B. Prashanth Hegde vs State Bank Of India & Anr

Page 1 of 45 JUDGMENT

(Date:17.12.2021) (Through Virtual Mode)

{Per. Dr. Alok Srivastava, Member (Technical)}

1. This appeal has been filed against order dated 14.12.2018

of the Adjudicating Authority (National Company Law Tribunal,

Bengaluru) in CP (IB) No. 103/BB/2018, by which the

Appellant has assailed the order of admission under Section 7

of the Insolvency and Bankruptcy Code, 2016 (hereinafter called

"IBC") in respect of the Corporate Debtor M/s Metal Closure

Private Ltd.

2. The Appellant had earlier filed appeal bearing CA (AT)

(Ins) No. 68/2019 in NCLAT against the admission order passed

by the Adjudicating Authority dated 14.12.2018, which was

allowed vide judgment dated 14.12.2020 of NCLAT. Thereafter,

SBI (Respondent No.1) filed Civil Appeal No. 3765/2021 in

Hon‟ble Supreme Court, which was disposed vide order dated

15.4.2021.Relevant paragraphs no. 6, 7 and 8 of this order of

Hon‟ble Supreme Court are reproduced below for ready

reference:-

"6. There can be no doubt whatsoever that the Appellant has been completely remiss and deficient in pleading acknowledgment of the liabilities on the facts of Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 2 of 45 this case. However, given the staggering amount allegedly due from the Respondents, we offer one further opportunity to the Appellant to amend its pleadings so as to incorporate what is stated in the written submissions filed by it before the NCLAT, subject to costs of Rs.1,00,000.00 to be paid by the Appellant to the Respondent within a period of four weeks from today.

7. We, therefore, allow the appeal, set aside the judgment of the NCLAT dated 14.10.2020, and restore the appeal to the filing to be decided in light of judgment on Civil Appeal No. 323 of 2021.

8. Interim Order passed by this Court on 16.12.2020 stand vacated."

3. Thus, in the light of the above-mentioned order, Hon‟ble

Supreme Court afforded one further opportunity to the

Appellant to amend its pleadings, to incorporate what is stated

in the written submissions filed by it before NCLAT, subject to

the payment of Rs. 1,00,000/- by the Respondent No. 1 - State

Bank of India (in short "SBI") to the Appellant who is the

Corporate Debtor within four weeks from the date of the order,

thereby setting aside the order passed by NCLAT in CA No. 68 of

2019 and restoring the appeal to its original number.

4. A cross appeal to Civil Appeal No. 3765 of 2021 bearing

Civil Appeal No. 3741 0f 2020was also filed in the Hon‟ble

Supreme Court, was also disposed of by the composite

judgment of 15.4.2021. The relevant portion of the order of

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 3 of 45 Hon‟ble Supreme Court is reproduced below:-

"Since the NCLAT has not, in any manner, adverted to this cross appeal, which was pending before it, we request the NCLAT to take up the cross appeal together with the remanded appeal of State Bank of India. As a result, we also make it clear that all pleas available to both the parties including maintainability may be gone into by NCLAT."

5. In compliance of Hon‟ble Supreme Court‟s order in CA no.

3765 of 2021, the Appellant filed amended section 7 application

before this Tribunal, which was annexed with IA No. 1091 of

2021.

6. The brief facts of the case as stated and argued by the

Appellant is that a section 7 application under IBC was filed

against the Corporate Debtor by one of the financial creditors

State Bank of India. The Corporate Debtor is engaged in

production of metal crown caps, shoe polish containers,

composite closure battery covers, plastic torches etc. and it was

granted various credit facilities by a consortium of banks

consisting of State Bank of India, Punjab National Bank,

Corporation Bank and UCO Bank. These credit facilities were

secured in favour of financial creditors by way of hypothecation

of all its movable and mortgage of other immovable properties.

