Arambagh Hatcheries Limited vs Phoenix Arc Private Limited

Prasun Kumar Roy Suspended Director of Arambagh Hatcheries Ltd. (In CIRP) ...Appellant

Versus

Phoenix ARC Pvt. Ltd. & Anr. ...Respondents

Present: For Appellant: Mr. Abhijeet Sinha, Mr. Aditya Shukla, Mr. Ajay Gaggar and Mr. Robin Singh Sirohi, Advocates.

For Respondents: Mr. Amit Singh Chadha, Sr. Advocate with Mr. Suresh Dutt Dobhal and Mr. Nirmal Goenka, Advocates.

ORDER

05.09.2022: Heard learned counsel for the Appellant as well as learned

counsel for the Respondent. This Appeal has been filed against order dated

13.05.2022 passed by the Adjudicating Authority (National Company Law

Tribunal), Kolkata Bench, Kolkata by which order C.P. (IB) No. 1536(KB) of

2019 filed by the Respondent, the Financial Creditor, has been admitted. The

Appellant, Suspended Director of the Corporate Debtor, who is aggrieved by

the order has come up in this Appeal.

2. Financial assistance was obtained by the Corporate Debtor from

Central Bank of India which was subsequently assigned to the Respondent

No.1. The account of the Corporate Debtor was declared as NPA on

07.05.2011 and recall notice was issued on 18.09.2013 recalling to pay

Cont'd.../ 2

amount of Rs.22,12,64,505.94/- as on 30.09.2013. There were proceedings

initiated before the Debts Recovery Tribunal. Subsequently, application

under Section 7 was filed by the Financial Creditor on 14.08.2019. The notice

was issued to the Corporate Debtor by the Adjudicating Authority. The

Financial Creditor had filed Supplementary Affidavit dated 23.02.2022. The

Adjudicating Authority after considering the submissions of both the parties

by the impugned order has admitted the application.

3. The Adjudicating Authority had referred to and relied on Balance Sheet

for the year 2011-2012 upto Balance Sheet for 2018-2019 and come to

conclusion that the period of limitation stood extended, hence, application

was not barred by time as contended by the Corporate Debtor.

4. Learned counsel for the Appellant, Shri Abhijeet Sinha, challenging the

order contends that although the Adjudicating Authority has referred to the

Balance Sheets from 2011-2012 upto 2018-2019 but there is no

consideration of entries in the Balance Sheet to come to any conclusion that

there is any clear acknowledgement which may give the benefit of Section 18

of the Limitation Act. He further submits that date of default was

subsequently got amended by the Financial Creditor and in view of the date

of default as amended in the application reliance upon the entries in the

Balance Sheet is irrelevant. He has referred to judgment of Hon'ble Supreme

Court to contend that there has to be adjudication by the Adjudicating

Authority with regard to each entry, where it allow benefit of acknowledgment

under Section 18.

Company Appeal (AT) (Insolvency) No. 912 of 2022 3

5. Learned counsel for the Respondent refuting the submissions of learned

counsel for the Appellant contends that the Balance Sheets from 2011-2012

to 2018-2019 continuously contain the acknowledgment of the debt, hence,

no error has been committed by the Adjudicating Authority in giving benefit

of Section 18 and holding that application is not barred by time.

6. We have considered submissions of learned counsel for the parties and

perused the record.

7. The Adjudicating Authority in Para 15 of the order has made following

observations:

"15. In light of the above facts and circumstances there has been continuous acknowledgement in the Balance Sheet of the Corporate Debtor for the Financial Years 2011-2012, 2012-2013, 2013-2014, 2014-2015, 2015-2016, 2016-2017, 2017-2018 and 2018-2019, which would extend the limitation period from time to time."

8. The grievance which has been raised by learned counsel for the

Appellant is that there is no consideration with regard to entries of the

Balance Sheet. For the aforesaid purpose learned counsel for the Appellant

has filed I.A No. 3142 of 2022 placing on record the Balance Sheets from the

year 2012-13 to 2017-18. It is true that the Adjudicating Authority has not

adjudicated on the entries in the Balance Sheet, hence, we need to examine

the same to find out whether the entries contains any acknowledgement.

Balance Sheet for the year 2013-14, at page 34 of the Additional Affidavit,

Company Appeal (AT) (Insolvency) No. 912 of 2022 4

under the heading 'Long Term Borrowings' contains the borrowings from

different banks including Central Bank of India. At page 35 is the 'Short

Terms Borrowings', where Central Bank of India also finds mention.

Both the entries refer to date of declaration of NPA of the account. It is

useful to extract relevant part of the Balance Sheet as on 31.03.2014.

"Long Term Borrowings"

Name Total due Principal Interest Account as on due as on due as on declared 31.03.2014 31.03.2014 31.03.2014 NPA as on Central Bank of 976.65 887.00 89.65 April'11 India

"Short Term Borrowings"

Name Total due Principal Interest Account as on due as on due as on declared 31.03.2014 31.03.2014 31.03.2014 NPA as on Central Bank of 716.31 637.00 79.31 April'11 India

9. Learned counsel for the Appellant has submitted that the aforesaid

have to be read alongwith the notes which are part of the Balance Sheet. He

has referred to Auditors note at Para Nos. 26.6 and 26.7 at page 59, which is

to the following effect:

"26.6 Few Banks have issued notice U/S 13(2) of SARFAESI Act, 2002. The Company has filed objections to their notices by the concerned Banks.

