Kotak Mahindra Bank Limited VERSUS Kew Precision Parts Private Limited & Ors.

Kotak Mahindra Bank Limited VERSUS Kew Precision Parts Private Limited & Ors.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2176 OF 2020
Kotak Mahindra Bank Limited ….Appellant
VERSUS
Kew Precision Parts Private
Limited & Ors. ...Respondents
J U D G M E N T
INDIRA BANERJEE, J.
This appeal filed by the Appellant Financial Creditor, Kotak
Mahindra Bank Limited under Section 62 of the Insolvency and
Bankruptcy Code, 2016, hereinafter referred to as the ‘IBC’, is
against the judgment and order dated 8th January, 2020 of the
National Company Law Appellate Tribunal, New Delhi (NCLAT)
allowing Company Appeal (AT) Insolvency No. 1349 of 2019 filed
by the Respondent-Corporate Debtor, against an order dated 6th
September, 2019 passed by the Adjudicating Authority/National
Company Law Tribunal (NCLT) admitting the application being
Company Petition No.(IB) 672/ND/2019 filed by the Appellant
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Financial Creditor under Section 7 of the IBC for initiation of the
Corporate Insolvency Resolution Process (CIRP) against the
Corporator Debtor.
2. The Corporate Debtor carries on business of manufacture of
tempo and tractor components. In or about 2012-2013, the
Corporate Debtor decided to expand its business and operations
and entered into negotiations with bankers for finance for the
proposed expansion.
3. According to the Corporate Debtor, some-time in JulyAugust 2012, some employees of the Appellant Financial Creditor
approached the Corporate Debtor, offering financial assistance at
lesser rate of interest than the then existing bankers of the
Corporate Debtor, and better facilities and business support.
4. The Appellant Financial Creditor has, since November 2012
sanctioned loan facilities to the Corporate Debtor from time to time. At
the meeting of the Board of Directors of the Corporate Debtor held on
29th November 2012 and on 15th March 2013, resolutions were
adopted, inter alia, authorizing Mr. Munish Kumar Bhunsali to execute
loan and security documents on behalf of the Corporate Debtor.
5. On or about 29th November, 2012, necessary documents
with regard to the loans/credit facilities were executed by and
between the Appellant Financial Creditor and the Corporate
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Debtor. Between 23rd November, 2012 and 31st December, 2013,
loan amounts were disbursed.
6. The following loan and security documents were executed
between the Appellant Financial Creditor and the Corporate Debtor on
29th November 2012:-
(i) “Master Fund Based Facility Agreement
(ii) Deed of Hypothecation
(iii) Deed of guarantee by Muhish Kumar Bhunsali
(iv) Demand Promissory Note
(v) Take Delivery Letter for the Demand Promissory Note.
(vi) Supplementary cum Modification Agreement
(vii) End Use Undertaking”
7. On 27th May 2013, further loan and security documents were
executed between the Appellant Financial Creditor and the Corporate
Debtor, namely:-
(i) “Memorandum of deposit of title deeds
(ii) End Use Undertaking
(iii) Undertaking (Mortgage) by Mr. Munish Kumar Bhunsali
(iv) Power of Attorney (Mortgage) by Kew Precision Parts Pvt. Ltd.
(v) Declaration (Mortagage) by Mr. Munish Kumar Bhunsali”
8. By a Memorandum of Deposit dated 13th December 2013
executed by the Corporate Debtor through Mr. Munish Kumar Bhunsali,
the Corporate Debtor mortgaged its assets in favour of the Appellant
Financial Creditor.
9. By a letter of sanction dated 7th February 2014, the
Appellant Financial Creditor sanctioned credit/loan facilities
aggregating Rupees Rs.2036.00 Lakhs to the Corporate Debtor as
per the particulars given below:-
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“i. Cash credit : Rs.1000.00 lakhs
ii. WCDL (Sub Limit of CC : Rs.680.00 Lakhs
iii. Invoice Finance discounting : Rs.680.00 Lakhs
(submit of CC)
iv. Term Loan – I : Rs.240 Lakhs
v. Term Loan – II : Rs.334.00 Lakhs
vi. Term Loan – III : Rs.426.00 Lakhs
iv. Conditional WCDL : Rs.200.00 Lakhs
Total Exposure : Rs. 2036 Lakhs”
10. According to the Appellant Financial Creditor, the Corporate
Debtor defaulted in making repayment of its dues to the Financial
Creditor. The Appellant Financial Creditor, therefore, declared the
Account of the Corporate Debtor as “non-performing asset” (NPA)
on 30th September 2015. On 9th October, 2015, the loan was
recalled by the Appellant Financial Creditor.