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 4 of 45

7. It is claimed by the Appellant that SBI granted credit

facility to Corporate Debtor from 2007 onwards, and as on

21.11.2008, State Bank of India had granted credit of Rs. 91.08

crores to the Corporate Debtor. An additional Term Loan-II

Facility of Rs. 26 crores was sanctioned to the Corporate Debtor

vide SBI‟s sanction letter dated 28.5.2009. Corporation Bank

granted credit facility of Rs. 43.73 crores vide sanction letter

dated 14.8.2009, and subsequently two more banks, viz. Punjab

National Bank and UCO Bank also gave credit facility to the

Corporate Debtor as part of bank consortium. Since the

Corporate Debtor did not repay its loans to the creditor banks

on time, the respective banks declared the loan accounts of

Corporate Debtor NPA as follows: SBI classified it as NPA on

31.1.2010, Punjab National Bank (PNB in short) on 30.6.2014,

Corporation Bank on 10.10.2014 and UCO Bank on

31.12.2014.

8. It is stated by the Appellant that later, State Bank of India

executed Working Capital Consortium Agreements whereby the

Corporate Debtor was sanctioned credit up to Rs.121.66 crores.

Later PNB also joined the Working Capital Consortium

Agreement and sanctioned working capital credit to the

Corporate Debtor of an amount Rs. 43.07 crores. Thus, UCO

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 5 of 45 Bank, Punjab National Bank, Corporation Bank and State Bank

of India‟s total exposure to the Corporate Debtor aggregated to

Rs.160.25 crores which included the credit disbursed before

2010. A capital consortium agreement dated 18.4.2013 was

entered into by the Corporate Debtor with the consortium of

banks aggregating to Rs. 128 crores. Another Working Capital

Consortium Agreement dated 21.3.2014, executed by the

Corporate Debtor in favour of the consortium of banks, in

continuation of an earlier Working Capital Consortium

Agreement dated 18.4.2013,acknowledged sanction of working

capital credit by State Bank of India. The breakup of the total

credit granted by the banks to Corporate Debtor is as follows:-

State Bank of India: Rs. 56.12 crores

Corporation Bank : Rs. 32.00 crores

Punjab National Bank: Rs. 36.70 crores

UCO Bank: Rs. 15.00 crores

Total:- Rs.139.82 crores

9. It is stated by the Respondent No. 1 SBI that as the

Corporate Debtor was unable to regularize and repay the loans

to all the banks in the consortium, the banks entered into a

Master Joint Lenders Forum Agreement dated 21.6.2014 to deal

with the loan account of the Corporate Debtor in accordance

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 6 of 45 with RBI norms. Thereafter a number of meetings took place

between the officials of the Corporate Debtor and SBI resulting

in appointment of Auditors to oversee payments and

deployment of security guards at the Corporate Debtor‟s

factories. Soon after, State Bank of India and Punjab National

Bank started action against the Corporate Debtor under

SARFAESI Act. Further, the consortium of banks filed OA No.

21/2016 in DRT seeking recovery of a sum of

Rs.200,07,06,237.21 (approx. Rs. 200.07 crores) as on

27.12.2015, from the Corporate Debtor and its guarantors.

Forensic audit of CD‟s loan account was carried out by M/s.

Risk Richter at the instance of SBI and upon the discovery of

fraudulent transactions, which appeared in the Forensic Audit

Report, complaint was lodged with the CBI against the

Corporate Debtor. Mr. Prashanth Hegde, Managing Director of

the Corporate Debtor was also declared as a willful defaulter by

the State Bank of India in 2018.

10. The Appellant has further stated that the first possession

notice dated 20.2.2015 issued by State Bank of India under

section 13 (2) of the SARFAESI Act, 2002 for Bengaluru unit

was subsequently withdrawn vide letter dated 7.7.2015 by SBI

without stating any reason. Later a second possession notice

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 7 of 45 dated 15.9.2015 was issued by SBI under section 13(2) of the

SARFAESI Act, 2002. Possession notices were also issued by

SBI under SARFAESI Act for Kunigal and H.P. units of the

Corporate Debtor on 28.2.2015.

11. In view of the debts that were due to the banks, an

application under section 7 of IBC was filed by SBI against the

Corporate Debtor, which was admitted vide order dated

14.12.2018 and a Resolution Professional was appointed with

respect to the Corporate Debtor.

12. Respondent No.1 State Bank of India has filed IA No.

2590 of 2021(vide Dy. No. 31183 dated 12.11.2021)in the

present proceedings to place the following additional documents

on record, for which permission was given:-

(i) Copy of application under section 17 of the

SARFAESI Act being S.A. No. 67 of 2017 filed by the

Corporate Debtor before the DRT, Bangalore.

