TaxTMI 
TaxTMI 
2026 (2) TMI 789
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....a (SBI)), claiming itself to be the Financial Creditor (FC) of M/s. Metal Closure Pvt. Ltd. (i.e., the Corporate Debtor (CD)), filed an application under Section 7^1 of IBC on behalf of self and on behalf of a consortium of banks comprising SBI, Punjab National Bank (PNB), Corporation Bank and UCO Bank against CD for initiating Corporate Insolvency Resolution Process (CIRP), inter alia, alleging that CD is a defaulter of dues, exceeding Rs. 280 crores, payable against various credit facilities extended from time to time by members of the consortium. 3. CD contested the application, inter alia, on the ground that the same was filed beyond 3 years from the date when the right to apply had accrued and therefore, the application under Section 7 was liable to be dismissed on the ground of limitation. 4. On 14.12.2018, the National Company Law Tribunal, Bangalore Bench (NCLT) admitted the CIRP petition and declared a moratorium under Section 14 of IBC. 5. Aggrieved by the order of NCLT dated 14.12.2018, the suspended Managing Director of CD filed an appeal (i.e., Company Appeal (AT) (Ins) No. 68 of 2019 under Section 61^2 of IBC before NCLAT. 6. In the meanwhile, NCLT recomme....
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...."6. There can be no doubt whatsoever that the Appellant has been completely remiss and deficient in pleading acknowledgement of the liabilities on the facts of this case. However, given the staggering amount allegedly due from the Respondents, we offer one further opportunity to the Appellant to amend its pleadings so as to incorporate what is stated in the written submissions filed by it before the NCLAT, subject to costs of Rs. 1,00,000 to be paid by the Appellant to the Respondent within a period of four weeks from today. 7. We, therefore, allow the appeal, set aside the judgment of the NCLAT dated 14.10.2020, and restore the appeal to the file to be decided in light of judgment on Civil Appeal No.323 of 2021." 12. Pursuant to the above order, NCLAT allowed the amendment vide order dated 15.07.2021. As a result, the Section 7 application was comprehensively amended, thereby introducing detailed facts qua the debt to demonstrate that the application was within limitation. Thereafter, NCLAT, vide impugned order dated 17.12.2021, dismissed the appeal of the suspended Managing Director and held the Section 7 application to be within limitation. 13. We have heard learn....
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....ular dated 1.7.2013 for the purposes of banks working and asset classification. The actions taken by the banks and the CD between 2010 and 2014 when CD's debt was being restructured, including signing of new working capital consortium agreements and their sanction, in continuation of the old debts did provide acknowledgements of the loans by CD. The Statement of Accounts are detailed in items 7 & 8 of Part IV of the Section 7 application are, therefore, sufficient for purpose of acknowledgement of debt liability to the four banks. 33. Learned senior counsel for Respondent No. 1 has stated in his written submissions (attached at pp. 33-34 of the Convenience Compilation of the Appellant Vol. I filed vide Diary number 27721 dated 1.7.2020) that while originally the account of the Corporate Debtor was classified as NPA on 21.1.2010, it is an admitted fact that there were actions taken thereafter during 2010 to 2014 to restructure the account of the Corporate Debtor. As a result, various Consortium Agreements were executed between the four banks and the Corporate Debtor. The existence of the Consortium Agreements and letter of arrangement are given in item 5 of Part V of am....
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....ion was not admitted. In contrast, in the present appeal, there is no decree for execution and the Section 7 application is also considered to be within limitation, due to various acknowledgements in balance sheets for the financial years 2013-14 and 2014-15 and reply filed before DRT, which provide fresh lease of life to the issue of limitation. 36. xxx omitted xxx 37. In Swiss Ribbons (P) Ltd. case (supra), Hon'ble Supreme Court has held that in so far as set-off and counterclaim is concerned, such set-off may be considered at the stage of filing of proof of claims during the resolution process by the Resolution Professional. In the present appeal, only counter claim has been made before DRT but no set off amount has been adjudicated upon. Moreover, any amount of counterclaim cannot retract from the fact of acknowledgement of the debts. 38. In ARCIL vs. Bishal Jaiswal (supra), Hon'ble Supreme Court has very clearly held that section 18 of the Limitation Act gets attracted the moment acknowledgement in writing signed by the party against whom such right to initiate resolution process under Section 7 of IBC enures. This ratio is supportive of claim made b....
