B. Prashanth Hegdev.State Bank of India & Anr.

1. This appeal, under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC), impugns judgment and order of the National Company Law Appellate Tribunal, Principal Bench at New Delhi (NCLAT), dated 17.12.2021, passed in Company Appeal (AT) (Ins) No. 68 of 2019 and I.A. No. of 2021.

FACTS

2. A brief narration of facts in a chronological order would be apposite. The first respondent (State Bank of India), claiming itself to be the Financial Creditor of M/s. Metal Closure Pvt. Ltd. (i.e., the Corporate Debtor), filed an application under Section 7 of IBC on behalf of self and on behalf of a consortium of banks comprising SBI, Punjab National Bank (PNB), Corporation Bank and UCO Bank against CD for initiating Corporate Insolvency Resolution Process (CIRP), inter alia, alleging that CD is a defaulter of dues, exceeding Rs. 280 crores, payable against various credit facilities extended from time to time by members of the consortium.

3. CD contested the application, inter alia, on the ground that the same was filed beyond 3 years from the date when the right to apply had accrued and therefore, the application under Section 7 was liable to be dismissed on the ground of limitation.

4. On 14.12.2018, the National Company Law Tribunal, Bangalore Bench admitted the CIRP petition and declared a moratorium under Section 14 of IBC.

5. Aggrieved by the order of NCLT dated 14.12.2018, the suspended Managing Director of CD filed an appeal (i.e., Company Appeal (AT) (Ins) No. 68 of 2019 under Section 61 of IBC before NCLAT.

6. In the meanwhile, NCLT recommended liquidation of the CD which was kept in abeyance pending disposal of the appeal by NCLAT.

7. On 26.09.2019, NCLAT dismissed the aforesaid appeal, inter alia, holding: (a) that credit facilities, extended from time to time by various partners of the consortium were secured by mortgage of immovable properties of CD therefore, the limitation period would be governed by Article 62 of the Schedule to the Limitation Act, 1963 (1963 Act), which prescribes limitation of 12 years; and (b) that though the limitation to file an application under Section 7 of IBC is three years, as per Article 137 of the Schedule to the 1963 Act, the right to apply accrued on 01.12.2016 i.e., when IBC came into force therefore, the application is not barred by limitation. Consequently, the appeal, which was pressed on the sole ground of limitation, was dismissed.

8. On dismissal of the appeal by NCLAT, NCLT, by a separate order, directed liquidation of CD.

9. Aggrieved by the order of NCLAT dated 26.09.2019, the suspended Managing Director of CD filed an appeal under Section 62 of IBC before this Court. This Court, vide order dated 21.10.2019, allowed the appeal, set aside the order of NCLAT and restored the appeal on the file of NCLAT for being decided afresh, having regard to the decisions of this Court on the issue of limitation.

10. Pursuant to the order of remand, NCLAT allowed the appeal, vide order dated 14.10.2020, inter alia, holding:

(i) The default had occurred on or before 31.01.2010 i.e., the date when the account was declared Non-Performing Asset (NPA).

(ii) Limitation period, prescribed by Article 137 of the Schedule to the 1963 Act, is 3 years from the date of default, which expired on 30.01.2013.

(iii) Application under Section 7 of IBC was filed on 25.04.2018 and, therefore, barred by limitation.

11. Aggrieved by the aforesaid order, SBI (i.e., the first respondent) filed Civil Appeal No. 323 of 2021 before this Court. This appeal was allowed, vide order dated 15.04.2021, thereby giving an opportunity to SBI to amend its pleading (i.e., the application under Section 7 of IBC), on payment of costs, for introducing facts to explain that the application under Section 7 was within the period of limitation. The relevant portion of the order of this Court dated 15.04.2021 is extracted below:

12. Pursuant to the above order, NCLAT allowed the amendment vide order dated 15.07.2021. As a result, the Section 7 application was comprehensively amended, thereby introducing detailed facts qua the debt to demonstrate that the application was within limitation. Thereafter, NCLAT, vide impugned order dated 17.12.2021, dismissed the appeal of the suspended Managing Director and held the Section 7 application to be within limitation.

13. We have heard learned counsel for the parties at length and have perused the record. Written submissions were also provided for our convenience.

FINDINGS OF NCLAT

14. Before noticing the submissions made before us, it is necessary to understand the context in which those submissions were made. Therefore, in our view, it would be useful to notice the findings returned by NCLAT on the issues arising before it. The relevant paragraphs of the impugned judgment of NCLAT are reproduced below:

15. In a nutshell, the findings/ conclusions of NCLAT can be summarized as under:

(a) There is no dispute that CD is a defaulter. The dispute is whether the Section 7 application is within the period of limitation as specified in Article 137 of the Schedule to the 1963 Act, or not.