(ii) Copy of daily order dated 12.03.2020 in Criminal

Petition No. 6885 of 2018 passed by the Hon‟ble

Karnataka High Court along with Criminal Petition

No. 6885 of 2018.

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 8 of 45

(iii) Copy of the Order dated 30.10.2019 - Case status

passed by Hon‟ble Karnataka High Court in

Criminal Petition No. 4576 of 2019.

(iv) Copies of authority letters from banks along with

consent letters authorizing State Bank of India to

take action under IBC on behalf of the three other

banks, viz. PNB, Corporation Bank and UCO Bank.

13. Respondent No. 1 filed application for incorporating

amendment to its section 7 application before Adjudicating

Authority (NCLT, Bengaluru) and a copy of the amended

application was filed before NCLAT. This Tribunal after

considering the response of the Appellant‟s application I.A. No.

1091 of 2021 allowed it vide order dated 15.7.2021:-

"In the circumstances, IA No. 1091 of 2021 is allowed. Amendment in the pleadings is accepted in term of the Supreme Court order. Reply, if any, may be filed within 7 days from today, with a copy in advance to the opposite party. After that a rejoinder, if any, may be filed within 7 days with a copy to the opposite party."

14. In the amended application under section 7 filed by SBI

on behalf of the banks‟ consortium, Part-IV which relates to

particulars of financial debt is as follows:-

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 9 of 45 Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 10 of 45 Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 11 of 45 Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 12 of 45 Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 13 of 45 Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 14 of 45

15. In the application seeking permission to amend

application filed under section 7 of IBC before the Hon‟ble

Supreme Court, Respondent No. 1 has stated the following:-

"The cause of action/date of default would start on 28.05.2014, 30.06.2014, 10.10.2014 and 31.12. 2014 when the accounts were declared NPA by SBI, PNB, Corporation Bank, UCO Bank respectively and would get extended on 30.09.2015 when the Corporate Debtor admitted the dues of the Banks in the Balance Sheets for the years ending 31.03.2014 and 31.03.2015 and also get further extended on 13.11.2015 when the Corporate Debtor issued reply to the 13(2) notice issued by the Banks and admitted the debts as also on 09.08.2018 when the Corporate Debtor filed a counter claim against the Banks admitting the dues of the Banks.

(i) The present application u/s 7 was filed on 25.04.2018, which was well within the period of limitation in as much as the Corporate Debtor has acknowledged / admitted the debts of the Banks in the balance sheets dated 30.09.2015 for the years ending 31.03.2014 and 31.03.2015. The amount borrowed from the Financial Creditors is shown in the balance sheets and it amounts to acknowledgment and a fresh period of limitation would start from the said date viz. 30.09.2015 -

annexed as ANNEXURE C1.

(ii) Further, in the counter claim filed by the Corporate Debtor on 09.08.2018 before the DRT, Bangalore, there is an acknowledgment made by the Corporate Debtor as under:-

(iii) "It may not be out of place if it is mentioned that the only term loan outstanding of SBI was due for full

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 15 of 45 repayment and closure in mid-2016 and the account has been serviced properly as per schedule."

(iv) Copy of the counter claim filed by the CD is Annexure C2.

(v) Apart from this, the Corporate Debtor in their reply dated 13,11,2015 to the notice issued under section 13 (2) of SARFAESI Act has admitted the dues of the Financial Creditors - annex as ANNEXURE C3.

(vi) It is submitted that while originally the account of the CD was classified as NA on 21.01.2010, it is undisputed that thereafter there were attempts to restructure the account of the CD as a result of which many subsequent consortium agreements were executed between SBI, PNB, Corporation Bank, UCO Bank and the CD where under the CD, in unequivocal terms, admitted its liability to the above mentioned Banks. Due to failure of the CD to repay the debts in accordance with the said Agreements, the account of the CD turned NPA with SBI on 28.05.2014 and the date of NPA was shifted to 31.01.2010 in view of failed restructuring and for the purpose of provisioning as per RBI Circular. As per the RBI Master Circular dated July 1, 2013, if the performance of the restructured account is not satisfactory - "the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the pre-restructuring payment schedule". Therefore, the date of NPA being 31.01.2010 is only for the purposes of the RBI guidelines - annexed as Annexure C4.