26.7 Few Banks have initiated action U/S 13(4) of SARFAESI Act, 2002. The Company has filed

Company Appeal (AT) (Insolvency) No. 912 of 2022 5

Securitization Application (SA) before DRT Kolkata and is contesting the actin by these Banks."

10. The aforesaid two paras only mentions proceedings initiated under

SARFAESI Act, 2002. Learned counsel for the Appellant has also referred to

Para 25.14 which is at page 60, which is to the following effect:

"25.14 Most of the position of amount shown payable and receivables to banks, creditors, loans, advances and debtors are subject to reconciliation as balance confirmation not received."

11. Learned counsel for the Appellant has emphasised that since position

of amount shown payable and receivable to banks, creditors are subject to

reconciliation as balance confirmation not received will make the entry

qualified and cannot be read as acknowledgement within the meaning of

Section 18.

12. We have looked into the Long Terms Borrowings and Short Terms

Borrowings, as noted above, as well as Paras 26.6, 26.7 and 25.14 referred to

by learned counsel for the Appellant. The statement made in Para 25.14 that

the position of amount shown payable and receivable in the Balance Sheet

are subject to reconciliation as balance confirmation not received shall not

take away the acknowledgement contained in the entries. Amount being

subject to reconciliation is not any such condition that will take away the

meaning and effect of the entries.

Company Appeal (AT) (Insolvency) No. 912 of 2022 6

13. Learned counsel for the Appellant has relied on judgment of Hon'ble

Supreme Court in "Civil Appeal No. 910 of 2021, State Bank of India vs.

Krishidhan Seeds Pvt. Ltd." and referred to Para 12 and 13 of the judgment.

In Para 13, the Hon'ble Supreme Court has noticed the principles that

emerges with regard to Section 18:

"13. In view of the above decisions, the position of law has been set at rest. Neither the NCLT nor the NCLAT had the benefit of adjudicating upon the factual controversy in the context of the decisions of this Court. The principles which emerge are that:

(i) The provisions of Section 18 of the Limitation Act are not alien to and are applicable to proceedings under the IBC; and

(ii) An acknowledgement in a balance sheet without a qualification can furnish a legitimate basis for determining as to whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default."

14. There is no quarrel regarding the preposition laid down by the Hon'ble

Supreme Court in the above judgment and earlier judgments as noticed in its

Para 12. When we apply the law laid down by the Hon'ble Supreme Court in

the facts of the present case, we are of the clear opinion that entries in the

Balance Sheet for the year 2013-14 contains acknowledgement which can be

read within the meaning of Section 18 of the Limitation Act. Appellant has

also brought on record other Balance Sheets; for example we refer to Balance

Company Appeal (AT) (Insolvency) No. 912 of 2022 7

Sheet as on 31.03.2016, where names of assignees have been reflected with

names of previous Banks and interest amount has also been captured in the

Balance Sheet. Auditor's note to the effect that entries are subject to

reconciliation does not take away the value acknowledged for the purpose of

Section 18.

15. The Balance Sheet continuously from 2013-14 to 2018-19 contain the

acknowledgement of debt and no error has been committed by the

Adjudicating Authority in holding that the period of limitation stood extended

and application filed under Section 7 is not barred by time.

16. Learned counsel for the Appellant has also submitted that after

amendment were allowed in Section 7 application, Appellant has filed an

appeal against the order of the Adjudicating Authority allowing the

amendment, where this Court has while dismissing the appeal has made

following observations in Para 5:

"5. It is well settled that Application under Section 7 can be amended and additional documents can be filed by the parties in proceedings under Section 7. We do not find any error in the order of the Adjudicating Authority permitting amendment in Section 7 Application. Appellant is protected since two weeks' time have been allowed to file Reply. It is always open for the Appellant to file Reply and additional documents which they rely. The order clearly says that objections shall be decided at the time of hearing. This clearly means that whatever the amendment has been made that does not ipso facto means that date

Company Appeal (AT) (Insolvency) No. 912 of 2022 8

of default has been changed and that same shall be decided by the Court at the time of hearing after hearing both the parties."

17. The amendments made in the application were subject to objection by

the Appellant which was expressly noted by the Adjudicating Authority and

were also observed by this Appellate Tribunal in Para 5, as noted above.

18. From the impugned order passed by the Adjudicating Authority it is

clear that the Adjudicating Authority has computed limitation from the NPA

date in the year 2011, hence, no error has been committed by the Adjudicating

Authority in computing the limitation from first NPA date which is not subject

to any dispute.

19. We, thus, do not find any error in the order of the Adjudicating

Authority admitting Section 7 application. There is no merit in the appeal.

The Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) Archana/nn

Company Appeal (AT) (Insolvency) No. 912 of 2022