Asset Reconstruction Company (India) Limited Versus Tulip Star Hotels Limited & Ors.

Asset Reconstruction Company (India) Limited Versus Tulip Star Hotels Limited & Ors. 

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
 CIVILAPPEAL NOS. 84-85 OF 2020
Asset Reconstruction Company
(India) Limited Appellant (s)
Versus
Tulip Star Hotels Limited & Ors. Respondent (s)
J U D G M E N T
Indira Banerjee, J.
These appeals under Section 62 of the Insolvency and
Bankruptcy Code 2016 (IBC) filed by the Financial Creditor, Asset
Reconstruction Company (India) Limited are against a common
judgment and final order dated 11th December 2019 passed by the
National Company Law Appellate Tribunal (NCLAT), allowing Company
Appeal (AT)(Insolvency) No.525 of 2019 and Company Appeal(AT)
(Insolvency) No.627 of 2019 and holding that the Corporate Insolvency
Resolution Process (CIRP) initiated by the Appellant against the
Corporate Debtor, V. Hotels Ltd. was barred by limitation.
1
2. The Respondent No.1, Tulip Star Hotels Limited and the
Respondent No.2 Tulip Hotels Private Limited are the shareholders of
the Corporate Debtor, V. Hotels Limited. The Respondent Nos. 1 and 2
each hold 50% share in the Corporate Debtor. Mr. Ajit B. Kerkar is the
Managing Director of the Respondent No.1, Tulip Star Hotel Limited,
Chairman of the Respondent No.2, Tulip Hotels Private Limited and
also the Chairman of the Corporate Debtor.
3. On or about 8th March 2002, a loan agreement was executed by
and between a consortium of banks consisting of Bank of India, Punjab
National Bank, Union Bank of India, Vijaya Bank, Canara Bank and
Indian Bank, led by Bank of India (hereinafter referred to collectively
as the Consortium) and the Corporate Debtor, pursuant to which the
Consortium collectively sanctioned loan to the extent of
Rs.129,00,00,000/- (Rupees One Hundred and Twenty-Nine Crore Only)
to the Corporate Debtor.
4. On 5th June 2003, the Corporate Debtor entered into an
arrangement with Abu Dhabi Commercial Bank (ADCB) whereby ADCB
agreed to advance USD 29,000,000/- to the Corporate Debtor for
repayment of the loan taken by the Corporate Debtor from the
Consortium under the loan agreement executed on 8th March 2002. It
is stated that the Corporate Debtor repaid the amount disbursed by
Bank of India to the Corporate Debtor under the said loan agreement
from out of funds disbursed to the Corporate Debtor by ADCB,
between August and December 2003.
2
5. In August/ September 2008, a bank guarantee issued by Bank of
India in favour of ADCB, on behalf of the Corporate Debtor was
invoked by ADCB and Bank of India paid Rs.24,49,59,208/- (Twenty
Four Crores Forty Nine Lakhs Fifty Nine Thousand Two Hundred and
Eight) to ADCB under the Bank Guarantee.
6. Around the same time, Bank of India, Punjab National Bank and
Union Bank of India also converted their facility under the loan
agreement into a non-fund-based bank guarantee.
7. On 1st December 2008, the account of the Corporate Debtor in
the Bank of India was classified as non-performing asset (NPA) and on
31st December 2008, an assignment agreement was executed by Bank
of India assigning its receivables to the Appellant Financial Creditor.
8. By a letter dated 7th February 2011 addressed to the Appellant,
the Corporate Debtor proposed a settlement which is as follows:-
(i) The Corporate Debtor would pay interest to the Appellant
Financial Creditor at an average rate of 21% per annum at
quarterly rests.
(ii) The Corporate Debtor would pay a sum of
Rs.9,02,00,000/- being 10% of the aggregate assigned debt
to the Appellant Financial Creditor immediately on
acceptance of the settlement.
(iii) The Corporate Debtor proposed that the balance
aggregate assigned debt of Rs.154,13,00,000/- along with
interest accrued thereon from the date of the payment of the
initial amount up to 30
th
 September 2011 would be repaid in
three equated monthly instalments beginning from 15
th
October 2011.
3
9. On or about 10th February 2011, the Corporate Debtor submitted
a revised proposal offering to pay interest on its outstanding dues to
the Appellant at the rate of 22% per annum with monthly rests with
effect from 1st July 2010. The Corporate Debtor also offered to pay
Rs.10,00,00,000/- to the Appellant immediately upon acceptance of
the revised proposal.
10. The Corporate Debtor also agreed to pay the settlement amount
of Rs.150,75,83,970/- being the aggregate assigned debt as on 30th
June 2010 along with interest at the rate of 22% per annum
compounded at monthly rests from 1st July 2010 till 30th September
2011.
11. On or about 28th February 2011 the parties entered into a
Settlement Agreement, the key terms whereof were as follows:-
(i) The Corporate Debtor agreed to pay the settlement
amount of Rs.150,75,83,970/- (Rupees One Hundred Fifty
Crores Seventy-Five Lakhs Eighty-three Thousand Nine
Hundred and Seventy Only) being the Aggregate amount in
default as on 30
th
 June 2010 along with the accrued interest
at the rate of 22% per annum to be compounded at monthly
rests from 1
st
 July 2010 till 30
th
 September 2011.
(ii) Rs. 10,00,00,000/- (Rupees Ten Crore Only) would be
paid as upfront payment upon execution of the Settlement
Agreement.
(iii) The balance amount after adjusting the upfront payment
of Rs.10,00,00,000/- (Rupees Ten Crore Only) would be
repaid on or before 30
th
 September 2011.
12. On 12th September 2011, the Corporate Debtor addressed a
letter to the Appellant, seeking an extension of time till 30th
4
September 2012 to pay its balance outstanding dues towards principal
and interest. The Corporate Debtor acknowledged that its aggregate
outstanding liability towards principal and interest to the Appellant
was Rs.176,83,00,000/-. The Corporate Debtor offered to make an
interim payment of Rs.15,00,00,000/- (Rupees Fifteen Crores Only) by
31st December 2011. On 29th September 2011, the agreement
between the Corporate Debtor and the Appellant was modified.
13. On 30th December 2011, the Appellant accepted the request of
the Corporate Debtor for extension, subject to the condition that the
Corporate Debtor would pay Rs.15,00,00,000/- (Rupees Fifteen Crores
Only) by 31st December 2011, and the balance portion of the
aggregate assigned debt totalling Rs.150,75,83,970/-, outstanding as
on 30th June 2010, along with accrued interest at the rate of 22% per
annum, to be compounded at monthly rests from 1st July 2010 till the
date of payment, that is, 31st March 2012.
14. On 17th March 2012, the Corporate Debtor confirmed that the
aggregate assigned debt outstanding as on 31st March 2012 was
Rs.192,89,46,697/- and requested for a further extension of time from
31st March 2012 to 31st December 2012 to pay the outstanding
amounts.
15. On 6th August 2012, the Appellant accepted the aforesaid
extension request and agreed to the extension for repayment of the
aggregate assigned debt outstanding as on 30th September 2012.
5
16. On 10th September 2012, the Corporate Debtor sought further
extension till 31st March 2013 for payment of outstanding principal and
interest aggregating to Rs.211,35,16,073/-. On 5th December 2012,
the Appellant accepted the extension subject to payment of
processing fee of Rs.25,00,000/-.
17. On 6th April 2013, the Corporate Debtor again sought extension
of the date for repayment of the then outstanding amount. The
Corporate Debtor acknowledged the outstanding aggregate assigned
debt (inclusive of principal and interest) which had increased to
Rs.239,88,27,673/- as on 31st March 2013. The Corporate Debtor
offered to make an interim payment of Rs.91,00,00,000/- (Indian
Rupees Ninety One Crores Only) by 31st August 2013 and the balance
outstanding amounts by 30th September 2013.
18. On 19th April 2013, the Corporate Debtor paid Rs.17,50,00,000/-
to the Appellant, towards part repayment of the aggregate assigned
debt. On 29th May 2013, the Appellant again accepted the request of
the Corporate Debtor for extension of time.
19. Ultimately, on 17th June 2013, the Appellant revoked the
settlement and in terms of the default obligations under the
Settlement Agreement, the rate of interest under the Deed of
Variation was revised to 22%. By its letter dated 1st July 2013, the
Corporate Debtor acknowledged its obligation to repay the aggregate
assigned debt inclusive of interest.
6
20. On 10th July 2013, the Appellant sent the Corporate Debtor a
notice under Section 13(2) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(SARFAESI Act) in order to enforce security interests against the
Corporate Debtor. On 14th October 2013, the Appellant, through its
authorized officer, issued a possession notice under Section 13(4) of
the SARFAESI Act.
21. On 6th May 2014, the Appellant invoked the personal guarantee
of Mr. Ajit Kerkar, Managing Director of the Corporate Debtor. The
aggregate assigned debt as on 6th May 2014 of principal and interest
at 22% per annum was Rs.235,46,34,381/-.
22. The Corporate Debtor apparently acknowledged its liabilities
towards the Appellant in its Financial Statements from 2008-09 to
2016-17.
23. The Appellant has filed an application to bring on record
additional documents which were part of the records below including
the copies of the financial statements.
24. Mr. Neeraj Kishan Kaul, Senior Advocate appearing on behalf of
the Appellant, rightly submitted that the Financial Statements provide
a true and fair view of the state of affairs of a company in view of
Sections 128 and 129 read with Section 134 of the Companies Act
2013 as also Sections 210, 211, 215, 216 and 217 of the Companies
Act, 1956.
7
25. On 3rd April 2018, the Appellant, as Financial Creditor, filed an
application under Section 7(2) of the IBC in the National Company Law
Tribunal (NCLT), Mumbai for initiation of the Corporate Insolvency
Resolution Process (CIRP) against the Corporate Debtor which was
registered and numbered CP(IB) No.532 of 2018.
26. The Corporate Debtor filed a Miscellaneous Application being
Misc. App. No.693 of 2018 in CP (IB) No.532 of 2018 before the NCLT,
Mumbai praying for dismissal of the application of the Appellant under
Section 7(2) of the IBC, inter alia, contending that the application was
barred by limitation. By an order dated 1st May 2019, the Adjudicating
Authority (NCLT), Mumbai dismissed the said Miscellaneous
Application filed by the Corporate Debtor.
27. By an order dated 31st May 2019, the Adjudicating Authority
(NCLT) admitted the said application under Section 7(2) of the IBC and
appointed one Mr. Anish Nanavaty as the Interim Resolution
Professional (IRP). The Committee of Creditors confirmed the
appointment of Mr. Anish Nanavaty as the Resolution Professional of
the Corporate Debtor.
28. The Corporate Debtor filed an appeal being Company Appeal
(AT) (Insolvency) No.525 of 2019 before NCLAT against the order
dated 1st May 2019, dismissing the Miscellaneous Application filed by
the Corporate Debtor, seeking dismissal of the application of the
Appellant Financial Creditor under Section 7(2) of the IBC.
8
29. The shareholders of the Corporate Debtor, that is, the
Respondent No.1, Tulip Star Hotels Limited and the Respondent No.2,
Tulip Hotels Private Limited, filed an appeal being Company Appeal
(AT) (Insolvency) No.627 of 2019 in the NCLAT against the order dated
31st May of the Adjudicating Authority, admitting the application of the
Appellant under Section 7(5)(a) of the IBC.
