide order dated 11 March 2022. 14. Respondent also contends that there exists valid acknowledgements and part payment of debt. The statement of accounts reveal that on or around 25 February 2013, the Corporate Debtor availed a facility of INR 6,79,00,000/- (Rupees Six Crores Seventy Nine Lakhs). It is settled law that as per Article 21 of the Limitation Act 1963, that in the case of a simple overdraft facility, the limitation period of 3 years will run from the date on which the last overdraft facility was availed. Therefore, the period of limitation would begin to run at least from 25 February 2013. 15. Section 18 of the Limitation Act, 1963 prescribes that before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party ....
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....Account and no other account is maintained with the PMC Bank. The part payments received from vendors were also towards discharge of the debt availed by the Corporate Debtor, and were on behalf of the Corporate Debtor, who used to periodically authorize third party vendors to transfer monies to the Overdraft Account. The same is evident from a bare perusal of the statement of accounts of the Overdraft Account. Moreover, the Corporate Debtor knowing that it had not availed further facility from PMC Bank after 2013, continued to provide balance confirmations even in 2018 and 2019. This shows unequivocal intent of the Corporate Debtor to acknowledge an existing debt and liability, prior to expiration of the limitation period to file a suit. As such, the Corporate Debtor provided valid acknowledgement of debt till 2019, and given that the Company Petition was filed in 2020 itself, it cannot be said that the Company Petition was barred by limitation. 20. Respondents also contends that Overdraft Account was a mutual and a current account. The balance in the Overdraft Account was a constantly moving one and the balances reflected in the said account were momentary in nature and subject....
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.... the Financial Creditor and thereafter, contending that the Company Petition is barred as the Financial Creditor failed to initiate action in relation to the default on a prior date. It is well known that the erstwhile management of PMC Bank acted collusively with the Appellant to not even identify and report the default of the Corporate Debtor, let alone file proceedings for the same. The Financial Creditor herein is merely attempting to safeguard the interests of depositors of PMC Bank who have been greatly prejudiced by siphoning of the funds by the erstwhile management of PMC to the Corporate Debtor and its group companies. 22. Immediately after supersession of the management of PMC Bank, attempts were made by Financial Creditor to recover their dues from the Appellant: i. a notice dated 7 October 2019 registered under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI); and ii. a recall letter issued to the Appellant dated 12 June 2020; and iii. a record of default was registered on 1 July 2020 with National E- Governance Services Limited (NESL). 23. Appellant's have ....
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....ccount were readily available with the Financial Creditor. Appellant-Corporate Debtor never stopped the Financial Creditor from taking legal action. The plea that Financial Creditor came to know only on 27.12.2019 is a moonshine defense, especially since it itself pleaded that its own management was involved in fraud. Section 17 applies only if documents required for taking legal action are fraudulently concealed by the other party. In this case, all documents were readily available with the Financial Creditor. The question arises why the Financial Creditor did not take action in F.Y. 2012 when the account was NPA as per its own case. These were internal policy decisions of the Financial Creditor, in which the Corporate Debtor had no role. Appellant also contends that the Financial Creditor filed an FIR before EOW alleging collusion/conspiracy between Corporate Debtor and its own management. This is not the object of the legislature relied upon by NCLT. Even the EOW in C.R. No. 86/2019 (Bhandup Police Station C.R. No. 375/2019) in the Chargesheet explicitly states the loan documents executed by the Financial Creditor are invalid and RBI norms and conditions were not followed by the....
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....ished. Respondent also contends that Company Petition is within limitation as knowledge of default was concealed by PMC management and Appellant. Fraud was exposed after RBI superseded PMC Board on 23 September 2019 under Section 36AAA, Banking Regulation Act. Re- audit was concluded on 27 December 2019 revealed defaults and NPAs. Later PMC Bank merged with USFBL on 25 January 2022; Respondent substituted (IA 624/2022). As per Section 17, Limitation Act 1963: limitation begins from discovery of fraud or concealed documents. Hence limitation runs only from 27 December 2019. 31. Respondent also contends that the last overdraft facility was availed on 25 February 2013 (Rs.6.79 crores). Limitation under Article 21 runs from that date. Section 18 & 19 Limitation Act, 1963 provide that acknowledgements and part payments revive limitation. Here in this case balance confirmation letters were signed by Appellant on various dates which are noted as below: "31 March 2011 - Rs.30.36 crores, 26 June 2011 - Rs.29.99 crores, 30 June 2018 - Rs.101.69 crores, 31 March 2019 - Rs.115.25 crores, 30 June 2019 - Rs.120.07 crores" 32. Further part paymen....