11. On 19th November 2017, the Appellant Financial Creditor
issued statutory notice under Section 13(2) of the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act 2002, hereinafter referred to as the
SARFAESI Act.
12. On 12th December 2018, the Corporate Debtor admitted its
liability to the Appellant Financial Creditor and offered a one time
settlement for a sum of Rs.15,00,00,000/- (Rupees fifteen crores
only) to be paid within 31st December, 2018. On 19th December
2018, the Corporate Debtor again admitted its liability to the
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Appellant Financial Creditor and offered a one time settlement for
a sum of Rs.20,00,00,000/- (Rupees twenty crores only) to be
paid within 31st December, 2018. On 20th December, 2018, the
Corporate Debtor revised its offer for one time settlement. The
Corporate Debtor offered to settle the outstanding dues at a
lumpsum amount of Rs.24,55,00,000/- (Rupees twentyfour crores
and fifty five lakhs only). The offer was accepted by the
Appellant Financial Creditor.
13. On the same day, i.e., 20th December, 2018, terms of
settlement were signed and executed by the Corporate Debtor
and the Appellant Financial Creditor in terms whereof a sum of
Rs.24,55,00,000/- (Rupees twenty four crores and fifty five lacs
only) was to be paid on or before 31st December, 2018.
14. The Corporate Debtor alleges that there were deficiencies in
the banking services rendered by the Appellant Financier. Be that
as it may, the Corporate Debtor availed credit facilities from the
Appellant Financial Creditor, defaulted in repayment thereof and
acknowledged liability to the Appellant Financial Creditor by
making offers of one time settlement. When an application is
filed by a Financial Creditor under Section 7 of the IBC for
initiation of CIRP, all that the Adjudicating Authority is required to
see is, whether there is a financial debt owed by the Corporate
Debtor to the Financial Creditor and whether the amount of the
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debt exceeded Rs.1,00,000/- (Rupees one lac only) on the date of
filing of the company petition, the said amount being the
threshold limit for initiation of CIRP at the material time. The
Adjudicating Authority also has to examine if the application is
barred by limitation.
15. Pre-existing disputes, if any, between the Corporate Debtor
and the Financial Creditor are of no consequence to an
application of a Financial Creditor, under Section 7 of the IBC for
initiation of CIRP, unlike an application of an Operational Creditor
for initiation of CIRP under Section 9 of the IBC which may have
to be dismissed if there is a pre-existing dispute.
16. The proceedings initiated by the Appellant Financial Creditor
under the SARFAESI Act are not material to the issue in this
appeal, of whether the application of the Appellant Financial
Creditor before the NCLT was barred by limitation. Suffice it to
mention that in computing the period of limitation for initiation of
CIRP proceedings, the time spent in pursuing remedy under the
SARFAESI Act or any other recovery law cannot be excluded. It is
also well settled that initiation of proceedings under SARFEASI or
any other recovery law does not affect the right of a Financial
Creditor to initiate CIRP unless its debt is repaid.
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17. The Corporate Debtor defaulted in payment of
Rs.24,55,00,000/- to the appellant Financial Creditor as agreed.
In these circumstances, the appellant Financial Creditor filed the
said application being Company Petition No. (IB) 672/MD/2019 in
the NCLT.
18. The said application was admitted by an order dated 6th
September, 2019 of the Adjudicating Authority (NCLT). The
Adjudicating Authority found that the account of the Corporate
Debtor with the Appellant Financial Creditor had been declared
NPA on 30th September 2015. The Appellant Financial Creditor
was, however, relying on the proposal for one time settlement
given by the Corporate Debtor on 12th December, 2018 to
contend that the existence of financial debt had been admitted
by the Corporate Debtor.