30. Both the appeals have been allowed by the common judgment
of the Appellate Tribunal (NCLAT) dated 11th December 2019,
impugned in these appeals.
31. On behalf of the Corporate Debtor, it has been argued:
(i) There is no debt due and payable from the Corporate Debtor to
the Appellant. The amounts advanced by the Consortium to the
Corporate Debtor have been repaid.
(ii) In the statutory notice issued by the Appellant to the Corporate
Debtor under Section 13(2) of the SARFAESI Act, the Appellant had
claimed that principal amount of Rs.90.35 Crores was due from the
Corporate Debtor to the Appellant.
(iii) The Corporate Debtor has paid the Appellant much more than
the Principal amount claimed by the Appellant, as per the table set out
below:-
9
DATE CHEQUE/PAY ORDER NO. DRAWN ON AMOUNT (RS.)
28-Feb-11 744705 Axis Bank, Nariman Point, Mumbai 10,00,00,000
31-Dec-11 846341 Axis Bank, Nariman Point, Mumbai 5,00,00,000
15-Feb-12 846422 Axis Bank, Nariman Point, Mumbai 10,00,00,000
18-Apr-13 81863 Axis Bank, Nariman Point, Mumbai 17,50,00,000
A. Total Payment As per Settlement with ARCIL 42,50,00,000
25-Feb-14 248177 Axis Bank, Nariman Point, Mumbai 12,50,00,000
15-May-14 248422 Axis Bank, Nariman Point, Mumbai 2,50,00,000
30-Jun-14 248524 Axis Bank, Nariman Point, Mumbai 10,00,00,000
B. Total Payment As per DRT I Order dated 28.01.2014 25,00,00,000
16-Jun-16 63039 Axis Bank, Nariman Point, Mumbai 5,04,30,672
12-May-17 67071 Axis Bank, Nariman Point, Mumbai 10,00,00,000
19-May-17 67192 Axis Bank, Nariman Point, Mumbai 2,40,00,000
26-May-17 67260 Axis Bank, Nariman Point, Mumbai 2,40,00,000
02-Jun-17 67322 Axis Bank, Nariman Point, Mumbai 2,40,00,000
23-Jun-17 68070 Axis Bank, Nariman Point, Mumbai 7,20,00,000
10
30-Jun-17 68130 Axis Bank, Nariman Point, Mumbai 2,40,00,000
07-Jul-17 68360 Axis Bank, Nariman Point, Mumbai 2,40,00,000
14-Jul-17 68353 Axis Bank, Nariman Point, Mumbai 2,40,00,000
21-Jul-17 68437 Axis Bank, Nariman Point, Mumbai 2,40,00,000
C. Total Amount Deposited with DRT 39,04,30,672
TOTAL PAYMENT (A+B+C) 1,06,54,30,672
(iv) Even though the principal amount had been paid in the full, in the
Application under Section 7 of the IBC, the Appellant claimed that
principal amount of Rs.35,43,72,852/- and Rs.149,91,24,581/- towards
interest.
(v) There is no amount outstanding towards principal, and there is a
long standing dispute in respect of the amount of interest payable by
the Corporate Debtor to the Appellant.
(vi) In the Application under Section 7 of the IBC, the Appellant has
claimed a principal amount of Rs.35,43,72,852/- and interest of
Rs.149,91,24,581/- on the basis of the settlement agreement dated
28.02.2011 which was later revoked by the Appellant on 17.06.2013.
The amount of principal claimed in the Application under Section 7 of
the IBC is at complete variance with the principal amount claimed in
the statutory Notice under Section 13(2) of the SARFAESI Act.
11
(vii) By an order dated 19.10.2018, passed in relation to proceedings
between the Appellant and the Corporate Debtor in the Debt Recovery
Tribunal, the High Court had held that the Appellant was not entitled
to claim 22% interest since it had revoked the settlement agreement
on the basis of which such interest had been claimed.
(viii) The High Court had, by its aforesaid order dated 19.10.2018,
directed DRT to determine the interest payable by the Corporate
Debtor to the Appellant. Since no determination has been done by the
DRT, the interest amount has not become due and payable.
(ix) The Appellant could not have appropriated the amounts paid by
the Corporate Debtor towards interest.
(x) The principal having been paid and the interest not being due,
there is no financial debt payable by the Corporate Debtor to the
Appellant.
(xi) The Application of the Appellant under Section 7 of the IBC is
hopelessly barred by limitation, the same having been filed about
eight/nine years after the account of the Corporate Debtor was
declared NPA on 01.12.2008.
(xii) Even assuming the Corporate Debtor had acknowledged liability,
the last letter of acknowledgment was written in April 2013. The
period of limitation still expired in April 2016.
12
(xiii) The Corporate Debtor has not acknowledged any debt in its
financial statements.
(xiv) The Corporate Debtor and/or its Promoters have paid its entire
Principal dues to the CoC (Committee of Creditors) consisting of the
Appellant and Pegasus.
32. The NCLAT held:
“23. In the present case, ‘Asset Reconstruction Company
(India) Ltd.’- (‘Financial Creditor’) has failed to bring on record
any acknowledgment in writing by the ‘Corporate Debtor’ or
its authorised person acknowledging the liability in respect of
debt. The Books of Account cannot be treated as an
acknowledgement of liability in respect of debt payable to
the ‘Asset Reconstruction Company (India) Ltd.’- (‘Financial
Creditor’) signed by the ‘Corporate Debtor’ or its authorised
signatory.
****
25. In fact, the case of ‘Asset Reconstruction Company
(India) Ltd.’- (‘Financial Creditor’) is covered by its own
decision in “Gaurav Hargovindbhai Dave v. Asset
Reconstruction Company (India) Ltd. And Another” (supra)
26. The Adjudicating Authority having failed to appreciate
the aforesaid fact, the impugned order dated 1
st
 May, 2019
rejecting the objections of the ‘Corporate Debtor’ and the
impugned order dated 31
st
 May, 2019 passed by the
Adjudicating Authority admitting the application under
Section 7 are set aside. ‘V. Hotels Limited’- (‘Corporate
Debtor’) is released from all the rigours of law and is allowed
to function independently through its Board of Directors from
immediate effect. The ‘Interim Resolution Professional’/
‘Resolution Professional’ will submit its fees and costs of
‘Corporate Insolvency Resolution Process’ before the
Adjudicating Authority who will determine the same and
amount as is payable is to be paid by ‘Asset Reconstruction
Company (India) Ltd.’ who moved application under Section 7
which was not maintainable. The ‘Interim Resolution
Professional’ will hand over the management, assets and
records to the Board of Directors.
Both the appeals are allowed. No costs.”
13
33. Citing Asset Reconstruction Company (India) Limited. v.
Bishal Jaiswal and Anr
1 Mr. Nakul Dewan, Senior Advocate argued
that all financial statements issued by a company would not amount
to acknowledgment for the purpose of Section 18 of the Limitation Act
and thereby extend the period of limitation under the Code.
34. In Bishal Jaiswal (supra) this Court:
“21. Importantly, this judgment in Bengal Silk Mills [Bengal
Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine
Cal 128 : AIR 1962 Cal 115] holds that though the filing of a
balance sheet is by compulsion of law, the acknowledgment
of a debt is not necessarily so. In fact, it is not uncommon to
have an entry in a balance sheet with notes annexed to or
forming part of such balance sheet, or in the auditor's report,
which must be read along with the balance sheet, indicating
that such entry would not amount to an acknowledgment of
debt for reasons given in the said note.
***
35. A perusal of the aforesaid sections would show that
there is no doubt that the filing of a balance sheet in
accordance with the provisions of the Companies Act is
mandatory, any transgression of the same being punishable
by law. However, what is of importance is that notes that are
annexed to or forming part of such financial statements are
expressly recognised by Section 134(7). Equally, the
auditor's report may also enter caveats with regard to
acknowledgments made in the books of accounts including
the balance sheet. A perusal of the aforesaid would show
that the statement of law contained in Bengal Silk
Mills [Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961
SCC OnLine Cal 128 : AIR 1962 Cal 115] , that there is a
compulsion in law to prepare a balance sheet but no
compulsion to make any particular admission, is correct in
law as it would depend on the facts of each case as to
whether an entry made in a balance sheet qua any particular
creditor is unequivocal or has been entered into 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.”
1 (2021) 6 SCC 366
14
35. The Respondents argued that the Appellant was relying on the
Financial Statements from 2014-15 onwards as acknowledgments to
save limitation. It was argued that the said Financial Statements
would not constitute acknowledgement for the reasons as
demonstrated in the Written Notes of submissions of the Corporate
Debtor reproduced hereinbelow:
(i) Financial Statement for 2014-15 (Pages 6-18 of IA 125766)
wherein:
(a) At page 8 of IA 125776, it is stated that ‘indebtness’ is to be
read with Note No.5 in the notes of Accounts.
(b) At page 15-16 of IA, in the Notes of Accounts, the Respondent
No.3 has clearly stated that pursuant to the Orders of this Court,
the parties entered into a Settlement which was unilaterally
revoked by the Appellant on 17.06.2013 and thus the Respondent
No.3 had been legally advised that the interest for the loans
cannot be 22% as stated in the revoked settlement but 12.85%
and that the rate of interest will be subject to the decision of the
DRT, Mumbai.
(ii) Financial Statement for 2015-2016 (Pages 19-30 of IA 125766),
wherein similar disputes are raised in the notes (at page 21, 29-30 of
IA).
15
(iii) Financial Statement for 2016-17 (pages 31-42 of IA 125766)
where a similar statement is made as stated above in the Notes to the
Financial Statement for 2015-16 (at page 33, 41-42 of IA).
36. Counsel argued that a perusal of the above Statements from
2014-2015 to 2016-2017 shows that the Corporate Debtor has not
made any unequivocal acknowledgment of debt and has further
questioned the interest sought to be recovered by the Appellant.
Thus, it is submitted that the present case falls within the category
provided in the judgment in Bishal Jaiswal (supra), where this Court
noted that “it would depend on the facts of each case as to whether
an entry made in a balance sheet qua any particular creditor is
unequivocal or has been entered into 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.”
37. It was also argued that contrary to the claims of the Appellant,
the recovery in the present case is not of “public monies”. Nor is the
recovery beneficial to the public. There is no public funding in the
form of holdings by any Public Sector Banks in the subject transaction.
Such arguments are irrelevant to the issue in this appeal of whether
the Application of the Appellant Financial Creditor under Section 7 of
the IBC should have been rejected, and that too on the sole ground of
the same being barred by limitation.
16
38. For the purpose of computing limitation, the most relevant
balance-sheet is the balance-sheet for the financial year 2014-15,
which, as pointed out by Mr. Kaul, was signed on 14.5.2015. The
balance-sheet acknowledged the continuance of the jural relationship
of debtor and creditor between the Appellant and the Corporate
Debtor and the existence of financial liability of the Corporate Debtor
to the Appellant. The only remark made by the Corporate Debtor
related to the rate of interest which, according to the Corporate
Debtor, would be 12.85% and not 22% in view of the revocation of the
Settlement Agreement by the Appellant. The application of the
Appellant under Section 7 of the IBC was filed on 3.4.2018, well within
three years from 14.5.2015, being the date on which the balancesheet was signed. Similarly, the balance-sheet for the following
financial year signed on 29.8.2016 also acknowledged the existence of
jural relationship of debtor and creditor between the Appellant and the
Corporate Debtor and the existence of financial liability of the
Corporate Debtor to the Appellant. The balance-sheet only contained
a similar additional remark with regard to the rate of interest.