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....raising a counterclaim in DRT proceedings does not in any way detract from the fact that debts are acknowledged, and they are in default, and therefore liable to be paid by the Corporate Debtor as the application under Section 7 is found to be within limitation. 42. We are convinced by the argument of Respondent No. 1 that the date of NPA of the debt due to SBI is 31.1.2010 only for the purposes of the RBI guidelines. The actual date to default is the dates on which NPAs were initially declared by respective banks with 28.5.2014 for SBI, 30.6.2014 for PNB, 10.10.2014 for Corporation Bank and 31.12.2014 for UCO Bank, since the debts of respective banks were acknowledged by the CD till those dates. This is so because during the period from 2010 to 2014 when efforts were made by the four banks and the Corporate Debtor to restructure the debts, there was admission and implicit acknowledgment of the debts by the Corporate Debtor. 43. We then find that the acknowledgement of these debts have been made, inter alia, in the CD's balance sheets for year ending 31.3.2014 and 31.3.2015 which was signed on 30.9.2015, which is within three years from the date the debts were....
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.... balance-sheet(s) of 2013-2014 and 2014-2015 acknowledged the debt(s). Such acknowledgement would extend limitation up to 29.09.2018, whereas the Section 7 application was filed on 25.4.2018 and therefore, the same is within limitation. (e) The NPA date 31.01.2010 mentioned by SBI is for classification of debt because the restructuring exercise failed; therefore, it cannot be taken as the date of default for purposes of computing the limitation period. (f) Mere filing of counterclaim would not wipe out the debt. (g) Lodging of FIR is inconsequential for determining the issue qua admission of the Section 7 application. SUBMISSIONS ON BEHALF OF THE APPELLANT 16. On behalf of the appellant, it was submitted that the application under Section 7 ought to have been dismissed on the following grounds: (i) The original as well as the amended application did not contain particulars of the default. They only disclose as to when the accounts were declared NPA. Such application is against the form (i.e., Form-I) prescribed for filing an application under Section 7. (ii) Limitation starts from the date of default. In absence of disclosure of th....
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....as impermissible for NCLAT to record a different finding on the date of default. 18. In the alternative, it was argued that the NPA date cannot be taken as the date of default. Limitation for the purposes of filing an application under Section 7 commences from the date of default in payment of amount exceeding Rs. 1 lakh (as it then was, now Rs. 1 crore). This position is clear from the decisions of this Court in M/s. Innoventive Industries Ltd. v. ICICI Bank & Anr. [(2018) 1 SCC 407] and Laxmi Pat Surana v. Union Bank of India & Anr [(2021) 8 SCC 481]. 19. It was further argued that the remand order dated 15.04.2021 allowed FC to amend the Section 7 application to incorporate what was stated in the written submissions. But the case set up in the amended application is much beyond what the order of remand permitted. Since the remit of remand was limited, it was not open for NCLAT to consider and allow a completely different case than what was permitted by this Court. 20. It was also submitted that in absence of the date of default in the application under Section 7, an assessment as to whether the limitation period got extended by acknowledgment was not possible. Besides, ....
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....covery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act), in which CD filed a counterclaim seeking Rs. 1299 crores. The said proceeding was initiated in 2015, by which time the appeal under Section 17 of SARFAESI Act, questioning the taking over of physical possession of the plants of CD and appointment of Forensic Auditor, was pending. In this background, when proceedings under the RDDB Act and SARFAESI Act were pending, there was no justification to invoke the provisions of IBC in the year 2018 i.e., 02 years after IBC came into force. The mala fide intention to initiate proceedings under IBC also becomes clear from the fact that after filing of the application under Section 7 of IBC, the first respondent had been seeking adjournment in proceedings under the SARFAESI Act and RDDB Act. 22. Finally, it was submitted that the Adjudicating Authority was required to examine whether it was expedient to initiate CIRP in the context of pending litigation between the parties, as held by this Court in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. [(2022) 8 SCC 352] 23. Based on the above submissions, the learned counsel for the appellant prayed that the impugne....