19. From the order dated 6th September, 2019 of the
Adjudicating Authority, it appears that the Financial Creditor had
been relying on Article 62 of the Limitation Act, 1963, under
which suits relating to immoveable property to enforce payment
of money secured by a mortgage, or otherwise charged upon
immoveable property, is 12 years from the time when the money
sued for, becomes due.
20. The Adjudicating Authority found :-
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“Given the facts and circumstances that the Corporate
Debtor vide its letter dated 12.12.2018 approached
the Financial Creditor for one time settlement of an
amount of Rs.15 Crore, thereby admitting its default,
there is a finding that there is a continuous cause of
action.
As per the averments of the petition no payment has
been made by the Corporate Debtor after the default
occurred in June, 2015 and as on dated 27.11.2018,
an amount of Rs.46,63,35,337.31 is due and
outstanding. The present petition being filed in
January 2019 is within limitation, being within three
years from the date of the cause of action. Further
even though an attempt was made on the part of the
Corporate debtor to project certain inconsistencies in
relation to claim amounts, however it is seen that the
amount in default in excess of Rs.1,00,000/- being the
minimum threshold limit fixed under IBC, 2016.”
21. The Adjudicating Authority admitted the petition and
imposed a moratorium in terms of Section 14 of the IBC and also
confirmed the appointment of Mr. Ashwani Kumar Gupta, as the
Interim Resolution Professional (IRP).
22. The suspended Directors of the Corporate Debtor filed the
appeal being Company Appeal (AT) Insolvency No. 1349 of 2019
in the NCLAT contending that the petition filed by the Appellant
Financial Creditor under Section 7 of the IBC was patently barred
by limitation.
23. The NCLAT held :-
“33. The 1
st
 Respondent or Bank’s plea is that there was
continuous and recurring cause of action from both sides
i.e. the borrower and the ‘Corporate Debtor’ and the
Bank also, that if any decree is passed by any civil court
is pending or in existence of execution, it would amount
to a ‘continuous cause of action’. In fact the 1
st
8
Respondent / Bank projects the plea that the ‘continuous
cause of action’ means the ‘cause of action’ which arise
from repetition of acts or omission of the same kind is
that for which the action was brought.
34. A perusal of the application in form I part II filed by
the 1st Respondent / Bank to initiate ‘Corporate
Insolvency Resolution Process’ under ‘I&B’ shows that
the amount claimed to be default as on 17.11.2015 was
Rs. 18,65,05,035.86 and that the default took place in
June, 2015. However, as on 27.11.2018 the outstanding
balance was mentioned as Rs. 46,63,35,337.31.
xxx xxx xxx
38. It must be borne in mind and Article 62 of the
Limitation Act, 1963 relates to enforcing the payment of
money procured by mortgaged or otherwise charged
upon the immoveable property. A suit to enforce a
mortgage is governed by Article 62 and has to be filed
within 12 years from the date when the money became
due unless the limitation period prescribed was
extended under any other provision of the Limitation Act.
Article 137 of the Limitation Act constitutes the residuary
article as regards the application. To put it succinctly,
Article 113 pertains to the ‘Suits’, the Article 137 relates
to ‘Applications’. The language of Article 137 clearly
postulates that the applicability of the said article will be
restricted to the applications not mentioned in the 3rd
division of the schedule to the Limitation Act, 1963.
xxx xxx xxx
41. In so far as Section 18 of the Limitation Act 1963
pertaining to the effect of acknowledgement in writing
under Limitation Act is concerned, it is to be taken note
of that an acknowledgement of liability must be in
writing and also to be signed by a party against whom
the property or right is claimed and that too, the same
must be within the Limitation period. It cannot be
gainsaid that an acknowledgement given after the expiry
of the usual period is not sufficient to keep the ‘debt’
alive. If a claim is barred, the fact that there was an
acknowledgement of liability will not resuscitate a barred
claim because of the reason that in any Law, there can
only be an acknowledgement of an existing / subsisting
liability.
42. In law, the onus is always on the Creditor to establish
that an acknowledgement was made within time.
Further, the acknowledgement does not create any new
right and it only extends the limitation period as per
decision P.Sreedevi Vs. P.Appu AIR 1991 Ker page – 76.