39. As held by this Court in Innoventive Industries Ltd. v. ICICI
Bank and Anr
2
., the Adjudicating Authority, considering an
application under Section 7 of the IBC, is only required to see if there
is the existence of a debt and default. Any dispute with regard to the
quantum of debt is immaterial. The relevant part of the judgment of
2 (2018) 1 SCC 407
17
this Court in Innoventive Industries Ltd. (supra) is set out
hereinbelow:-
“29. The scheme of Section 7 stands in contrast with the scheme
under Section 8 where an operational creditor is, on the
occurrence of a default, to first deliver a demand notice of the
unpaid debt to the operational debtor in the manner provided in
Section 8(1) of the Code. Under Section 8(2), the corporate debtor
can, within a period of 10 days of receipt of the demand notice or
copy of the invoice mentioned in sub-section (1), bring to the
notice of the operational creditor the existence of a dispute or the
record 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.”
40. As argued by Mr. Kaul appearing on behalf of the Appellant, any
part payments made by the Respondent would first be appropriated
towards the interest amount due, as held by this Court in Industrial
Credit & Development Syndicate Now Called I.C.D.S. Ltd. v.
Smithaben H. Patel (Smt.) and Others
3
.
41. In Industrial Credit & Development Syndicate (supra), this
Court held :-
6. In Venkatadri Appa Row v. Parthasarathi Appa Row [(1920-21)
48 IA 150 : AIR 1922 PC 233] the Judicial Committee of the Privy
3 (1999) 3 SCC 80
18
Council had held that upon taking an account of principal and
interest due, the ordinary rule with regard to payments by the
debtor unappropriated either to principal or interest is that they
are first to be applied to the discharge of the interest. This Court
in Meghraj v. Bayabai [(1969) 2 SCC 274: (1970) 1 SCR 523]
reiterated the position of law and held that the normal rule was
that in the case of a debt due with interest, any payment made by
the debtor was in the first instance to be applied towards
satisfaction of interest and thereafter to the principal. It was for
the debtor to plead and prove the agreement, if any, that the
amounts paid or deposited in the Court by him were accepted by
the creditor/decree-holder subject to the condition imposed by
him. …”
42. Even otherwise, in this case, the quantum of debt was well in
excess of Rs. 1 crore and many times in excess of Rs.1 lakh, being the
threshold amount under the IBC for initiation of CIRP proceedings at
the material time. Subsequently, in 2020, the threshold limit was
enhanced to Rs.1 crore.
43. In our view, the NCLAT erred in law in holding that the Books of
Account of a company could not be treated as acknowledgement of
liability in respect of debt payable to a financial creditor.
44. Under the scheme of the IBC, the Insolvency Resolution Process
begins, when a default takes place, in the sense that a debt becomes
due and is not paid. Some of the relevant provisions of the IBC, are
set out hereinbelow for convenience:-
“3 Definitions..—In this Code, unless the context otherwise requires,—
...
(6) “claim” means—
(a) a right to payment, whether or not such right is reduced to
judgment, fixed, disputed, undisputed, legal, equitable, secured or
unsecured;
(b) right to remedy for breach of contract under any law for the time
being in force, if such breach gives rise to a right to payment, whether
or not such right is reduced to judgment, fixed, matured, unmatured,
disputed, undisputed, secured or unsecured;
19
(7) “corporate person” means a company as defined in clause (20) of
Section 2 of the Companies Act, 2013 (18 of 2013), a limited liability
partnership, as defined in clause (n) of sub-section (1) of Section 2 of the
Limited Liability Partnership Act, 2008 (6 of 2009), or any other person
incorporated with limited liability under any law for the time being in force
but shall not include any financial service provider;
(8) “corporate debtor” means a corporate person who owes a debt to any
person;
…..
(10) “creditor” means any person to whom a debt is owed and includes a
financial creditor, an operational creditor, a secured creditor, an unsecured
creditor and a decree-holder;
(11) “debt” means a liability or obligation in respect of a claim which is
due from any person and includes a financial debt and operational debt;
(12) “default” means 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;
4. Application of this Part.—(1) This Part shall apply to matters relating
to the insolvency and liquidation of corporate debtors where the minimum
amount of the default is one lakh rupees:
Provided that the Central Government may, by notification, specify the
minimum amount of default of higher value which shall not be more than
one crore rupees.
5. Definitions.—In this Part, unless the context otherwise requires—
 ...
(7) “financial creditor” means any person to whom a financial debt
is owed and includes a person to whom such debt has been legally
assigned or transferred to;
(8) “financial debt” means a debt along with interest, if any, which is
disbursed against the consideration for the time value of money and
includes—
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit
facility or its dematerialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the
issue of bonds, notes, debentures, loan stock or any similar
instrument;
(d) the amount of any liability in respect of any lease or hirepurchase contract which is deemed as a finance or capital lease
under the Indian Accounting Standards or such other accounting
standards as may be prescribed;
(e) receivables sold or discounted other than any receivables sold
on non-recourse basis;
(f) any amount raised under any other transaction, including any
forward sale or purchase agreement, having the commercial effect
of a borrowing;
(g) any derivative transaction entered into in connection with
protection against or benefit from fluctuation in any rate or price
and for calculating the value of any derivative transaction, only the
market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee,
indemnity, bond, documentary letter of credit or any other
instrument issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or
indemnity for any of the items referred to in sub-clauses (a) to (h) of
this clause;
20
6. Persons who may initiate corporate insolvency resolution
process.—Where any corporate debtor commits a default, a financial
creditor, an operational creditor or the corporate debtor itself may initiate
corporate insolvency resolution process in respect of such corporate debtor
in the manner as provided under this Chapter.
7. Initiation of corporate insolvency resolution process by 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.
Provided that for the financial creditors, referred to in clauses (a) and (b) of
sub-section (6-A) of Section 21, an application for initiating corporate
insolvency resolution process against the corporate debtor shall be filed
jointly by not less than one hundred of such creditors in the same class or
not less than ten per cent. of the total number of such creditors in the same
class, whichever is less:
Provided further that for financial creditors who are allottees under a real
estate project, an application for initiating corporate insolvency resolution
process against the corporate debtor shall be filed jointly by not less than
one hundred of such allottees under the same real estate project or not less
than ten per cent. of the total number of such allottees under the same real
estate project, whichever is less:
Provided also that where an application for initiating the corporate
insolvency resolution process against a corporate debtor has been filed by a
financial creditor referred to in the first and second provisos and has not
been admitted by the Adjudicating Authority before the commencement of
the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such
application shall be modified to comply with the requirements of the first or
second proviso within thirty days of the commencement of the said Act,
failing which the application shall be deemed to be withdrawn before its
admission.
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 Authority shall, within fourteen days of the receipt of
the application under sub-section (2), ascertain the existence of a default
from the records of an information utility or on the basis of other evidence
furnished by the financial creditor under sub-section (3):
Provided that if the Adjudicating Authority has not ascertained the existence
of default and passed an order under sub-section (5) within such time, it
shall record its reasons in writing for the same.]
21
(5) Where the Adjudicating Authority is satisfied that—
(a) a default has occurred and the application under sub-section (2) is
complete, and there is no disciplinary proceedings pending against the
proposed resolution professional, it may, by order, admit such application;
or
(b) default has not occurred or the application under sub-section (2) is
incomplete or any disciplinary proceeding is pending against the
proposed resolution professional, it may, by order, reject such
application:
Provided that the Adjudicating Authority shall, before rejecting the
application under clause (b) of sub-section (5), give a notice to the applicant
to rectify the defect in his application within seven days of receipt of such
notice from the Adjudicating Authority.
(6) The corporate insolvency resolution process shall commence from the
date of admission of the application under sub-section (5).
(7) The Adjudicating Authority shall communicate—
(a) the order under clause (a) of sub-section (5) to the financial creditor and
the corporate debtor;
(b) the order under clause (b) of sub-section (5) to the financial creditor,
within seven days of admission or rejection of such application, as the
case may be.
***
12. Time-limit for completion of insolvency resolution process.—(1)
Subject to sub-section (2), the corporate insolvency resolution process shall
be completed within a period of one hundred and eighty days from the date
of admission of the application to initiate such process.
(2) The resolution professional shall file an application to the Adjudicating
Authority to extend the period of the corporate insolvency resolution
process beyond one hundred and eighty days, if instructed to do so by a
resolution passed at a meeting of the committee of creditors by a vote
of sixty-six per cent of the voting shares.
(3) On receipt of an application under sub-section (2), if the Adjudicating
Authority is satisfied that the subject-matter of the case is such that
corporate insolvency resolution process cannot be completed within one
hundred and eighty days, it may by order extend the duration of such
process beyond one hundred and eighty days by such further period as it
thinks fit, but not exceeding ninety days:
Provided that any extension of the period of corporate insolvency resolution
process under this section shall not be granted more than once:
Provided further that the corporate insolvency resolution process shall
mandatorily be completed within a period of three hundred and thirty days
from the insolvency commencement date, including any extension of the
period of corporate insolvency resolution process granted under this section
and the time taken in legal proceedings in relation to such resolution
process of the corporate debtor:
Provided also that where the insolvency resolution process of a corporate
debtor is pending and has not been completed within the period referred to
in the second proviso, such resolution process shall be completed within a
period of ninety days from the date of commencement of the Insolvency and
Bankruptcy Code (Amendment) Act, 2019.
12-A. Withdrawal of application admitted under Section 7, 9 or 10.—
The Adjudicating Authority may allow the withdrawal of application admitted
under Section 7 or Section 9 or Section 10, on an application made by the
22
applicant with the approval of ninety per cent. voting share of the
committee of creditors, in such manner as may be specified.
13. Declaration of moratorium and public announcement.—(1) The
Adjudicating Authority, after admission of the application under Section 7
or Section 9 or Section 10, shall, by an order—
(a) declare a moratorium for the purposes referred to in Section 14;
(b) cause a public announcement of the initiation of corporate
insolvency resolution process and call for the submission of claims
under Section 15; and
(c) appoint an interim resolution professional in the manner as laid
down in Section 16.
(2) The public announcement referred to in clause (b) of sub-section (1) shall
be made immediately after the appointment of the interim resolution
professional.
14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on
the insolvency commencement date, the Adjudicating Authority shall by
order declare moratorium for prohibiting all of the following, namely—
(a) the institution of suits or continuation of pending suits or
proceedings against the corporate debtor including execution of any
judgment, decree or order in any court of law, tribunal, arbitration
panel or other authority;
(b) transferring, encumbering, alienating or disposing of by the
corporate debtor any of its assets or any legal right or beneficial
interest therein;
(c) any action to foreclose, recover or enforce any security interest
created by the corporate debtor in respect of its property including
any action under the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor where such
property is occupied by or in the possession of the corporate debtor.