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....that the overdraft facility availed in 2007 is separate and distinct from the purported overdraft facility sanctioned in 2017-2018. The latter is fictitious, devoid of any 'disbursal' and has been artificially created by the Financial Creditor in an attempt to circumvent the statutory bar of limitation applicable to a Section 7 Application, IBC. Further Appellant contends that Overdraft Account No. 02140700001790 was opened by Punjab and Maharashtra Co-operative Bank Ltd. (now Unity Small Finance Bank Ltd.)/ Financial Creditor, and a sum of Rs. 11.81 Crores was disbursed to Privilege Power and Infrastructure Pvt. Ltd./ Corporate Debtor between 12.03.2007 and 31.03.2007. Appellant contends that this disbursal was not supported by any sanction letter, loan agreement, or security documentation and in the absence of the said documentation, the 'disbursal' pursuant to the 2007 facility was not made in consideration for the time value of money and therefore did not fall within the definition of 'financial debt' under Section 5 (8) of the Insolvency and Bankruptcy Code, 2016. Further the account of the CD was classified as a "non- performing asset" in the 3rd quarter of the financial year....
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....rein, passed necessary board resolutions dated 6 December 2008 to increase the limit for the overdraft facility from INR 15,00,00,000 to INR 20,00,00,000 in relation to the Overdraft Account. The aforesaid resolution also shows that the Corporate Debtor had authorized the Appellant to make the necessary loan applications and executed the sanction letters for the overdraft facility from PMC Bank, and such facility was being availed against mortgage of Plot No 1 Juhu Tara Road, Juhu village Juhu, Taluka Andheri, bearing CTS No 956, 956/1 to 956/83, village Juhu admeasuring 550 sq. yards ("Mortgaged Property 1"). Moreover, in around 31 March 2012, interest was being levied for the facility availed by the Corporate Debtor. However, the Corporate Debtor failed to make payments towards interest for a period of over 6 months, and at-least till 31 August 2012, and as such the Overdraft Account of PPIL ought to have been classified and reported as a Non-Performing Asset (NPA) to Reserve Bank of India ("RBI"). However, owing to the irregularities in the conduct of business of PMC Bank, the Overdraft Account of PPIL was not reported to the RBI. Despite the same, the Corporate Debtor continued....
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....a continuing security, for the "existence of credit balance or NIL balance in the loan accounts at any time or any partial payment or inflection of accounts". • Subsequently, vide the sanction letter dated 6 January 2018, the Corporate Debtor agreed to furnish additional security for the sanction of INR 81.50 crores, by way of mortgage over the property at village Ranolli and Padmala at Sub-District Baroda admeasuring 45 Hectors, 92 Acres, 21 Pratlares standing in the name of Housing Development and Infrastructure Limited ("Mortgaged Property 3"). • Pursuant to above, further security was provided by Corporate Debtor and vide the sanction letter dated 2 May 2018, PMC Bank accepted additional security over the land at Village Doliv, Dahisar, Kasrali, Khardi, Taluka Vasai, District Palgar ("Mortgaged Property 4"). By way of deed of mortgage dated 24 May 2018, the Corporate Debtor created mortgage over the Mortgaged Property 4 in favour of PMC Bank for sanction of INR 81.50 crores. Thereafter, the sanction letter dated 16 August 2018 was issued by PMC Bank inter alia approving the sanction limit of INR 81,50,00,000 crores against the security over Mortgage Pr....
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....companied 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." 44. Appellant contends that the limitation period in the present case cannot be revived or extended by the operation of Section 18 of the Limitation Act, 1963. We note that Section 18, Limitation Act, 1963, brings out that if the debtor makes an acknowledgment of their liability towards the creditor, during the period of limitation, it gives rise to a fresh limitation to the creditor from the date of such acknowledgment. Subsection one of section 18 prescribes that such an acknowledgment has to be "before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such pro....
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....Part Payment under Section 19: Part payment was made in the CD's account by its vendor namely, Bharti Airtel, as seen by the transaction of Bharti Airtel, - "NEFT Bharti Airtel Ltd 000" (INR 2,07,000) and "NEFT Bharti Airtel Ltd 000" (INR 28,428). 21.10.2017 28.08.2014 Part Payment under Section 19: Part payment was made by Bharti Airtel for Rs. 28,428/-. 27.08.2017 17.02.2016 Part Payment under Section 19: Part payment was made by Bharti Airtel for Rs. 2,61,000/- 16.02.2019 03.04.2017 Acknowledgment under Section 18: PMC Bank issued a formal sanction letter for additional overdraft facility of Rs.10 crores under overdraft account no 1407/1790, in favour of CD. 02.04.2020 06.04.2017 Acknowledgment under Section 18: In clear acknowledgment of its debt, Letter of Continuing Security were issued by CD (signed by Rakesh Wadhawan & Sarang Wadhawan) in favor of PMC Bank for amounts of INR 10 crore and INR 71.50 crore (total INR 81.50 crore) 05.04.2020 11.07.2018 Acknowledgment under Section 18: Balance confirmation provided by CD for an amount of INR 101,69,36,070.27. 10.07.2021 ....
