DATED ON:
4th August 2021
BENCH:
Justice Indira Banerjee
Justice V .Ramsubramanian
PARTIES:
Dena Bank (now Bank of Baroda) ................Appellant
C. Shivkumar Reddy and Anr.....................Respondent
SUBJECT
An application made under Section 7 of the Insolvency and Bankruptcy Code (IBC) would not be barred by limitation, on the ground that it was filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as Non-Performing Asset (NPA).
OVERVIEW
- The present appeal has been filed by the appellant against the judgment passed by the National Company Law Appellate Tribunal (NCLAT) on 18th December 2019. The NCLAT held that the petition of the Appellant Bank under Section 7 of the IBC, was barred by limitation.
- The Appellant Bank had sanctioned the Term Loan and Letter of Credit Cum Buyers’ Credit in favour of the Corporate Debtor (Respondent), with an upper limit of Rs.45.00 Crores on dated 23rd December, 2011.
- The said Term Loan was to be repaid in 24 quarterly instalments of Rs.187.50 lakhs, which were to commence two years after the date of disbursement, and the entire Term Loan was to be repaid in eight years,
- The Corporate Debtor defaulted in repayment of its dues to the Appellant Bank. The Loan account of the Corporate was therefore declared as Non Performing Asset (NPA).
- The Appellant Bank issued a legal notice to the respondent to make the due payment of Rs.52.12 crores.The Corporate Debtor did not make the payment.
- The Appellant Bank filed an application under the Debt Recovery Act, before the Debt Recovery Tribunal (in short, DRT) Bangalore for recovery of its outstanding dues.
- While proceedings were pending in the DRT, the Corporate Debtor gave a proposal for one time settlement of the Term Loan Account, upon payment of Rs. 5.50 crores. The proposal was not accepted by the Appellant Bank.
- The Debt Recovery Tribunal, Bengaluru had passed a final judgment and order/decree against the Corporate Debtor and issued a Recovery Certificate for the outstanding dues. The Corporate Debtor once again gave the Appellant Bank a proposal for one time settlement to mutually settle the loan amount.
- The Corporate Debtor had acknowledged its liability in respect of the loan taken by the bank in its Annual Reports for the financial years 2016- 2017 and 2017-2018.
- The Appellant Bank had filed an application before the Adjudicating Authority (NCLT) under the Rule of NCLT, 2016 seeking permission for the production of additional documents, including the final judgment and recovery certificate of the DRT.
- Meanwhile,the Corporate Debtor had filed a preliminary objection under Section 7 of the IBC, contended that the said petition was barred by limitation.
- The NCLT had allowed the application of the appellant and directed to file an amended petition for enclosing the documents as per the application.
- After the observation of the documents, the NCLAT had dismissed the petition filed by the Appellant Bank , holding that the said application was barred by limitation.
RELEVANT PROVISIONS
Insolvency Bankruptcy Code
- Section 7 :
- A financial creditor either by itself or jointly with other financial creditor 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.
- Section 238A: Limitation.
The provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceeding or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the debt Recovery Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.
ISSUES
- Whether a petition under Section 7 of the IBC would be barred by limitation?
- Whether a final judgment and decree of the DRT in favour of the Appellant bank would give rise to a fresh cause of action ?
- Whether there is any bar in law to the amendment of pleadings, in a petition under Section 7 of the IBC ?
ANALYSIS OF THE JUDGEMENT
- The Supreme Court observed that there is no bar in permitting amendment of pleadings or to the filing of additional documents in an application under Section 7 of the IBC. Depending on the facts and circumstances of the case, when there is inordinate delay , the adjudicating authority may, at its discretion, decline the request.
- Firstly, in the opinion of the Court, 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.
- The Court also observed that if there was an acknowledgement of the debt before expiry of the period of limitation of three years, in the present case the Corporate Debtor acknowledged in Annual Reports, in such cases, the period of limitation would get extended by a further period of three years.
- In addition to that, that a judgement/decree for money in favour of the financial creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a certificate of Recovery in favour of the financial creditor would give rise to a fresh cause of action, to initiate proceedings under the said Section of the IBC for initiation of the Corporate Insolvency Resolution Process, if the dues remain unpaid.
- Lastly, there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents. In the absence of any express provision which either prohibits or sets a time limit for filing of additionaldocuments, it cannot be said that the Adjudicating Authority has committed any illegality or erred in permitting the Appellant Bank to file additional documents.
- Depending on the facts and circumstances of this case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request and proceed for the final order. The Court had decided such documents supported the pleadings before the Adjudicating Authority would not call for the interference in this present appeal.
CONCLUSION
The Court has inferred while it is true that default in payment of a debt would trigger the right to initiate the Corporate Resolution Process. A petition under Section 7 the IBC is required to be filed within the period of limitation prescribed by law, which in this case would be three years from the date of default. By virtue of Section 238A of the 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. The Court ordered that the impugned judgement and order passed by the NCLT was unsustainable in law and facts. Therefore, the order of the NCLAT was set aside and the appeal was allowed.
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