Explanation.—For the purposes of this sub-section, it is hereby clarified that
notwithstanding anything contained in any other law for the time being in
force, a license, permit, registration, quota, concession, clearances or a
similar grant or right given by the Central Government, State Government,
local authority, sectoral regulator or any other authority constituted under
any other law for the time being in force, shall not be suspended or
terminated on the grounds of insolvency, subject to the condition that there
is no default in payment of current dues arising for the use or continuation
of the license, permit, registration, quota, concession, clearances or a
similar grant or right during the moratorium period.
(2) The supply of essential goods or services to the corporate debtor as may
be specified shall not be terminated or suspended or interrupted during
moratorium period.
(2-A) Where the interim resolution professional or resolution professional, as
the case may be, considers the supply of goods or services critical to protect
and preserve the value of the corporate debtor and manage the operations of
such corporate debtor as a going concern, then the supply of such goods or
services shall not be terminated, suspended or interrupted during the period of
moratorium, except where such corporate debtor has not paid dues arising
from such supply during the moratorium period or in such circumstances as
may be specified.
(3) The provisions of sub-section (1) shall not apply to—
23
(a) such transactions, agreements or other arrangements as may be
notified by the Central Government in consultation with any financial
sector regulator or any other authority;
(b) a surety in a contract of guarantee to a corporate debtor.
(4) The order of moratorium shall have effect from the date of such order till
the completion of the corporate insolvency resolution process:
Provided that where at any time during the corporate insolvency resolution
process period, if the Adjudicating Authority approves the resolution plan
under sub-section (1) of Section 31 or passes an order for liquidation of
corporate debtor under Section 33, the moratorium shall cease to have
effect from the date of such approval or liquidation order, as the case may
be.
...
16. Appointment and tenure of interim resolution professional.—(1)
The Adjudicating Authority shall appoint an interim resolution professional on
the insolvency commencement date.
(2) Where the application for corporate insolvency resolution process is
made by a financial creditor or the corporate debtor, as the case may be,
the resolution professional, as proposed respectively in the application
under Section 7 or Section 10, shall be appointed as the interim resolution
professional, if no disciplinary proceedings are pending against him.
(3) Where the application for corporate insolvency resolution process is
made by an operational creditor and—
(a) no proposal for an interim resolution professional is made, the
Adjudicating Authority shall make a reference to the Board for the
recommendation of an insolvency professional who may act as an
interim resolution professional;
(b) a proposal for an interim resolution professional is made under subsection (4) of Section 9, the resolution professional as proposed, shall
be appointed as the interim resolution professional, if no disciplinary
proceedings are pending against him.
(4) The Board shall, within ten days of the receipt of a reference from the
Adjudicating Authority under sub-section (3), recommend the name of an
insolvency professional to the Adjudicating Authority against whom no
disciplinary proceedings are pending.
(5) The term of the interim resolution professional shall continue till the
date of appointment of the resolution professional under Section 22.
17. Management of affairs of corporate debtor by interim
resolution professional.—(1) From the date of appointment of the interim
resolution professional,—
(a) the management of the affairs of the corporate debtor shall vest in
the interim resolution professional;
(b) the powers of the board of directors or the partners of the
corporate debtor, as the case may be, shall stand suspended and be
exercised by the interim resolution professional;
(c) the officers and managers of the corporate debtor shall report to
the interim resolution professional and provide access to such
documents and records of the corporate debtor as may be required by
the interim resolution professional;
(d) the financial institutions maintaining accounts of the corporate
debtor shall act on the instructions of the interim resolution
professional in relation to such accounts and furnish all information
24
relating to the corporate debtor available with them to the interim
resolution professional.
18. Duties of interim resolution professional.—(1) The interim
resolution professional shall perform the following duties, namely—
(a) collect all information relating to the assets, finances and operations of
the corporate debtor for determining the financial position of the corporate
debtor, including information relating to—
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by creditors to him,
pursuant to the public announcement made under Sections 13 and 15;
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and manage its operations
until a resolution professional is appointed by the committee of creditors;
(e) file information collected with the information utility, if necessary; and
(f) take control and custody of any asset over which the corporate debtor
has ownership rights as recorded in the balance sheet of the corporate
debtor, or with information utility or the depository of securities or any
other registry that records the ownership of assets including—
(i) assets over which the corporate debtor has ownership rights
which may be located in a foreign country;
(ii) assets that may or may not be in possession of the corporate
debtor;
(iii) tangible assets, whether movable or immovable;
(iv) intangible assets including intellectual property;
(v) securities including shares held in any subsidiary of the
corporate debtor, financial instruments, insurance policies;
(vi) assets subject to the determination of ownership by a court or
authority;
(g) to perform such other duties as may be specified by the Board.
Explanation.— For the purposes of this section, the term “assets” shall not
include the following, namely—
(a) assets owned by a third party in possession of the corporate debtor
held under trust or under contractual arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the corporate debtor;
and
(c) such other assets as may be notified by the Central Government in
consultation with any financial sector regulator.
20. Management of operations of corporate debtor as going
concern.—(1) The interim resolution professional shall make every
endeavour to protect and preserve the value of the property of the
corporate debtor and manage the operations of the corporate debtor as a
going concern.
21. Committee of creditors.—(1) The interim resolution professional shall
after collation of all claims received against the corporate debtor and
determination of the financial position of the corporate debtor, constitute a
committee of creditors.
(2) The committee of creditors shall comprise all financial creditors of the
corporate debtor:
25
Provided that a financial creditor or the authorised representative of the
financial creditor referred to in sub-section (6) or sub-section (6-A) or subsection (5) of Section 24, if it is a related party of the corporate debtor, shall
not have any right of representation, participation or voting in a meeting of
the committee of creditors:
Provided further that the first proviso shall not apply to a financial creditor,
regulated by a financial sector regulator, if it is a related party of the
corporate debtor solely on account of conversion or substitution of debt into
equity shares or instruments convertible into equity shares or completion of
such transactions as may be prescribed, prior to the insolvency
commencement date.
22. Appointment of resolution professional.—(1) The first meeting of
the committee of creditors shall be held within seven days of the
constitution of the committee of creditors.
(2) The committee of creditors, may, in the first meeting, by a majority vote
of not less than sixty-six per cent of the voting share of the financial
creditors, either resolve to appoint the interim resolution professional as a
resolution professional or to replace the interim resolution professional by
another resolution professional.
(3) Where the committee of creditors resolves under sub-section (2)—
(a) to continue the interim resolution professional as resolution
professional subject to a written consent from the interim resolution
professional in the specified form, it shall communicate its decision to
the interim resolution professional, the corporate debtor and the
Adjudicating Authority; or
(b) to replace the interim resolution professional, it shall file an
application before the Adjudicating Authority for the appointment of the
proposed resolution professional along with a written consent from the
proposed resolution professional in the specified form.
(4) The Adjudicating Authority shall forward the name of the resolution
professional proposed under clause (b) of sub-section (3) to the Board for its
confirmation and shall make such appointment after confirmation by the
Board.
(5) Where the Board does not confirm the name of the proposed resolution
professional within ten days of the receipt of the name of the proposed
resolution professional, the Adjudicating Authority shall, by order, direct the
interim resolution professional to continue to function as the resolution
professional until such time as the Board confirms the appointment of the
proposed resolution professional.
23. Resolution professional to conduct corporate insolvency
resolution process.—(1) Subject to Section 27, the resolution professional
shall conduct the entire corporate insolvency resolution process and manage
the operations of the corporate debtor during the corporate insolvency
resolution process period:
Provided that the resolution professional shall continue to manage the
operations of the corporate debtor after the expiry of the corporate
insolvency resolution process period, until an order approving the resolution
26
plan under sub-section (1) of Section 31 or appointing a liquidator under
Section 34 is passed by the Adjudicating Authority.
(2) The resolution professional shall exercise powers and perform duties as
are vested or conferred on the interim resolution professional under this
Chapter.
(3) In case of any appointment of a resolution professional under subsections (4) of Section 22, the interim resolution professional shall provide
all the information, documents and records pertaining to the corporate
debtor in his possession and knowledge to the resolution professional.
***
25. Duties of resolution professional.—(1) It shall be the duty of the
resolution professional to preserve and protect the assets of the corporate
debtor, including the continued business operations of the corporate debtor.
(2) For the purposes of sub-section (1), the resolution professional shall
undertake the following actions, namely—
(a) take immediate custody and control of all the assets of the
corporate debtor, including the business records of the corporate
debtor;
(b) represent and act on behalf of the corporate debtor with third
parties, exercise rights for the benefit of the corporate debtor in
judicial, quasi-judicial or arbitration proceedings;
(c) raise interim finances subject to the approval of the committee of
creditors under Section 28;
***
27. Replacement of resolution professional by committee of
creditors.-
(1) Where, at any time during the corporate insolvency resolution process,
the committee of creditors is of the opinion that a resolution professional
appointed under Section 22 is required to be replaced, it may replace him
with another resolution professional in the manner provided under this
section.
***
30. Submission of resolution plan.—(1) A resolution applicant may
submit a resolution plan along with an affidavit stating that he is eligible
under Section 29-A to the resolution professional prepared on the basis of
the information memorandum.
(2) The resolution professional shall examine each resolution plan received
by him to confirm that each resolution plan—
(a) provides for the payment of insolvency resolution process costs in a
manner specified by the Board in priority to the payment of other debts
of the corporate debtor;
(b) provides for the payment of debts of operational creditors in such
manner as may be specified by the Board which shall not be less than—
(i) the amount to be paid to such creditors in the event of a liquidation
of the corporate debtor under Section 53; or
(ii) the amount that would have been paid to such creditors, if the
amount to be distributed under the resolution plan had been
distributed in accordance with the order of priority in sub-section (1) of
Section 53,
27
whichever is higher, and provides for the payment of debts of financial
creditors, who do not vote in favour of the resolution plan, in such
manner as may be specified by the Board, which shall not be less than
the amount to be paid to such creditors in accordance with sub-section
(1) of Section 53 in the event of a liquidation of the corporate debtor.
Explanation 1.—For the removal of doubts, it is hereby clarified that a
distribution in accordance with the provisions of this clause shall be
fair and equitable to such creditors.
31. Approval of resolution plan.—(1) If the Adjudicating Authority is
satisfied that the resolution plan as approved by the committee of creditors
under sub-section (4) of Section 30 meets the requirements as referred to in
sub-section (2) of Section 30, it shall by order approve the resolution plan
which shall be binding on the corporate debtor and its employees,
members, creditors, including the Central Government, any State
Government or any local authority to whom a debt in respect of the
payment of dues arising under any law for the time being in force, such as
authorities to whom statutory dues are owed, guarantors and other
stakeholders involved in the resolution plan:
Provided that the Adjudicating Authority shall, before passing an order for
approval of resolution plan under this sub-section, satisfy that the resolution
plan has provisions for its effective implementation.
***
33. Initiation of liquidation.—(1) Where the Adjudicating Authority,—
(a) before the expiry of the insolvency resolution process period or the
maximum period permitted for completion of the corporate insolvency
resolution process under Section 12 or the fast track corporate
insolvency resolution process under Section 56, as the case may be,
does not receive a resolution plan under sub-section (6) of Section 30;
or
(b) rejects the resolution plan under Section 31 for the non-compliance
of the requirements specified therein,
it shall—
(i) pass an order requiring the corporate debtor to be liquidated in the
manner as laid down in this Chapter;
(ii) issue a public announcement stating that the corporate debtor is in
liquidation; and
(iii) require such order to be sent to the authority with which the
corporate debtor is registered.