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43. It may not be out of place for this Tribunal to make
pertinent mention that when a party claiming benefit of
Section 14 of the Limitation Act, 1963 failed to secure
relief in earlier proceeding not because of any defect in
jurisdiction or some other cause of like nature, he cannot
derive the benefit u/s 14 of the Limitation Act as per
decision Z.Khan Vs. Board of Revenue, 1984 ALL LJ.
However, in the decision ‘Ajob Enterprises’ V. Jayant
Vegoiles & Chemicals AIR 1991, Bombay at page 35 it is
held that the time taken to prosecute suit against the
Company for recovery of debt, such proceedings cannot
be excluded in calculating the limitation period because
the matter in issue in suit and winding up proceedings is
not the same.
xxx xxx xxx
45. In the present case, the 1st Respondent /
Bank/Financial Creditor was given the liberty in SA
250/2016 (filed by the ‘Corporate Debtor’ by the Debt
Recovery Tribunal, Lucknow and another) Appellants on
10/04/2017 to recover the dues from the Appellants by
proceeding afresh under the provisions of SARFAESI Act,
2002 and the Rules made thereunder. Later the 1st
Respondent/Bank filed OA 576 before the Debt Recovery
Tribunal, Delhi against the ‘Corporate Debtor’ and others
and obtained decree on 2.05.2019. Therefore, it is not
open to the 1st Respondent/Bank to turn around and
seek exclusion of time as per Section 14 of the
Limitation Act. Undoubtedly, the 1st Respondent / Bank
had invoked the right Forum viz. Debt Recovery Tribunal,
Delhi for recovery of its dues and ‘Corporate Debtor’ etc.
xxx xxx xxx
47. In regard to the plea of the 1st Respondent/Bank that
on 26.03.2016, a complaint was made by the ‘Corporate
Debtor’ against the Bank for not rejecting their debts
and in the said letter there was an admission of debt
liability, it is to be pointed out that the same cannot
come to the rescue of the Bank because of the fact that
the debt of non-payment of dues by the ‘Corporate
Debtor’ took place in June, 2015 and Section 7
application was filed by the 1st Respondent / Bank
before the Adjudicating Authority on 30.01.2019 which is
beyond the period of limitation as enshrined in Article
137 of the Limitation Act. Also that in the decision
Kalpana Trading Co. Vs. Executive Officer Town
Panchayat AIR 1999 Mad37, it is observed that just
sending a letter to the higher authorities to settle the
issues does not amount to an ‘Acknowledgement’.”
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24. The operative part of the judgment and order is set out
hereinbelow :
“54. In the result, the ‘Corporate Debtor’ ‘M/s Kew
Precision Parts Pvt. Ltd.’ is released from the rigour of
the ‘Corporate Insolvency Resolution Process’. All actions
taken by the ‘Interim Resolution Professional’ /
‘Resolution Professional’ and ‘Committee of Creditors’, if
any, are declared illegal and set aside. The ‘Resolution
Professional’ is directed to hand over the records and
assets of the ‘Corporate Debtor’ to the
promoter/Directors of the ‘Corporate Debtor’ forthwith.
55. The matter is remitted to Adjudicating Authority
(‘National Company Law Tribunal’) New Delhi Bench to
determine the ‘Fee and Cost’ of ‘Corporate Insolvency
Resolution Professional’ as incurred by him, which is to
be borne and paid by 1st Respondent / Bank(‘Financial
Creditor’). Before parting with the case, it is made
crystal clear that the dismissal of the application filed by
the 1st Respondent / Bank before the Adjudicating
Authority will not preclude it from pursuing / seeking
appropriate remedy before the Competent Forum for
redressal of its grievances, if it so desires/advised.
The Appeal is allowed with aforestated observations and
directions. No Costs. Connected IA No. 3842/19 and IA
No. 3843/19 are closed. However, the Appellants are
directed to file certified copy of the impugned order of
the Adjudicating Authority (‘NCLT’), New Delhi within one
week from today.”