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....rt in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal & Anr. [(2021) 6 SCC 366] Further, the balance-sheet(s) were signed by the Director(s) of CD including the appellant, and verified by their Chartered Accountant. Therefore, the application under Section 7 of IBC was not barred by limitation. (iii) It is incorrect to state that the default, if any, occurred on or before 31.01.2010, because the account of CD was repeatedly restructured between 2010 - 2014 whereunder CD was granted further facilities/ concessions. Besides that, various Working Capital Consortium Agreements were executed between CD and Banks recording admission of dues and grant of further credit facilities, the last of which is dated 21.03.2014. As CD failed to adhere to the terms of repayment even after restructuring, the account with SBI, once again, turned NPA on 28.05.2014. This date was shifted back to 31.01.2010 for the purposes of provisioning as per RBI norms, on account of failure of the restructuring exercise. However, the date of NPA remains 28.05.2014 as per IRAC norms for accounts in the books of the bank. (iv) The above facts were clarified through the amended application....
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.... prescribed by the 2016 Rules? (ii) Whether the application under Section 7 of IBC was within limitation? (iii) Whether the application under Section 7 of IBC was for an oblique purpose and, therefore, ought not to have been admitted, more so, when proceedings inter se parties for recovery of debt were pending before various judicial fora? ANALYSIS 27. Before we proceed to address the issues, we must bear in mind that these proceedings emanate from an application under sub-section (1) of Section 7 of IBC. Section 7 falls in Part II of IBC. Section 4 (1) of IBC, which falls in Part II, states that this Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of default is one lakh rupees. The Proviso to sub-section (1) of Section 4 provides that the Central Government may, by notification, specify the minimum amount of default of a higher value, which shall not be more than one crore rupees. In exercise of that power, vide notification dated 24th March 2020, the Central Government specified one crore rupees as the minimum amount of default for the purposes of the said section. Thus, a default of one ....
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.... or the corporate debtor...". It was held that when the expressions "due" and "due and payable" occur in Sections 3 (11) and 3 (12) of IBC, they refer to a default which is non-payment of a debt that is due in law i.e., such debt is not barred by the law of limitation. Thus, the corporate insolvency resolution process against a corporate debtor can only be initiated either by a financial or operational creditor in relation to debts which have not become time barred. In addition to above, it was held that Article 137 of 1963 Act would be applicable to an application under Section 7 or 9 of IBC and that the right to sue accrues when default occurs. Therefore, if the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of 1963 Act. 31. In Sesh Nath Singh and Anr. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. and Anr. [(2021) 7 SCC 313] this Court held that Section 238-A of IBC makes the provisions of 1963 Act, as far as may be, applicable to proceedings before NCLT and NCLAT, and since IBC does not exclude the application of Sections 6 or 14 or 18 of 1963 Act to proceedings under IBC, the same woul....
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....w Tribunal [Address] From, [Names and addresses of the registered offices of the financial creditors] In the matter of [name of the corporate debtor] Subject : Application to initiate corporate insolvency resolution process in the matter of [name of the corporate debtor] under the Insolvency and Bankruptcy Code, 2016 Madam/Sir, [Names of the financial creditor(s)], hereby submit this application to initiate a corporate insolvency resolution process in the matter of [name of corporate debtor]. The details for the purpose of this application are set out below: Part I PARTICULARS OF APPLICANT (PLEASE PROVIDE FOR EACH FINANCIAL CREDITOR MAKING THE APPLICATION) 1. NAME OF FINANCIAL CREDITOR 2. DATE OF INCORPORATION OF FINANCIAL CREDITOR 3. IDENTIFICATION NUMBER OF FINANCIAL CREDITOR 4. ADDRESS OF THE REGISTERED OFFICE OF THE FINANCIAL CREDITOR 5. NAME AND ADDRESS OF THE PERSON AUTHORISED TO SUBMIT APPLICATION ON ITS BEHALF (ENCLOSE AUTHORISATION) 6. NAME AND ADDRESS OF PERSON RESIDENT IN INDIA AUTHORISED TO ACCEPT THE SERVICE OF PROCESS ON ITS BEHALF (ENCLOSE AUTHORISATION) Part I....