(2) Where the resolution professional, at any time during the corporate
insolvency resolution process but before confirmation of resolution plan,
intimates the Adjudicating Authority of the decision of the committee of
creditors approved by not less than sixty-six per cent of the voting share] to
liquidate the corporate debtor, the Adjudicating Authority shall pass a
liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of
sub-section (1).
Explanation.—For the purposes of this sub-section, it is hereby declared that
the committee of creditors may take the decision to liquidate the corporate
debtor, any time after its constitution under sub-section (1) of Section 21
and before the confirmation of the resolution plan, including at any time
before the preparation of the information memorandum.
28
(3) Where the resolution plan approved by the Adjudicating Authority is
contravened by the concerned corporate debtor, any person other than the
corporate debtor, whose interests are prejudicially affected by such
contravention, may make an application to the Adjudicating Authority for a
liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of
sub-section (1).
(4) On receipt of an application under sub-section (3), if the Adjudicating
Authority determines that the corporate debtor has contravened the
provisions of the resolution plan, it shall pass a liquidation order as referred
to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
(5) Subject to Section 52, when a liquidation order has been passed, no suit
or other legal proceeding shall be instituted by or against the corporate
debtor:
Provided that a suit or other legal proceeding may be instituted by the
liquidator, on behalf of the corporate debtor, with the prior approval of the
Adjudicating Authority.”
45. Where any Corporate Debtor commits default, a Financial
Creditor, an Operational Creditor or the Corporate Debtor itself may
initiate Corporate Insolvency Resolution Process in respect of such
Corporate Debtor, in the manner as provided in Chapter II of the IBC.
46. The provisions of the IBC are designed to ensure that the
business and/or commercial activities of the Corporate Debtor are
continued by a Resolution Professional, upon imposition of a
moratorium, to give the Corporate Debtor some reprieve from
coercive litigation, which could drain the Corporate Debtor of its
financial resources.
47. Under Section 7(2) of the IBC, read with the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016,
hereinafter referred to as “2016 Adjudicating Authority Rules” made in
exercise of powers conferred, inter alia, by clauses (c) (d) (e) and (f)
of sub-section (1) of Section 239 read with Sections 7, 8, 9 and 10 of
the IBC, a financial creditor is required to apply in the prescribed Form
29
1 for initiation of the Corporate Insolvency Resolution Process, against
a Corporate Debtor under Section 7 of the IBC, accompanied with
documents and records required therein, and as specified in the
Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016, hereinafter referred
to as the “2016 IB Board of India Regulations”.
48. Statutory Form 1 under Rule 4(1) of the 2016 Adjudicating
Authority Rules comprises Parts I to V, of which Part I pertains to
particulars of the Applicant, Part II pertains to particulars of the
Corporate Debtor and Part III pertains to particulars of the proposed
Interim Resolution Professional. Parts IV and V which require
particulars of Financial Debt with Documents, Records and Evidence of
default, is extracted hereinbelow:-
PART IV
PARTICULARS OF FINANCIAL DEBT
1 TOTAL AMOUNT OF DEBT GRANTED DATE(S) OF
DISBURSEMENT
2 AMOUNT CLAIMED TO BE IN DEFAULT AND THE
DATE ON WHICH THE DEFAULT OCCURRED
(ATTACH THE WORKINGS FOR COMPUTATION OF
AMOUNT AND DAYS OF DEFAULT IN TABULAR
FORM)
PART V
PARTICULARS OF FINANCIAL DEBT [DOCUMENTS, RECORDS AND EVIDENCE OF
DEFAULT]
1 PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF ITS CREATION, ITS
ESTIMATED VALUE AS PER THE CREDITOR.
ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY THE
REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS A COMPANY)
2 PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR ARBITRAL PANEL
ADJUDICATING ON THE DEFAULT, IF ANY
(ATTACH A COPY OF THE ORDER)
3 RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY (ATTACH A COPY OF
SUCH RECORD)
4 DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF A WILL, OR LETTER OF
ADMINISTRATION, OR COURT DECREE (AS MAY BE APPLICABLE), UNDER THE INDIAN
SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH A COPY)
30
5 THE LATEST AND COMPLETE COPY OF THE FINANCIAL CONTRACT REFLECTING ALL
AMENDMENTS AND WAIVERS TO DATE
(ATTACH A COPY)
6 A RECORD OF DEFAULT AS AVAILABLE WITH ANY CREDIT INFORMATION COMPANY
(ATTACH A COPY)
7 COPIES OF ENTRIES IN A BANKERS BOOK IN ACCORDANCE WITH THE BANKERS
BOOKS EVIDENCE ACT, 1891 (18 OF 1891)
(ATTACH A COPY)
8 LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE
THE EXISTENCE OF FINANCIAL, DEBT, THE AMOUNT AND DATE OF DEFAULT
49. Since a Financial Creditor is required to apply under Section 7 of
the IBC, in Statutory Form 1, the Financial Creditor can only fill in
particulars as specified in the various columns of the Form. There is
no scope for elaborate pleadings. An application to the Adjudicating
Authority (NCLT) under Section 7 of the IBC, in the prescribed form,
cannot therefore, be compared with the plaint in a suit, and cannot be
judged by the same standards, as a plaint in a suit, or any other
pleadings in a Court of law.
50. Section 7(3) requires a financial creditor making an application
under Section 7(1) to furnish records of the default recorded with the
information utility or such other record or evidence of default as may
be specified; the name of the resolution professional proposed to act
as an Interim Resolution Professional and any other information as
may be specified by the Insolvency and Bankruptcy Board of India.
51. Section 7(4) of the IBC casts an obligation on the Adjudicating
Authority to ascertain the existence of a default from the records of an
information utility or on the basis of other evidence furnished by the
financial creditor within fourteen days of the receipt of the application
31
under Section 7. As per the proviso to Section 7(4) of the IBC, inserted
by amendment, by Act 26 of 2019, if the Adjudicating Authority has
not ascertained the existence of default and passed an order, within
the stipulated period of time of fourteen days, it shall record its
reasons for not doing so in writing. The application does not lapse for
non-compliance of the time schedule. Nor is the Adjudicating
Authority obliged to dismiss the application. On the other hand, the
application cannot be dismissed, without compliance with the
requisites of the Proviso to Section 7(5) of the IBC.
52. Section 7(5)(a) provides that when the Adjudicating Authority is
satisfied that a default has occurred, and the application under subsection (2) of Section 7 is complete and there is no disciplinary
proceeding pending against the proposed resolution professional, it
may by order admit such application. As per Section 7(5)(b), if the
Adjudicating Authority is satisfied that default has not occurred or the
application under sub-Section (2) of Section 7 is incomplete or any
disciplinary proceeding is pending against the proposed resolution
professional, it may, by order, reject such application, provided that
the Adjudicating Authority shall, before rejecting the application under
sub-section (b) of Section 5, give notice to the applicant, to rectify the
defects in his application, within 7 days of receipt of such notice from
the Adjudicating Authority.
53. The Corporate Insolvency Resolution Process commences on the
date of admission of the application under sub-section (5) of Section 7
32
of the IBC. Section 7(7) casts an obligation on the Adjudicating
Authority to communicate an order under clause (a) of sub-section (5)
of Section 7 to the Financial Creditor and the Corporate Debtor and to
communicate an order under clause (b) of sub-section (5) of Section 7
to the financial creditor within seven days of admission or rejection of
such application, as the case may be. Sections 8 and 9 of IBC pertain
to Insolvency Resolution by an Operational Creditor and are not
attracted in the facts and circumstances of this case. Section 10
pertains to initiation of Corporate Insolvency Resolution Process by the
Corporate Debtor itself, and is also not attracted in the facts and
circumstances of the case.
54. Section 12(1) of the IBC requires the Corporate Insolvency
Process to be completed within a period of 180 days from the date of
admission of the application to initiate such process. The period of
180 days is not extendable more than once.
55. The IBC is not just a statute for recovery of debts. It is also not a
statute which only prescribes the modalities of liquidation of a
corporate body, unable to pay its debts. It is essentially a statute
which works towards the revival of a corporate body, unable to pay its
debts, by appointment of a Resolution Professional.
56. In Swiss Ribbons Private Limited & Anr. v. Union of India
and Ors.
4
, authored by Nariman, J. this Court observed: -
4 (2019) 4 SCC 17
33
“28. It can thus be seen that the primary focus of the legislation
is to ensure revival and continuation of the corporate debtor by
protecting the corporate debtor from its own management and
from a corporate death by liquidation. The Code is thus a
beneficial legislation which puts the corporate debtor back on its
feet, not being a mere recovery legislation for creditors. The
interests of the corporate debtor have, therefore, been
bifurcated and separated from that of its promoters/those who
are in management. Thus, the resolution process is not
adversarial to the corporate debtor but, in fact, protective of its
interests. The moratorium imposed by Section 14 is in the
interest of the corporate debtor itself, thereby preserving the
assets of the corporate debtor during the resolution process.
The timelines within which the resolution process is to take
place again protects the corporate debtor's assets from further
dilution, and also protects all its creditors and workers by seeing
that the resolution process goes through as fast as possible so
that another management can, through its entrepreneurial skills,
resuscitate the corporate debtor to achieve all these ends.”
57. IBC has overriding effect over other laws. Section 238 of the
IBC provides that the provisions of the IBC shall have effect,
notwithstanding anything inconsistent therewith contained in any
other law, for the time being in force, or any other instrument, having
effect by virtue of such law.
58. Unlike coercive recovery litigation, the Corporate Insolvency
Resolution Process under the IBC is not adversarial to the interests of
the Corporate Debtor, as observed by this Court in Swiss Ribbons
Private Limited v. Union of India (supra).
59. On the other hand, the IBC is a beneficial legislation for equal
treatment of all creditors of the Corporate Debtor, as also the
protection of the livelihoods of its employees/workers, by revival of the
Corporate Debtor through the entrepreneurial skills of persons other
than those in its management, who failed to clear the dues of the
Corporate Debtor to its creditors. It only segregates the interests of
34
the Corporate Debtor from those of its promoters/persons in
management.
60. Relegation of creditors to the remedy of coercive litigation
against the Corporate Debtors could be detrimental to the interests of
the Corporate Debtor and its creditors alike. While multiple coercive
proceedings against a Corporate Debtor in different forums could
impede its commercial/business activities, deplete its cash reserves,
dissipate its assets, moveable and immoveable and precipitate its
commercial death, such proceedings might not be economically viable
for the creditors as well, because of the length of time consumed in
the litigations, the expenses of litigation, and the uncertainties of
realisation of claims even after ultimate success in the litigation.
61. It is, therefore, imperative that the provisions of the IBC and the
Rules and Regulations framed thereunder be construed liberally, in a
purposive manner to further the objects of enactment of the statute.
62. On a careful reading of the provisions of the IBC and in particular
the provisions of Section 7(2) to (5) of the IBC read with the 2016
Adjudicating Authority Rules, there is no bar to the filing of documents
at any time until a final order either admitting or dismissing the
application has been passed.