25. In this appeal, it is contended that cheques given by the
Corporate Debtor to the Financial Creditor bounced up to
February 2017. Paragraph 2(vii) of the petition of appeal filed by
the Corporate Debtor is extracted hereinbelow :-
“vii) That cheques given towards repayment of loan
were presented for encashment and the said cheque
bounced due to reason “funds insufficient” up to
February, 2017 against which complaint u/s. 138 of the
Negotiable Instruments Act, is pending before Court.”
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26. If, as contended by the Appellant Financial Creditor, any
cheque had been issued in February, 2017, the application of the
Appellant Financial Creditor under Section 7 for initiation of CIRP
filed on 2nd January, 2019 would clearly be within limitation.
However, there are no details of the payment disclosed by the
Appellant Financial Creditor either in the proceedings before the
NCLT or NCLAT or before this court. However, if no payment had
been made, after the account of the Corporate Debtor had been
declared NPA in September, 2015, acknowledgment made on 12th
December, 2018 or later, after expiry of over three years from
the date on which the default occurred, would not save limitation.
27. It is the case of the Appellant Financial Creditor that on 12th
December 2018 the Corporate Debtor made an offer of one time
settlement at Rs.15 Crores. This offer was not accepted. On 19th
December 2018, the Corporate Debtor revised its offer to Rs.20
Crores for one time settlement. This offer was also not accepted.
On 20th December 2018, the Corporate Debtor again revised its
offer for one time settlement. This time the Corporate Debtor
offered to settle the outstanding dues of the Financial Creditor
upon payment of Rs. 24,55,00,000/- to be paid within 31st
December 2018. This offer was accepted, and terms of
settlement were signed.
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28. Section 25 of the Indian Contract Act provides as follows :-
“25. Agreement without consideration, void, unless it is in
writing and registered or is a promise to compensate for
something done or is a promise to pay a debt barred by
limitation law.—An agreement made without consideration
is void, unless—An agreement made without consideration
is void, unless—"
(1) It is expressed in writing and registered under the
law for the time being in force for the registration of
documents, and is made on account of natural love and
affection between parties standing in a near relation to
each other; or unless
(2) It is a promise to compensate, wholly or in part, a
person who has already voluntarily done something for the
promisor, or something which the promisor was legally
compellable to do; or unless.
(3) It is a promise, made in writing and signed by the
person to be charged therewith, or by his agent generally
or specially authorized in that behalf, to pay wholly or in
part a debt of which the creditor might have enforced
payment but for the law for the limitation of suits. In any of
these cases, such an agreement is a contract.
Explanation 1.—Nothing in this section shall affect the
validity, as between the donor and donee, of any gift
actually made.
Explanation 2.—An Agreement to which the consent of the
promisor is freely given is not void merely because the
consideration is inadequate; but the inadequacy of the
consideration may be taken into account by the Court in
determining the question whether the consent of the
promisor was freely given.
Illustrations
(a) A promises, for no consideration, to give to B Rs.
1,000. This is a void agreement.
(b) A, for natural love and affection, promises to give his
son, B, Rs. 1,000. A puts his promise to B into writing
and registers it. This is a contract.
(c) A finds B’s purse and gives it to him. B promises to
give A Rs. 50. This is a contract.
(d) A supports B’s infant son. B promises to pay A’s
expenses in so doing. This is a contract.
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(e) A owes B Rs. 1,000, but the debt is barred by the
Limitation Act. A signs a written promise to pay B Rs.
500 on account of the debt. This is a contract.
(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10.
A’s consent to the agreement was freely given. The
agreement is a contract notwithstanding the
inadequacy of the consideration.
(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A
denies that his consent to the agreement was freely
given." The inadequacy of the consideration is a fact
which the Court should take into account in
considering whether or not A’s consent was freely
given.
29. From the above, it is clear that any agreement to pay a time
barred debt, would be enforceable in law, within three years from
the due date of payment, in terms of such agreement. It appears
that Section 25(3) of the Indian Contract Act was not brought to
the notice of the NCLAT. The NCLAT also did not consider the
aforesaid Section.
30. In this appeal, it is contended that the last offer of 20th
December, 2018 was followed by an agreement. Whether there
was such agreement or not would have to be considered by the
Adjudicating Authority. To invoke Section 25(3), the following
conditions must be satisfied:-
(i) It must refer to a debt, which the creditor, but for the
period of limitation, might have enforced;
(ii) There must be a distinct promise to pay such debt, fully
or in part;
(iii) The promise must be in writing, and signed by the
debtor or his duly appointed agent.