(b) Documents on record indicate that CD was in negotiations with the creditor banks for restructuring of its debt(s) and, ultimately, signed Working Capital Consortium Agreement(s) with the Banks, thereby acknowledging its dues.

(c) As per document(s) available on record, the NPA declaration date(s) are 28.5.2014 for SBI, 30.6.2014 for PNB, 10.10.2014 for Corporation Bank and 31.12.2014 for UCO Bank.

(d) On 30.09.2015, CD in its balance-sheet(s) of 2013-2014 and 2014-2015 acknowledged the debt(s). Such acknowledgement would extend limitation up to 29.09.2018, whereas the Section 7 application was filed on 25.4.2018 and therefore, the same is within limitation.

(e) The NPA date 31.01.2010 mentioned by SBI is for classification of debt because the restructuring exercise failed; therefore, it cannot be taken as the date of default for purposes of computing the limitation period.

(f) Mere filing of counterclaim would not wipe out the debt.

(g) Lodging of FIR is inconsequential for determining the issue qua admission of the Section 7 application.

SUBMISSIONS ON BEHALF OF THE APPELLANT

16. On behalf of the appellant, it was submitted that the application under Section 7 ought to have been dismissed on the following grounds:

(i) The original as well as the amended application did not contain particulars of the default. They only disclose as to when the accounts were declared NPA. Such application is against Form-I prescribed for filing an application under Section 7.

(ii) Limitation starts from the date of default. In absence of disclosure of the date of default, extension of the limitation period by acknowledgement (i.e., under Section 18 of the 1963 Act) did not arise.

(iii) The amendment made pursuant to the order of remand was way beyond what was permitted by the order of remand dated 15.04.2021.

(iv) The balance-sheet(s) relied upon by NCLAT were neither authenticated nor approved in the meeting of shareholders and were not filed with the Registrar of Companies (ROC). Besides, acknowledgement, if any, in the balance-sheet(s) was qualified and, as such, it did not extend the limitation.

(v) The Section 7 application is vitiated by fraud, malice and suppression of material facts and, therefore, hit by Sections 65 and 75 of IBC.

SUBMISSIONS ON BEHALF OF RESPONDENT

24. Per contra, on behalf of the first respondent, it was submitted:

(i) The application under Section 7 of IBC was well within limitation as CD had acknowledged its dues from time to time in writing and therefore, a fresh period of limitation started from each such acknowledgement.

(ii) Acknowledgement in the balance-sheets, filed by CD, of its debts due to FCs would extend the limitation period under Section 18 of 1963 Act, as held by this Court in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal.

ISSUES

26. We have considered the rival submissions. In our view, the main issues which arise for our consideration in this appeal are:

(i) Whether the application under Section 7 of IBC was liable to be dismissed for lack of material particulars regarding the debt and date of default, as required by Form I prescribed by the 2016 Rules?

(ii) Whether the application under Section 7 of IBC was within limitation?

(iii) Whether the application under Section 7 of IBC was for an oblique purpose and, therefore, ought not to have been admitted, more so, when proceedings inter se parties for recovery of debt were pending before various judicial fora?

ANALYSIS & FINDINGS

ISSUE (I)
42. In the present case, there is no dispute about the existence of financial debt and default. The dispute is as regards the date of default. Date of default assumes importance because it is the factor which determines whether the application under sub-section (1) of Section 7 is within limitation or not. The argument on behalf of the appellant that the application does not specify the exact date of default but only the date on which the debt was declared NPA and, therefore, was liable to be rejected, in our view, is misconceived as the application was comprehensively amended pursuant to the order of this Court in the earlier round of litigation.

ISSUE (II)
46. On the issue as to whether the Section 7 application was within limitation, the application was presented on 25.04.2018 i.e., within three years from 30.09.2015 i.e., the date on which CD’s balance sheets for the year ending 31.03.2014 and 31.03.2015 were signed. An acknowledgment of debt in the balance sheet of the CD is considered sufficient to extend the period of limitation if other conditions of a valid acknowledgment are fulfilled.
49. Thus, we find no error in the view taken by NCLAT that such acknowledgement had the effect of extending the period of limitation by three years starting from 30.09.2015. In consequence, the Section 7 application filed on 25.04.2018 was within the period of limitation as prescribed by Article 137.

ISSUE (III)
54. We do not find any substance in the plea that the application was filed for an oblique purpose as initiation of proceedings by a financial creditor under other statutes does not bar filing of an application under the provisions of IBC. Moreover, mere pendency of a counterclaim for damages against a financial creditor will not operate as a bar on the right of the financial creditor to invoke the provisions of IBC.

CONCLUSION

56. In conclusion, we find no merit in the appeal. The same is dismissed. Interim order, if any, is discharged.

57. Pending applications, if any, shall stand disposed of.