63. The time stipulation of fourteen days in Section 7(4) to ascertain
the existence of a default is apparently directory not mandatory. The
proviso inserted by amendment with effect from 16th August 2019
35
provides that if the Adjudicating Authority has not ascertained the
default and passed an order under sub-section (5) of Section 7 of the
IBC within the aforesaid time, it shall record its reasons in writing for
not doing so. No other penalty is stipulated.
64. Furthermore, the proviso to Section 7(5)(b) of the IBC requires
the Adjudicating Authority to give notice to an applicant, to rectify the
defect in its application within seven days of receipt of such notice
from the Adjudicating Authority, before rejecting its application under
Clause (b) of sub-section (5) of Section 7 of the IBC. When the
Adjudicating Authority calls upon the applicant to cure some defects,
that defect has to be rectified within seven days. However, in the
absence of any prescribed penalty in the IBC for inability to cure the
defects in an application within seven days from the date of receipt of
notice, in an appropriate case, the Adjudicating Authority may accept
the cured application, even after expiry of seven days, for the ends of
justice.
65. The Insolvency Committee of the Ministry of Corporate Affairs,
Government of India, in a report published in March 2018, stated that
the intent of the IBC could not have been to give a new lease of life to
debts which were already time barred. Thereafter Section 238A was
incorporated in the IBC by the Insolvency and Bankruptcy Code
(Second Amendment) Act, 2018 (Act 26 of 2018), with effect from 6th
June 2018.
66. Section 238A of the IBC provides as follows:-
36
“238A. The provisions of the Limitation Act, 1963 (36 of 1963)
shall, as far as may be, apply to the proceedings or appeals
before the Adjudicating Authority, the National Company Law
Appellate Tribunal, the Debt Recovery Tribunal or the Debt
Recovery Appellate Tribunal, as the case may be.”
67. In Sesh Nath Singh & Anr. v. Baidyabati Sheoraphuli
Cooperative Bank Ltd.
5
, authored by one of us (Indira Banerjee, J.),
this Court held:-
“91. Legislature has in its wisdom chosen not to make the
provisions of the Limitation Act verbatim applicable to
proceedings in NCLT/NCLAT, but consciously used the words ‘as
far as may be’. The words ‘as far as may be’ are not meant to
be otiose. Those words are to be understood in the sense in
which they best harmonise with the subject matter of the
legislation and the object which the Legislature has in view. The
Courts would not give an interpretation to those words which
would frustrate the purposes of making the Limitation Act
applicable to proceedings in the NCLT/NCLAT ‘as far as may be’.
xxx xxx xxx
94. The use of words ‘as far as may be’, occurring in Section
238A of the IBC tones down the rigour of the words ‘shall’ in the
aforesaid Section which is normally considered as mandatory.
The expression ‘as far as may be’ is indicative of the fact that
all or any of the provisions of the Limitation Act may not apply
to proceedings before the Adjudicating Authority (NCLT) or the
Appellate authority (NCLAT) if they are patently inconsistent
with some provisions of the IBC. At the same time, the words
‘as far as may be’ cannot be construed as a total exclusion of
the requirements of the basic principles of Section 14 of the
Limitation Act, but permits a wider, more liberal, contextual and
purposive interpretation by necessary modification, which is in
harmony with the principles of the said Section.”
68. There is no specific period of limitation prescribed in the
Limitation Act, 1963, for an application under the IBC, before the
5 2021 SCC Online SC 244
37
Adjudicating Authority (NCLT). An application for which no period of
limitation is provided anywhere else in the Schedule to the Limitation
Act, is governed by Article 137 of the Schedule to the said Act. Under
Article 137 of the Schedule to the Limitation Act, the period of
limitation prescribed for such an application is three years from the
date of accrual of the right to apply.
69. There can be no dispute with the proposition that the period of
limitation for making an application under Section 7 or 9 of the IBC is
three years from the date of accrual of the right to sue, that is, the
date of default. In Gaurav Hargovindbhai Dave v. Asset
Reconstruction Company (India) Ltd.
6authored by Nariman, J. this
Court held:-
“6. …...The present case being “an application” which is filed
under Section 7, would fall only within the residuary Article
137.”
70. In B. K. Educational Services Private Limited v. Parag
Gupta and Associates
7
, this Court speaking through Nariman, J.
held:-
“42. It is thus clear that since the Limitation Act is applicable to
applications filed under Sections 7 and 9 of the Code from the
inception of the Code, Article 137 of the Limitation Act gets
attracted. “The right to sue”, therefore, accrues when a default
occurs. 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 the Limitation Act, save and except in those
cases where, in the facts of the case, Section 5 of the Limitation
6 (2019) 10 SCC 572
7 (2019) 11 SCC 633
38
Act may be applied to condone the delay in filing such
application.”
71. In Jignesh Shah v. Union of India
8
 this Court speaking
through Nariman, J. reiterated the proposition that the period of
limitation for making an application under Section 7 or 9 of the IBC
was three years from the date of accrual of the right to sue, that is,
the date of default.
72. In Radha Exports (India) (P) Ltd. v. K.P. Jayaram9
, this Court
held:-
“32. The proposition of law which emerges from Innoventive
Industries Ltd. [Innoventive Industries Ltd. v. Icici Bank, (2018) 1
SCC 407 : (2018) 1 SCC (Civ) 356] is that the insolvency resolution
process begins when a default takes place. In other words, once a
debt or even part thereof becomes due and payable, the
resolution process begins. Section 3(11) defines “debt” as a
liability or obligation in respect of a claim and the claim means a
right to payment even if it is disputed. The Code gets triggered
the moment default is of Rs 1,00,000 or more. Once the
adjudicating authority is satisfied that a default has occurred, the
application must be admitted, unless it is otherwise incomplete
and not in accordance with the rules. The judgment is however,
not an authority for the proposition that a petition under Section 7
IBC has to be admitted, even if the claim is ex facie barred by
limitation.
33. On the other hand, in B.K. Educational Services (P)
Ltd. v. Parag Gupta & Associates [B.K. Educational Services (P)
Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 : (2018) 5
SCC (Civ) 528] , this Court held : (SCC p. 664, para 42)
“42. It is thus clear that since the Limitation Act is
applicable to applications filed under Sections 7 and 9 of the
Code from the inception of the Code, Article 137 of the
Limitation Act gets attracted. “The right to sue”, therefore,
accrues when a default occurs. 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 the
Limitation Act, save and except in those cases where, in the
facts of the case, Section 5 of the Limitation Act may be
applied to condone the delay in filing such application.”
8 (2019) 10 SCC 750
9 (2020) 10 SCC 538
39
***
35. It was for the applicant invoking the corporate insolvency
resolution process, to prima facie show the existence in his favour,
of a legally recoverable debt. In other words, the respondent had
to show that the debt is not barred by limitation, which they failed
to do.”
73. In Babulal Vardharji Gurjar v. Veer Gurjar Aluminium
Industries (P) Ltd.
10
, relied upon by the Respondents, this Court,
speaking through Dinesh Maheshwari, J., reiterated that the period of
limitation for an application seeking initiation of CIRP under Section 7
of the IBC, was governed by Article 137 of the Limitation Act, 1963
and was, therefore, three years from the date when the right to apply
accrued, i.e., the date when default occurred. In Babulal Vardharji
Gurjar (supra), this Court observed and held:-
“35. Apart from the above and even if it be assumed that the
principles relating to acknowledgment as per Section 18 of the
Limitation Act are applicable for extension of time for the purpose
of the application under Section 7 of the Code, in our view, neither
the said provision and principles come in operation in the present
case nor do they enure to the benefit of Respondent 2 for the
fundamental reason that in the application made before NCLT,
Respondent 2 specifically stated the date of default as “8-7-2011
being the date of NPA”. It remains indisputable that neither has
any other date of default been stated in the application nor has
any suggestion about any acknowledgment been made. As
noticed, even in Part V of the application, Respondent 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 8 therein, nothing was at
all stated at any place about the so-called acknowledgment or any
other date of default.
35.1. Therefore, on the admitted fact situation of the present
case, where only the date of default as “8-7-2011” has been
stated for the purpose of maintaining the application under
Section 7 of the Code, and not even a foundation is laid in the
application for suggesting any acknowledgment or any other date
10 (2020) 15 SCC 1
40
of default, in our view, the submissions sought to be developed on
behalf of Respondent 2 at the later stage cannot be permitted. It
remains trite that the question of limitation is essentially a mixed
question of law and facts and when a party seeks application of
any particular provision for extension or enlargement of the period
of limitation, the relevant facts are required to be pleaded and
requisite evidence is required to be adduced. Indisputably, in the
present case, Respondent 2 never came out with any pleading
other than stating the date of default as “8-7-2011” in the
application. That being the position, no case for extension of
period of limitation is available to be examined. In other words,
even if Section 18 of the Limitation Act and principles thereof were
applicable, the same would not apply to the application under
consideration in the present case, looking to the very averment
regarding default therein and for want of any other averment in
regard to acknowledgment. In this view of the matter, reliance on
the decision in Mahabir Cold Storage
11
 does not advance the cause
of Respondent 2.
***
36. The submissions made on behalf of the respondents that the
rules of limitation are not meant to destroy the rights of the
parties and reference to the decision in N. Balakrishnan
12
 are also
misplaced. Application of the rules of limitation to CIRP (by virtue
of Section 238-A of the Code read with the above referred
consistent decisions of this Court) does not, in any manner, deal
with any of the rights of Respondent 2; it only bars recourse to the
particular remedy of initiation of CIRP under the Code. Equally, the
other submissions made on behalf of the respondents about any
stringent application of the law of limitation which was introduced
to the Code only after filing of the application by Respondent 2; or
about the so-called prejudice likely to be caused to other banks
and financial institutions are also of no substance, particularly in
the light of the principles laid down and consistently followed by
this Court right from the decision in B.K. Educational Services
13
.
These contentions have only been noted to be rejected. Needless
to add that when the application made by Respondent 2 for CIRP
is barred by limitation, no proceedings undertaken therein after
the order of admission could be of any effect. All such proceedings
remain non est and could only be annulled.”
74. In Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank
Ltd. & Ors.
14
 this Court rejected the contention that the default was
a continuing wrong and Section 23 of the Limitation Act 1963 would
11 1991 Supp (1) SCC 402
12 (1998) 7 SCC 123
13 (2019) 11 SCC 633
14 (2019) 9 SCC 158
41
apply, relying upon Balkrishna Savalram Pujari Waghmare v.
Shree Dhyaneshwar Maharaj Sansthan
15
.
75. To quote P.B. Gajendragadkar, J. in Balkrishna Savalram
Pujari Wagmare (supra):-
“......Section 23 refers not to a continuing right but to a
continuing wrong. It is the very essence of a continuing wrong
that it is an act which creates a continuing source of injury and
renders the doer of the act responsible and liable for the
continuance of the said injury. If the wrongful act causes an
injury which is complete, there is no continuing wrong even
though the damage resulting from the act may continue. If,
however, a wrongful act is of such a character that the injury
caused by it itself continues, then the act constitutes a
continuing wrong. In this connection it is necessary to draw a
distinction between the injury caused by the wrongful act and
what may be described as the effect of the said injury. It is only
in regard to acts which can be properly characterised as
continuing wrongs that Section 23 can be invoked. .....”