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31. Under Section 25(3), a debtor can enter into an agreement
in writing, to pay the whole or part of a debt, which the creditor
might have enforced, but for the limitation of a suit in law. A
written promise to pay the barred debt is a valid contract. Such a
promise constitutes novation and can form the basis of a suit
independent of the original debt, for it is well settled that the
debt is not extinguished, the remedy gets barred by passage of
time as held by this Court in Bombay Dyeing and
Manufacturing Company Limited vs. State of Bombay
1
.
32. Section 25(3) applies only where the debt is one which
would be enforceable against the defendants, but for the law of
limitation. Where a debt is not binding on the defendant for
other reasons, and consequentially not enforceable against him,
there is no question of applicability of Section 25(3).
33. There is a distinction between acknowledgment under
Section 18 of the Limitation Act, 1963 and a promise within the
meaning of Section 25 of the Contract Act. Both promise and
acknowledgment in writing, signed by a party or its agent
authorised in that behalf, have the effect of creating a fresh
starting of limitation. The difference is that an acknowledgment
under Section 18 of the Limitation Act has to be made within the
1 AIR 1958 SC 328
15
period of limitation and need not be accompanied by any promise
to pay. If an acknowledgment shows existence of jural
relationship, it may extend limitation even though there may be a
denial to pay. On the other hand, Section 25(3) is only attracted
when there is an express promise to pay a debt that is time
barred or any part thereof. Promise to pay can be inferred on
scrutinising the document. Only the promise should be clear and
unconditional.
34. The scheme of the IBC is to ensure that when a default takes
place, in the sense that a debt becomes due and is not paid, the
Corporate Insolvency Resolution Process begins. 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.
35. 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, post imposition of a
moratorium, which would give the Corporate Debtor some reprieve
from coercive litigation, which could drain the Corporate Debtor of its
financial resources. This is to enable the Corporate Debtor to improve
its financial health and at the same time repay the dues of its
creditors.
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36. Under Section 7(2) of the IBC, read with the Statutory 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 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.
37. 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
17
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)
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
38. 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.
39. 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
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information utility, or on the basis of other evidence furnished by the
financial creditor, within fourteen days of the receipt of the application
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
the same in writing. The application does not lapse for noncompliance 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.
40. 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.
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41. The Corporate Insolvency Resolution Process commences on the
date of admission of the application under sub-section (5) of Section 7
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.
42. The IBC is not just another statute for recovery of debts. Nor is it
a statute which merely 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.
43. In Swiss Ribbons Private Limited & Anr. v. Union of India
and Ors.
2
, authored by Nariman, J. this Court observed:-
“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
2. (2019) 4 SCC 17
20
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.”
44. 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 any such law.
45. 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).
46. 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
the Corporate Debtor from those of its promoters/persons in
management.
21
47. In construing and/or interpreting any statutory provision one
must look into the legislative intent of the statute. The intention of the
statute has to be found in the words used by the legislature itself. In
case of doubt it is always safe to look into the object and purpose of
the statute or the reason and spirit behind it. Each word, phrase or
sentence has to be construed in the light of the general purpose of the
Act itself, as observed by Mukherjea J., in Popatlal Shah v. State of
Madras
3
 and a plethora of other judgments of this Court.
48. When a question arises as to the meaning of a certain provision
in a statute, the provision has to be read in its context. The statute
has to be read as a whole. The previous state of the law, the general
scope and ambit of the statute and the mischief that it was intended to
remedy are relevant factors.
49. In Dena Bank (Now Bank of Baroda) v. C. Shivakumar
Reddy and Another
4
, this Court held:-
89. 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.”
50. Section 238A of the IBC provides as follows:-
“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
3 AIR 1953 SC 274
4 (2021) 10 SCC 330
22
Company Law Appellate Tribunal, the Debt Recovery Tribunal
or the Debt Recovery Appellate Tribunal, as the case may be.”