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....). The Hon'ble Supreme Court held that a fraudulent or collusive transaction does not qualify as financial debt, and that the adjudicating authority must look beyond form and into the substance of the transaction. The FC admits that, due to fraud committed by it, no sanction letter or security documents were issued prior to the loan disbursement. The Charge Sheet in C.R. No. 86/2019 reveals that the Managing Director of the FC deliberately suppressed the NPA classification, and RBI guidelines were flagrantly violated at the time of sanction and disbursal. These factors cumulatively render the transactions fraudulent in nature, and incapable of forming the basis for any claim under Section 7 of the IBC. Since IBC proceedings are not a substitute for debt recovery but are intended for the resolution of genuine defaults, the nature and origin of the alleged debt are crucial. In the present case, the transactions are cumulatively tainted by fraud and illegality, rendering them incapable of constituting a valid 'financial debt' under Section 7 of the Code. The remedy, if any, lies in a civil court and not through the IBC mechanism, which cannot be invoked to enforce disputed or fraudule....
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.... the Company Petition was filed in 2020, it is clear that the Company Petition was not barred by limitation and was filed at the earliest instance. Appellant being an active participant in the concealment of fraud and default of the Corporate Debtor, cannot be permitted to take advantage of its' own wrong and has approached this Hon'ble Tribunal with unclean hands. The Appellant along with the Corporate Debtor, has acted collusively to conceal default, and as such, only after obtaining the knowledge of the default and its right to sue, the Financial Creditor could have initiated the proceedings under Section 7 of the IBC. Therefore, any contention that the suit is barred by limitation is merely a ploy by the Appellant to take advantage of its own fraud on the Financial Creditor and ought not to be permitted. 50. For better appreciation Section 17 is reproduced as below: "Section 17. Effect of fraud or mistake. (1) Where, in the case of any suit or application for which a period of limitation is prescribed by this Act,- (a) the suit or application is based upon the fraud of the defendant or respondent or his agent; or (b) the knowledge of the r....
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....owings were not reported in the financial statements by CD, and default was concealed by CD. The management of PMC Bank i.e., Waryam Singh, acted in collusion with management of CD i.e. Rakesh Wadhawan and his son Sarang Wadhawan. Accordingly, on 27.12.2019, a charge sheet was prepared by the EOW against inter-alia the Appellant, and RBI directed PMC to recast its books to reflect the true picture of the CD. Finally, when the re-audit and recasting of erstwhile PMC Bank's books of accounts as on 31.03.2019 was concluded by the auditor appointed by RBI, date of default/NPA of the CD was identified as 31.08.2012. Thus, we are inclined to agree with the arguments of the Financial Creditor that in view of Section 17 of the Limitation Act 1963, period of limitation ought not to run till the discovery of date of default when the Administrator appointed an auditor to conduct re- audit and recasting of PMC Bank's books of accounts which concluded on 27.12.2019. And thereafter, the Petition was filed within the one year of finding of fraud and therefore, not barred under Section 17 of the Limitation Act, 1963 and is permissible to be filed. Can Section 25(3) of Contract Act be invoked to....
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....reproduced herein: Section 25. Agreement without consideration, void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law. An agreement made without consideration is void, unless (1) it is expressed in writing and registered under the law for the time being in force for the registration of 1[documents], and is made on account of natural love and affection between parties standing in a near relation to each other; or unless (2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless; (3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. In any of these cases, such an agreement is a contract. Explanation 1. Nothing in this section shall affect the validity, as between the do....
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....ents, and Balance Confirmations were issued by the Corporate Debtor in 2017, 2018, and 2019, which makes the Petition filed on 01.07.2020 well within the period of limitation. There are many documents which constitute a valid "Promise to Pay", and are listed hereunder: Date Document 16.08.2018 Demand Promissory Note given by CD (signed by Rakesh & Sarang Wadhawan), in favour of PMC Bank for an amount of INR 81.50 crores. 02.05.2018 Mortgage Deeds and Other documents for creation of security for the said Loans Letter issued by PMC Bank, bearing signature and clear acknowledgement of both Rakesh & Sarang Wadhawan acting on behalf of CD, confirming & accepting the additional security provided by CD over land at Village Dolv, Dahisar, Taluka Vasai, for the overdraft facility of INR 81.50 crore availed by CD under overdraft account no. 1407/1790. 16.08.2018 Letter issued by PMC Bank inter alia approving the renewal of mortgage overdraft limit to INR 81.50 crores. The letter was duly signed and accepted by Sarang Wadhawan on behalf of CD. 24.05.2018 Deed of Mortgage for additional security for the land at....
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....o the Petitioner is an express promise to pay. Therefore, even if Section 18 is not applicable, independently, the failure to make payment under subsequent documents entitles * the Petitioner to maintain this Petition irrespective of the date of default. In support thereof, reliance is placed on the judgment of the Hon'ble NCLAT in the matter of Edelweiss Assets Reconstruction Company Limited Versus Nishiland Park Limited, Company Appeal (AT) (Insolvency) No. 528 of 2021, whereby the Petition was held to be within limitation * on the ground that the assignment agreement executed even fifteen years after the date of default amounts to an express promise to pay a time barred debt under Section 25(3) of Contract Act and it was therefore held that limitation period would begin to run afresh from the date of assignment agreement. "14. There are two issues in this appeal. The first issue is as to what is the import of Section 25(3) of the Indian Contract Act,1872 and the second issue is as to whether the period of limitation has been extended in view of Section 18 of the Limitation Act, 1961 with the time-to- time partial payment and admission of debt by the Corporate Debtor....