(vii) It is submitted that Rule 155 of the National Company Law tribunal rules, 2016 gives ample power to amend for the purpose of determining the real question or issue, - the rules are annexed as ANNEXURE C5."

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 16 of 45

16. Respondent No. 1has filed its reply to the original appeal

CA (AT) (Ins.) No. 68 of 2019 after effecting amendment of

section 7 application, which was filed vide Dy. No. 28064 on

13.07.2021. In its reply, Respondent No. 1 has sought leave of

this Tribunal to treat the contents of the amendment

application under section 7 of the IBC as part and parcel of its

counter affidavit in CA (AT) (Ins) No. 68 of 2019 which is

granted. Furthermore, Respondent No. 1 has submitted that the

cause of action, which is the date of default, would start on

28.5.2014, 30.6.2014, 10.10.2014 and 31.12.2014 when the

restricting of debts owed to the four banks failed.

17. Respondent No. 1 has also submitted in the reply that

the limitation period would get an extension of limitation on

30.9.2015 in view of the acknowledgment of debt made by the

Corporate Debtor in the balance sheets of the Corporate Debtor

for the years ending 31.3.2014 and 31.3.2015, both being filed

on 30.9.2015 (attached at pp. 98-135 of Written Submissions

and Convenience Compilation filed by Respondent No. 1, Vol. I).

Furthermore, the limitation period in terms of section 18 of the

Limitation Act would get a further extension on 13.11.2015,

when in reply to the section 13(2) notice under SARFAESI

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 17 of 45 Act(attached at pp. 147-173 of Written Submissions and

Convenience Compilation of Appellant, Vol. I), the Corporate

Debtor acknowledged the debt and also acknowledged it later in

its counter-claim filed before the DRT on 9.8.2018 (attached at

pp. 174-211 of Written Submissions and Convenience

Compilation of Appellant, Vol. I). According to Respondent No.

1 State Bank of India, the section 7 application was filed on

25.4.2018 which is within three years from the date of last

acknowledgment on 13.11.2015, and therefore well within the

period of limitation as prescribed under section 18 of the

Limitation Act.

18. Respondent No. 1 State Bank of India has also submitted

statement of accounts of the respective banks for the period

20.7.2015 to 14.12.2017 with Annexures in support of entries

in bankers‟ books. These documents have been submitted

alongwith verified affidavit in support of application under

section 7 of IBC given by Respondent No. 1.

19. During the currency of the appeal, we heard the

arguments of both the parties on 15.7.2021 regarding the

amendment in application u/s 7 of IBC, and thereafter allowed

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 18 of 45 filing of the amendment in the pleadings in accordance with the

order of the Hon‟ble Supreme Court in Civil Appeal No. 3765 of

2021.

20. We also heard arguments on the main appeal advanced

by the Learned Senior Counsels for Appellant and Respondent

No. 1 and carefully considered the pleadings, including

amended pleadings submitted by Appellant and Respondent No.

1.

21. The Learned Senior Counsel for Appellant has argued that

the application of Respondent No.1 under section 7 ought to be

dismissed because it was vitiated by fraud, malice and

suppression of material facts and in accordance with section 35

and 75 of IBC, the issue of maintainability of section 7

application should be decided first before going into its merits.

He has claimed that the IBC proceedings have been initiated by

Respondent No. 1 not to resolve any insolvency of the Corporate

Debtor, but with the intention of overcoming various

proceedings initiated by the Corporate Debtor against the

consortium of banks. In this regard, he has referred to FIRs

filed by the Appellant against various officials of the banks

which were investigated by CID (Economic Offences Wing),

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 19 of 45 Bengaluru, and which have culminated into charge-sheets

under various provisions of IPC. He has claimed that the

numerous illegalities committed by the officials of the

consortium banks include forging of cheques with Appellant‟s

signatures, forging statements of accounts, siphoning of money,

sale of machinery in the open market, unauthorized RTGS

payments and forging of bills of lading for making unauthorized

payments etc. He has also claimed that there are findings

recorded in the charge-sheet dated 5.5.2018 that the officials of

Respondent No. 1 State Bank of India had invoked SARFAESI

Act proceedings with the view to shut down the operations of

the Corporate Debtor, and by taking over possession of the

company as well as placing security personnel at its various

factories, Respondent No. 1 has made efforts to close down its

manufacturing units thereby causing harm to its business. He

has further referred to various illegalities pointed out in the

charge-sheet dated 5.5.2018 in FIR No. 580/2016 and charge-

sheet no. 25 of 2018 in FIR No. 486/2015 to expand on the

various illegalities and criminal acts of the officials of

Respondent No. 1.