51. It is well settled by a plethora of judgments of this Court as
also different High Courts and, in particular, the judgment of this
Court in B.K. Educational Services (P) Ltd. v. Parag Gupta &
Associates
5
 (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528]
NCLT/NCLAT has the discretion to entertain an application/appeal after
the prescribed period of limitation. The condition precedent for
exercise of such discretion is the existence of sufficient cause for not
preferring the appeal and/or the application within the period
prescribed by limitation.
52. The condition precedent for condonation of the delay in filing an
application or appeal, is the existence of sufficient cause. Whether
the explanation furnished for the delay would constitute “sufficient
cause” or not would be dependent upon facts of each case.
53. Section 5 of the Limitation Act, 1963 does not speak of any
application. The section enables the court to admit an application or
appeal if the applicant or the appellant, as the case may be, satisfies
the court that he had sufficient cause for not making the application
and/or preferring the appeal, within the time prescribed. A
Court/Tribunal may exercise its discretion to condone delay, even in
the absence of a formal application.
5 (2019) 11 SCC 633
23
54. In Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli
Cooperative Bank Ltd.
6
, authored by one of us (Indira Banerjee, J.),
this Court held:-
“64. Similarly under Section 18 of the Limitation Act, an
acknowledgment 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
of a fresh period of limitation, from the date on which the
acknowledgment is signed. However, the acknowledgment must be
made before the period of limitation expires.
65. As observed above, Section 238-A IBC makes the provisions of the
Limitation Act, as far as may be, applicable to proceedings before NCLT
and Nclat. The IBC does not exclude the application of Sections 6 or 14
or 18 or any other provision of the Limitation Act to proceedings under
the IBC in NCLT/Nclat. All the provisions of the Limitation Act are
applicable to proceedings in NCLT/Nclat, to the extent feasible.
66. We see no reason why Section 14 or 18 of the Limitation Act, 1963
should not apply to proceeding under Section 7 or 9 IBC. Of course,
Section 18 of the Limitation Act is not attracted in this case, since the
impugned order [Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank
Ltd., 2019 SCC OnLine NCLAT 928] of Nclat does not proceed on the
basis of any acknowledgment.
***
89. 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’.
***
92. 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
6 (2021) 7 SCC 313
24
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.”
55. There is no specific period of limitation prescribed in the
Limitation Act, 1963, for an application under the IBC, before the
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.
56. 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.
7 authored 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.”
57. In B. K. Educational Services Private Limited (supra), 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
7 (2019) 10 SCC 572
25
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.”
58. 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.
59. In Dena Bank (supra), this Court relied upon the dictum of
P.B. Gajendragadkar, J. in Balakrishna Savalram Pujari
Waghmare v. Shree Dhyaneshwar Maharaj Sansthan
9
, and
held:-
“31. … 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.…”
8 (2019) 10 SCC 750
9 AIR 1959 SC 798
26
60. It is well settled proposition of law, as laid down in the
judgment of this Court in Babulal Vardharji Gurjar v. Veer
Gurjar Aluminium Industries (P) Ltd.
10
, that limitation is
essentially a mixed question of law and facts and when a party
seeks application of any particular provision for extension in
enlargement of the period of limitation, the relevant facts are
required to be pleaded and requisite evidence is required to be
adduced.
61. The judgment in Babulal Vardharji Gurjar (supra) was
rendered in the facts and circumstances of that case where there
were no pleadings at all. As held by this Court in Dena Bank
(supra), an application under Section 7 of the IBC in statutory
form which requires filling in of particulars cannot be judged by
the same standards as a plaint or other pleadings in a court of
law. Additional affidavits filed subsequent to the filing of the
application, by way of additional affidavits or applications would
have to be construed as pleadings, as also the documents
enclosed with or relied upon in the application made in the
statutory format. Furthermore, pleadings can be amended at any
time during the pendency of the proceedings.
62. As per Section 18 of Limitation Act, an acknowledgement of
present subsisting liability, made in writing in respect of any right
10 (2020) 15 SCC 1
27
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.
63. In Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad
Chamaria and Others
11
, 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 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.”
11 AIR 1961 SC 1236
28
64. It is well settled that even 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 Asset
Reconstruction Company (India) Limited v. Bishal Jaiswal and
Anr.