76. There can be no dispute with the proposition of law laid down in
Babulal Vardharji Gurjar (supra) that limitation is essentially a
mixed question of law and facts and when a party seeks application of
any particular provision for extension or enlargement of the period of
limitation, the relevant facts are required to be pleaded and requisite
evidence is required to be adduced. However, as observed above, an
application in a statutory form cannot be judged in the manner of a
plaint in a suit. Documents filed along with the application, or later,
and subsequent affidavits and applications would have to be
construed as part of the pleadings.
15 1959 Supp (2) SCR 476
42
77. The judgment of this Court in Babulal Vardharji Gurjar (supra)
was rendered in the facts of the aforesaid case, where the date of
default had been mentioned as 8.7.2011 being the date of N.P.A. and
it remained undisputed that there had neither been any other date of
default stated in the application nor had any suggestion about any
acknowledgement been made.
78. In the backdrop of the aforesaid facts, this court observed that
even if Section 18 of the Limitation Act and principles thereof were
applicable, the same would not apply to the application under
consideration, in view of the averments regarding default therein and
for want of any other averment with regard to acknowledgment.
79. It is well settled, that a judgment is a precedent for the issue of
law that is raised and decided and not observations made in the facts
of any particular case. To quote V. Sudhish Pai in “Constitutional
Supremacy-A Revisit”, “Judicial utterances/pronouncements are in the
setting of the facts of a particular case. To interpret words and
provisions of a statute it may become necessary for judges to embark
upon lengthy discussions, but such discussion is meant to explain not
define. Judges interpret statutes, their words are not to be interpreted
as statutes.” The aforesaid passage was extracted and incorporated
as part of the judgment of this Court in Sesh Nath Singh (supra).
80. Babulal Vardharji Gurjar (supra) is not an authority for the
proposition that the Books of Accounts of a Corporate Debtor could not
be treated as acknowledgement of liability to a Financial Creditor. Nor
43
does the judgment lay down the proposition that any affidavits or
documents filed during the pendency of the proceedings cannot be
taken into consideration.
81. In Sesh Nath Singh (supra) this Court held that the IBC does
not exclude the application of Section 14 or 18 or any other provision
of the Limitation Act. There is, therefore, no reason to suppose that
Sections 14 or 18 of the Limitation Act do not apply to proceedings
under Section 7 or Section 9 of the IBC. In Laxmi Pat Surana v.
Union Bank of India
16
 this Court speaking through Khanwilkar J. held
that there was no reason to exclude the effect of Section 18 of the
Limitation Act to proceedings initiated under the IBC. In Bishal
Jaiswal (supra), this Court, speaking through Nariman J. relied, inter
alia, on Sesh Nath Singh (supra) and Laxmi Pat Surana (supra)
and held that the question of applicability of Section 18 of the
Limitation Act to proceedings under the IBC was no longer res integra.
82. Section 18 of the Limitation Act is set out hereinunder:-
“18. Effect of acknowledgment in writing.—(1) Where, 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 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
acknowledgment was so signed.
(2) Where the writing containing the acknowledgment is undated,
oral evidence may be given of the time when it was signed; but
subject to the provisions of the Indian Evidence Act, 1872 (1 of
1872), oral evidence of its contents shall not be received.
Explanation.—For the purposes of this section,—
16 (2021) 8 SCC 481
44
 (a) an acknowledgment 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 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.”
83. As per Section 18 of Limitation Act, an acknowledgement of
present subsisting liability, made in writing in respect of any right
claimed by the opposite party and signed by the party against whom
the right is claimed, has the effect of commencing a fresh period of
limitation from the date on which the acknowledgement is signed.
Such acknowledgement need not be accompanied by a promise to pay
expressly or even by implication. However, the acknowledgement
must be made before the relevant period of limitation has expired.
84. In Khan Bahadur Shapoor Fredoom Mazda v. Durga
Prasad Chamaria and Others
17
, this Court held:-
“6. It is thus clear that acknowledgment as prescribed by
Section 19 merely renews debt; it does not create a new right of
action. It is a mere acknowledgment of the liability in respect of
the right in question; it need not be accompanied by a
promise to pay either expressly or even by implication.
The statement on which a plea of acknowledgment is based
must relate to a present subsisting liability though the exact
nature or the specific character of the said liability may not be
indicated in words. Words used in the acknowledgment must,
however, indicate the existence of jural relationship between
the parties such as that of debtor and creditor, and it must
appear that the statement is made with the intention to admit
such jural relationship. Such intention can be inferred by
implication from the nature of the admission, and need not be
17 AIR 1961 SC 1236
45
expressed in words. If the statement is fairly clear then the
intention to admit jural relationship may be implied from it. The
admission in question need not be express but must be made in
circumstances and in words from which the court can
reasonably infer that the person making the admission intended
to refer to a subsisting liability as at the date of the statement.
In construing words used in the statements made in writing on
which a plea of acknowledgment rests oral evidence has been
expressly excluded but surrounding circumstances can always
be considered. Stated generally courts lean in favour of a liberal
construction of such statements though it does not mean that
where no admission is made one should be inferred, or where a
statement was made clearly without intending to admit the
existence of jural relationship such intention could be fastened
on the maker of the statement by an involved or far-fetched
process of reasoning. Broadly stated that is the effect of the
relevant provisions contained in Section 19, and there is really
no substantial difference between the parties as to the true
legal position in this matter.”
85. It is well settled that entries in books of accounts and/or
balance sheets of a Corporate Debtor would amount to an
acknowledgment under Section 18 of the Limitation Act. In Bishal
Jaiswal (supra) authored by Nariman, J. this Court quoted with
approval the judgments, inter alia, of Calcutta High Court in Bengal
Silk Mills Co. v. Ismail Golam Hossain Ariff,
18 and Pandem Tea
Co.
19 Ltd., the judgment of the Delhi High Court in South Asia
Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur
Rana
20
 and the judgment of Karnataka High Court in Hegde Golay
Ltd. v. State Bank of India
21
 and held that an acknowledgement of
liability that is made in a balance sheet can amount to an
acknowledgement of debt.
86. In Bengal Silk Mills Co. (supra), the Calcutta High Court held:-
18 1961 SCC Cal 128: AIR 1962 Cal 115
19 AIR 1974 Cal 170
20 ILR (1972) 2 Del 712
211985 SCC Kar 290 : ILR 1987 Kar 2673
46
“9. ….. I am unable to agree with the reasoning of the Nagpur
decision that a balance-sheet does not save limitation
because it is drawn up under a duty to set out the claims
made on the company and not with the intention of
acknowledging liability. The balance-sheet contains
admissions of liability; the agent of the company who makes
and signs it intends to make those admissions. The
admissions do not cease to be acknowledgements of liability
merely on the ground that they were made in discharge of a
statutory duty. I notice that in the Nagpur case the balancesheet had been signed by a director and had not been passed
either by the Board of Directors or by the company at its
annual general meeting and it seems that the actual decision
may be distinguished on the ground that the balance-sheet
was not made or signed by a duly authorized agent of the
company.
***
11. To come under section 19 an acknowledgement of a debt
need not be made to the creditor nor need it amount to a
promise to pay the debt. In England it has been held that a
balance-sheet of a company stating the amount of its
indebtedness to the creditor is a sufficient acknowledgement
in respect of a specialty debt under section 5 of the Civil
Procedure Act, 1833 (3 and 4 Will — 4c. 42), see Re : Atlantic
and Pacific Fibre Importing and Manufacturing Co. Ltd., [1928]
Ch. 836…….”
87. In Re Pandem Tea Co. Ltd. (supra), Sabyasachi Mukharji J.
held:-
“Now the question is whether the statements, which are
contained in the profits and loss accounts and the assets and
liabilities side indicating the liability of the petitioning creditor
along with the statement of the Directors made to the
shareholders as Directors' report should be read together and if
so whether reading these two statements together these
amount to an acknowledgement as contemplated under
Section 18 of the Limitation Act, 1963, or Section 19 of the
Limitation Act, 1908. In my opinion, both these statements
have to be read together. The balance-sheet is meant to be
presented and passed by the shareholders and is generally
accompanied by the Directors' report to the shareholders.
Therefore, in understanding the balance-sheets and in
explaining the statements in the balance-sheets, the balancesheets together with the Directors' report must be taken
together to find out the true meaning and purport of the
statements. Counsel appearing for petitioning creditor
contended that under the statute the balance-sheet was a
separate document and as such if there was unequivocal
47
acknowledgement on the balance-sheet the statement of the
Directors' report should not be taken into consideration. It is
true the balance-sheet is a statutory document and perhaps is
a separate document but the balance-sheet not confirmed or
passed by the shareholders cannot be accepted as correct.
Therefore, in order to validate the balance-sheet, it must be
duly passed by the shareholders at the appropriate meeting
and in order to do so it must be accompanied by a report, if
any, made by the Directors. Therefore, even though the
balance-sheet may be a separate document these two
documents in the facts and circumstances of the case should
be read together and should be construed together. It was held
by the Supreme Court in the case of L.C. Mills v. Aluminium
Corpn. of India Ltd., (1971) 1 SCC 67 : AIR 1971 SC 1482, that
it was clear that the statement on which the plea of
acknowledgement was founded should relate to a subsisting
liability as the section required and it should be made before
the expiration of the period prescribed under the Act. It need
not, however, amount to a promise to pay for an
acknowledgement did not create a new right of action but
merely extended the period of limitation. The statement need
not indicate the exact nature or the specific character of the
liability. The words used in the statement in question must,
however, relate to a present subsisting liability and indicate the
existence of a jural relationship between the parties such as,
for instance, that of a debtor and a creditor and the intention to
admit such jural relationship. Such an intention need not,
however, be in express terms and could be inferred by
implication from the nature of the admission and the
surrounding circumstances. Generally speaking, a liberal
construction of the statement in question should be given. That
of course did not mean that where a statement was made
without intending to admit the existence of jural relationship,
such intention should be fastened on the person making the
statement by an involved and far-fetched reasoning. In order to
find out the intention of the document by which
acknowledgement was to be construed the document as a
whole must be read and the intention of the parties must be
found out from the total effect of the document read as a
whole. …”
88. In South Asia Industries (P) Ltd. v. General Krishna
Shamsher Jung Bahadur Rana (supra), the Delhi High Court
observed:-
“46. Shri Rameshwar Dial argued that statements in the
balance-sheet of a company cannot amount to
acknowledgement of liability because the balance-sheet is
made under compulsion of the provisions in the Companies Act.
48
There is no force in this argument. In the first place, section 18
of the Limitation Act, 1963, requires only that the
acknowledgement of liability must have been made in writing,
but it does not prescribe that the writing should be in any
particular kind of document. So, the fact that the writing is
contained in a balance-sheet is immaterial. In the second place,
it is true that section 131 of the Companies Act, 1913 (section
210 of the Companies Act, 1956) makes it compulsory that an
annual balance sheet should be prepared and placed before the
Company by the Directors, and section 132 (section 211 of the
Companies Act, 1956) requires that the balance-sheet should
contain a summary, inter alia, of the current liabilities of the
company. But, as pointed out by Bachawat J. in Bengal Silk
Mills v. Ismail Golam Hossain Ariff, AIR 1962 Cal 115 although
there was statutory compulsion to prepare the annual balancesheet, there was no compulsion to make any particular
admission, and a document is not taken out of the purview of
section 18 of the Indian Limitation Act, 1963 (section 19 of the
Indian Limitation Act, 1908) merely on the ground that it is
prepared under compulsion of law or in discharge of statutory
duty. Reference may also be made to the decisions in Raja of
Vizianagram v. Vizianagram Mining Co. Ltd., AIR 1952 Mad
136, Jones v. Bellgrove Properties Ltd., (1949) 1 All ER 498;
and Lahore Enamelling and Stamping Co. v. A.K. Bhalla, AIR
1958 Punj 341, in which statements in balance-sheets of
companies were held to amount to acknowledgements of
liability of the companies.