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....OVE THE EXISTENCE OF FINANCIAL DEBT, THE AMOUNT AND DATE OF DEFAULT I, hereby certify that, to the best of my knowledge, [name of proposed insolvency professional], is fully qualified and permitted to act as an insolvency professional in accordance with the Insolvency and Bankruptcy Code, 2016 and the associated rules and regulations. ^7[Name of the financial creditor] has paid the requisite fee for this application through [state means of payment] on [date] and served a copy of this application by registered post/speed post/by hand/electronic means to the registered office of the corporate debtor and to the Board]. Yours sincerely, Signature of person authorised to act on behalf of the financial creditor Name in block letters Position with or in relation to the financial creditor Address of person signing Instructions Please attach the following to this application: Annex I Copies of all documents referred to in this application. Annex II Written communication by the proposed interim resolution professional as set out in Form, 2. Annex III Proof that the specified application fee has been paid. ....
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....lated in Section 7(4) to ascertain the existence of a default and of curing the defects in 7 days of receipt of notice under the proviso to sub-section (5) of Section 7, is directory and not mandatory, and in an appropriate case, the adjudicating authority may accept the cured application even after the expiry of the aforesaid period. 38. In E.S. Krishnamurthy & Ors v. Bharath Hi- Tech Builders (P) Ltd. [(2022) 3 SCC 161, paragraphs 30 and 34], after noticing the earlier decisions, this Court held that to assess whether the corporate debtor is in default, the adjudicating authority has to merely 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 consequence 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 was held that the adjudicating authority thus has only to verify whether an application under sub-section (2) is complete and whether a default above the specified threshold has occurred. 39. In M. Suresh Kumar Reddy (supra), a decision relied....
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..... Date of default assumes importance because it is the factor which determines whether the application under sub-section (1) of Section 7 is within limitation or not. The argument on behalf of the appellant that the application does not specify the exact date of default but only the date on which the debt was declared NPA and, therefore, was liable to be rejected, in our view, is misconceived as the application was comprehensively amended pursuant to the order of this Court in the earlier round of litigation. The amended application was taken on record by the order of NCLAT dated 15.07.2021. Once the amended application was accepted on record, it became part of the record and had to be considered. 43. The argument that amendments were more extensive than what was permitted by this Court cannot be accepted considering the decision of this Court in Dena Bank (supra) where the power of the Adjudicating Authority to allow rectification of application and acceptance of documents beyond the stipulated time frame was recognized. 44. The amended application and the documents placed gave the material particulars of how the debt was restructured and fresh working capital consortium agr....
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....asures taken by the Banks under the SARFAESI Act (See: Paragraph 9 of Written Submissions on behalf SBI). 47. Section 18 of 1963 Act provides that where, 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 against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed. Clause(a) of the Explanation to Section 18 provides that 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. Clause (b) of the said Explanation provides that for the purposes of Section 18, the word 'signed' means signed either personally or by an agent duly autho....
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....cknowledged in fresh working capital consortium agreements entered for availing credit facilities. What is relevant is that by virtue of execution of these working capital consortium agreements the banks got a fresh lease of life for their dues and based on those agreements, new NPA date(s) became relevant as starting point for computing limitation. 51. In Axis Bank Limited v. Naren Seth and another [(2024) 1 SCC 679], this Court held that a one-time settlement proposal of the debtor can constitute a valid acknowledgment. Likewise, in Dena Bank (supra), this Court held that an offer for one-time settlement of a live claim, made within the period of limitation, can be construed as an acknowledgment to attract Section 18 of 1963 Act. In light thereof, if CD had entered into various working capital consortium agreements with the Banks while availing further credit facilities and in the process acknowledged its past debt, it would constitute a valid acknowledgment for extending the limitation period. Thus, the NPA dates, based on subsequent working capital consortium agreements, coupled with acknowledgment of debt(s) in the balance sheets signed on 30.09.2015, extended the limitatio....
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....financial creditor. - (1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. .....xxx.... Explanation. --- For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish - (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Autho....