12
(supra) authored by Nariman, J. this Court quoted with approval
the judgments, inter alia, of Bengal Silk Mills Co. v. Ismail Golam
Hossain Arif,
13 and in Re Pandem Tea Co.
14 Ltd., the judgment of
the Delhi High Court in South Asia Industries (P) Ltd. v. General
Krishna Shamsher Jung Bahadur Rana
15
 and the judgment of
Karnataka High Court in Hegde Golay Ltd. v. State Bank of India
16
and held that an acknowledgement of liability that is made in a
balance sheet can amount to an acknowledgement of debt. In this
Case, the Appellant Financial Creditor has not relied on any books of
accounts or Balance Sheets of the Corporate Debtor.
65. 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
12 AIR 2021 SC 5249
13 AIR 1962 Cal 115
14 AIR 1974 Cal 170
15 ILR (1972) 2 Del 712
16 ILR 1987 Kar 2673
29
other than a person entitled to the property or right. “Signed” is to be
construed to mean signed personally or by an authorised agent.
66. An acknowledgement made in writing within the period of
limitation extends the period of limitation. In this case, there was no
acknowledgement of debt within three years from the period on which
the account of the Corporate Debtor was declared NPA or within three
years from the date on which the loan facilities were recalled.
67. The Adjudicating Authority proceeded on the basis that the offer
of settlement made by the Corporate Debtor on 12th December 2018
and rejection thereof by the appellate showed the Corporate Debtor
had conceded that there was a continuous cause of action. It is,
however, the case of the Appellant Financial Creditor in this appeal
that terms of settlement were executed on 20th December 2018
whereby the Corporate Debtor agreed to repay the amount of
Rs.24,55,00,000/- within 31st December 2018. The Adjudicating
Authority, however, did not refer to any settlement. Nor did it address
the question of whether any agreement for repayment of debt came
into existence in December 2018 and, if so, whether the agreement
would attract Section 25(3) of the Contract Act.
68. The Appellate Tribunal (NCLAT) found that there was no
acknowledgement of debt within the period of limitation of three years.
Holding the application of the Appellant Financial Creditor, under
Section 7 of the IBC, to be barred by limitation, the Appellate Authority
(NCLAT) allowed the appeal.
30
69. The Appellate Tribunal (NCLAT) also did not notice the terms of
settlement stated to have been executed on 20th December 2018,
possibly because the attention of the NCLAT was not drawn to any
terms of the settlement. The Appellate Tribunal (NCLAT) did not,
therefore, have the occasion to consider whether Section 25(3) of the
Contract Act would be attracted. The Appellate Tribunal (NCLAT), as
observed above, proceeded on the basis that the CIRP proceedings
were barred by limitation in the absence of any acknowledgement of
debt within the period of limitation, and closed the CIRP proceedings in
the NCLT, without considering the question of applicability of Section 5
of the Limitation Act for condonation of delay, to proceedings under
Section 7 of the IBC.
70. This Court is of the view that the Appellate Tribunal (NCLAT erred
in closing the CIRP proceedings without giving the Appellant Financial
Creditor the opportunity to explain if there was sufficient cause for the
delay in approaching the NCLT. An appeal being the continuation of
original proceedings, the provision of Section 7(5)(b) of the IBC, of
notifying the Financial Creditor before rejection of a claim, would be
attracted. If notified of the proposal to close the proceedings, the
Appellant Financial Creditor might have got the opportunity to rectify
the defects in its application under Section 7 by filing additional
pleadings and/or documents. As held in Dena Bank (supra),
documents can be filed at any time until the application for CIRP is
finally dismissed.
31
71. The appeal is, therefore, allowed. The impugned judgment and
order of the NCLAT is set aside to the extent that the CIRP proceedings
have been closed. The Adjudicating Authority shall consider the
application for CIRP afresh, in accordance with law, in the light of the
observations made above, after giving the Appellant and the
Respondent opportunity to file additional affidavits disclosing
documents/additional affidavit in response.
….……………………………………. J.
[INDIRA BANERJEE]
 ………..……………………………… J.
 [J.K. MAHESHWARI]
NEW DELHI;
AUGUST 05, 2021
32

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