47. Shri Rameshwar Dial referred to the decision of the Privy
Council in Consolidated Agencies Ltd. v. Bertram Ltd., (1964) 3
All ER 282. We shall advert to this decision presently when we
deal with another argument of Shri Rameshwar Dial, and it is
sufficient to state so far as the argument under consideration is
concerned that even in this decision of the Privy Council it has
been recognised that balance-sheets could in certain
circumstances amount to acknowledgements of liability. It
cannot, therefore, be said as a general proposition of law that
statements in balance-sheets of a company cannot operate at
all as acknowledgements of liability as contended by Shri
Rameshwar Dial.”
89. In Hegde & Golay Limited v. State Bank of India (supra) the
Karnataka High Court held:
“43. The acknowledgement of liability contained in the balancesheet of a company furnishes a fresh starting point of limitation.
It is not necessary, as the law stands in India, that the
acknowledgement should be addressed and communicated to
the creditor.”
49
90. In Reliance Asset Reconstruction Co. Ltd. v. Hotel Poonja
International Pvt. Ltd.
22
, the Appellant had relied on two documents
in the Paper Book, that is, (i) the Balance Sheet of the Corporate
Debtor dated 16th August, 2017 and (ii) a letter dated 23rd April, 2019
issued by the Corporate Debtor to contend that the proceedings under
Section 7 of the IBC were not barred by limitation, as limitation would
start running afresh for a period of three years from the respective
dates of those documents in acknowledgment of liability.
91. This Court, however, did not accept the balance sheet dated 16th
August, 2017 and the letter dated 23rd April, 2019 in the special facts
and circumstances of the case where it could not be ascertained if the
documents had been signed before the expiry of the prescribed period
of limitation. This Court also found that the two documents could not
be construed as admission that amounted to acknowledgement of the
jural relationship and the existence of liability, since the balance sheet
dated 16th August, 2017 did not acknowledge or admit any liability.
Rather the Corporate Debtor had disputed and denied its liability.
Similarly, the letter dated 23rd April, 2019 was also found not be an
acknowledgment or admission of liability. On the other hand, the
language of the letter made it absolutely clear that the liability had in
fact been denied.
92. Significantly, in Reliance Asset Reconstruction (supra), the
loan had been sanctioned by Vijaya Bank in May 1986. The loan
22. 2021 SCC Online SC 289
50
amount was declared NPA on 1st April 1993, an original application
moved under the Debt Recovery Act was compromised in 2001 and
the DRT had issued a Recovery Certificate in May 2003. Vijaya Bank
assigned its Reliance Asset Reconstruction in May 2011 after which
amended Recovery Certificate was issued in December 2012. The
petition under Section 7 of the IBC was, however filed on 27th July
2018.
93. Section 18 of the Limitation Act speaks of an Acknowledgment in
writing of liability, signed by the party against whom such property or
right is claimed. Even if the writing containing the acknowledgment is
undated, evidence might be given of the time when it was signed. The
explanation clarifies that an acknowledgment may be sufficient even
though it is accompanied by refusal to pay, deliver, perform or permit
to enjoy or is coupled with claim to set off, or is addressed to a person
other than a person entitled to the property or right. ‘Signed’ is to be
construed to mean signed personally or by an authorised agent.
94. In Lakshmirattan Cotton Mills Co. Ltd. v. Aluminium
Corpn. of India Ltd.
23
, this Court held:-
“8. Section 19(1) of the Limitation Act, 1908, provides that
where, before the expiration of the period prescribed for a
suit 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 property or
right is claimed, a fresh period of limitation shall be
computed from the time when the acknowledgment was so
signed. The expression ‘signed’ here means not only signed
personally by such a party, but also by an agent duly
authorised in that behalf. Explanation 1 to the section then
23 (1971) 1 SCC 67
51
provides that an acknowledgment would be sufficient though
it omits to specify the exact nature of the property or right,
or avers that the time for payment has not yet come, or is
accompanied by a refusal to pay or is coupled with a claim to
a set-off, or is addressed to a person other than the person
entitled to the property or right. The new Act of 1963,
contains in Section 18 substantially similar provisions.
9. It is clear that the statement on which the plea of
acknowledgment is founded must relate to a subsisting
liability as the section requires that it must be made before
the expiration of the period prescribed under the Act. It need
not, however, amount to a promise to pay, for, an
acknowledgment does not create a new right of action but
merely extends the period of limitation. The statement need
not indicate the exact nature or the specific character of the
liability. The words used in the statement in question,
however, must relate to a present subsisting liability and
indicate the existence of jural relationship between the
parties, such as, for instance, that of a debtor and a creditor
and the intention to admit such jural relationship. Such an
intention need not be in express terms and can be inferred
by implication from the nature of the admission and the
surrounding circumstances. Generally speaking, a liberal
construction of the statement in question should be given.
That of course does not mean that where a statement is
made without intending to admit the existence of jural
relationship, such intention should be fastened on the person
making the statement by an involved and far-fetched
reasoning. (See Khan Bahadur Shapoor Fredoom
Mazda v. Durga Prasad Chamaria [1962 (1) SCR 140]
and Tilak Ram v. Nathu [AIR 1967 SC 935 at 938, 939] ). As
Fry, L.J., Green v. Humphreys [(1884) 26 Ch D 474 at 481]
said “an acknowledgment is an admission by the writer that
there is a debt owing by him, either to the receiver of the
letter or to some other person on whose behalf the letter is
received but it is not enough that he refers to a debt as
being due from somebody. In order to take the case out of
the statute there must upon the fair construction of the
letter, read in the light of the surrounding circumstances, be
an admission that the writer owes the debt”. As already
stated, the person making the acknowledgment can be both
the debtor himself as also a person duly authorised by him
to make the admission. In Khan Bahadur Shapoor Fredoom
Mazda case the Court accepted a statement in a letter by a
mortgagor to a second mortgagee to save the mortgaged
property from being sold away at a cheap price at the
instance of the prior mortgagee by himself purchasing it as
one amounting to an admission of the jural relationship of a
52
mortgagor and mortgagee, and therefore, to an
acknowledgment within Section 19. Also, an agreement of
reference to arbitration containing an unqualified admission
that whoever on account should be proved to be the debtor
would pay to the other has been held to amount to an
acknowledgment. Such an admission is not subject to the
condition that before the agreement should operate as an
acknowledgment, the liability must be ascertained by the
arbitrator. The acknowledgment operates whether the
arbitrator acts or not. (See Tejpal Saraogi v. Lallanjee
Jain [ CA No. 766 of 1962, decided on February, 8, 1965],
approving Abdul Rahim Oosman & Co. v. Ojamshee
Prushottamdas & Co. [1928 ILR 56 Cal 639].”
95. In Jignesh Shah and Another v. Union of India (supra), this
Court relied upon a judgment of the Patna High Court in Ferro Alloys
Corporation Limited v. Rajhans Steel Limited
24
, and held in effect
that an application under Section 7 or 9 of the IBC may be time
barred, even though some other recovery proceedings might have
been instituted earlier, well within the period of limitation, in respect
of the same debt. However, it would be a different matter, if the
applicant had approached the Adjudicating Authority after obtaining a
final order and/or decree in the recovery proceedings, if the decree
remained unsatisfied. This Court held that a decree and/or final
adjudication would give rise to a fresh period of limitation for initiation
of the Corporate Insolvency Resolution Process.
96. In Dena Bank (Now Bank of Baroda) v. C. Shivakumar
Reddy and Another
25
, this Court held:-
“138. While it is true that default in payment of a debt triggers
the right to initiate the corporate resolution process, and a petition
under Section 7 or 9 IBC is required to be filed within the period of
limitation prescribed by law, which in this case would be three
24. (1999) SCC Online Pat 1196
25 (2021) 10 SCC 330
53
years from the date of default by virtue of Section 238-A IBC read
with Article 137 of the Schedule to the Limitation Act, the delay in
filing a petition in the NCLT is condonable under Section 5 of the
Limitation Act unlike delay in filing a suit. Furthermore, as
observed above Sections 14 and 18 of the Limitation Act are also
applicable to proceedings under the IBC.
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 [Dena Bank v. Kavveri Telecom
Infrastructure Ltd., 2019 SCC OnLine NCLT 7881] .
140. To sum up, in our considered opinion an application under
Section 7 IBC would not be barred by limitation, on the ground
that it had been filed beyond a period of three years from the date
of declaration of the loan account of the corporate debtor as 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.
142. There is no bar in law to the amendment of pleadings in an
application under Section 7 IBC, or to the filing of additional
documents, apart from those initially filed along with application
under Section 7 IBC in Form 1. In the absence of any express
provision which either prohibits or sets a time-limit for filing of
additional documents, it cannot be said that the adjudicating
authority committed any illegality or error in permitting the
appellant Bank to file additional documents. Needless however, to
mention that depending on the facts and circumstances of the
case, when there is inordinate delay, the adjudicating authority
might, at its discretion, decline the request of an applicant to file
additional pleadings and/or documents, and proceed to pass a
final order. In our considered view, the decision of the adjudicating
authority to entertain and/or to allow the request of the appellant
Bank for the filing of additional documents with supporting
pleadings, and to consider such documents and pleadings did not
call for interference in appeal.”
54
97. To sum up, in our considered opinion an application under
Section 7 of the IBC would not be barred by limitation, on the ground
that it had been filed beyond a period of three years from the date of
declaration of the loan account of the Corporate Debtor as NPA, if
there were an acknowledgement 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.
98. In this case, the amount of the Corporate Debtor was declared
NPA on 1st December 2008. By a letter dated 7th February, 2011,
written well within three years, the Corporate Debtor acknowledged its
liability and proposed a settlement. This was followed by several
requests of extension of time to make payment and revised
settlements. On 6th April, 2013, the Corporate Debtor sought
extension of time to pay Rs.239,88,27,673 outstanding as on 31st
March 2013. On 19th April, 2013, the Corporate Debtor made payment
of Rs.17,50,00,000/-. On 1st July, 2013, the Corporate Debtor
acknowledged its liability – this was after the Appellant Financial
Creditor revoked the settlement invoking the default clause. The
Corporate Debtor acknowledged its liabilities in its financial
statements from 2008-09 till 2016-17. The application under Section
7(2) of the IBC was filed on 3rd April 2018, well within the extended
period of limitation.
55
99. For the reasons discussed above, the impugned judgment and
order is unsustainable in law and facts. The appeals are, accordingly
allowed, and the impugned judgment and order of the NCLAT is set
aside.
...…………………………………,J.
 [INDIRA BANERJEE]
...…………………………………,J
 [J.K. MAHESHWARI]
NEW DELHI;
AUGUST 01, 2022
56

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