22. The Learned Senior Counsel for Appellant has further

claimed that in the application filed by State Bank of India

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 20 of 45 under the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993 on 28.12.2015 before the DRT, Bangalore

seeking to recover a sum of Rs. 200,07,06,237.21 from the

Corporate Debtor, the Corporate Debtor had filed a counter-

claim seeking Rs.1299 crores from State Bank of India. The

Corporate Debtor has also filed an application under section 17

of the SARFAESI Act seeking quashing of the taking over the

physical possession of the plants and appointment of

concurrent auditor, and also filed an application under section

9 of the SARFAESI Act, seeking further cost and compensation

of Rs. 410crores. He has claimed that the banks have availed,

and continue to pursue parallel remedies in DRT under the

SARFAESI and RDDB Act and also under IBC -all for the same

cause of action. He has cited the judgment of NCLAT in the case

of Indian Overseas Bank vs. Patel Woods Products Limited,

CA (AT) (Ins) No. 54/2020 wherein it was held that a section 7

application, filed after taking possession of the assets under

SARFAESI Act, 2002 and after having moved the DRT, was

vitiated by section 65 of IBC. He has also cited the judgment of

Hon‟ble Supreme Court in the matter of Invent Assets

Securitization and Reconstruction Private Limited vs.

Xylon Electrotechnic Private Limited, Civil Appeal No. 3783

of 2020 wherein in view of recovery proceedings pending before

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 21 of 45 the DRT, Hon‟ble Supreme Court dismissed the application

under section 7 that was barred by limitation, after taking note

of the pendency of recovery proceedings.

23. The Learned Senior Counsel for Appellant has further

argued that section 7 application was filed with an incomplete

form with deliberate suppression of the date of default, and a

specific date of default has not been identified even after filing of

amended pleadings by the Respondent No. 1 after being

permitted by Hon‟ble Supreme Court. He has argued that the

date of NPA cannot be automatically taken as date of default in

all cases, as has been recognized by Hon‟ble Supreme Court in

the matter of Laxmi Pat Surana vs. Union of India & Ors.

(2021 SCC online SC 267) where it was held that section 7

comes into play when the Corporate Debtor commits default

and section 7 consciously uses the expression „default‟, and not

the date of notifying the loan account of the corporate debtor as

NPA.

24. In addition, Learned Senior Counsel for Appellant has

also presented the following arguments:-

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 22 of 45

(i) The application filed by the Financial Creditor is

incomplete because under section 7 (2) of the IBC,

it is mandatory for the Financial Creditor to file an

application only in the form and manner prescribed

and under section 7(3)(a). Further, the Financial

Creditor has to furnish record of default recorded

with the information utility of such other record or

evidence of the default as many be specified which

has not been done by the Financial Creditor.

(ii) The balance sheet that the Financial Creditor is

seeking to rely on were filed after the final hearing

of the matter during the earlier round of

proceedings and the Financial Creditor did not

disclose at that time that these were not the audited

balance sheets of the Corporate Debtor, which had

not been filed with the RoC. The Auditor‟s Reports,

which were filed belatedly, along with the balance

sheets contained a qualification that the debts

allegedly due to State Bank of India are disputed

and that the Corporate Debtor‟s counterclaim

before the DRT exceeds the claim of SBI.

(iii) The balance sheets that have been filed in these

proceedings are not the actual balance-sheets of the

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 23 of 45 Corporate Debtor. These are the provisional

balance sheets which were filed before DRT and the

comparison of the original balance sheets brought

on record by the Corporate Debtor with the balance

sheet for the year ending 31.3.2013 filed by the

Financial Creditor clearly establish that the

documents filed by the Financial Creditor are

manipulated.

(iv) Hon‟ble NCLAT in its judgment dated 14.10.2020 in

CA (AT) (Ins) No. 68 of 2019 had held that the

limitation would start running from the date of

default i.e. 30.1.2010. This finding has not been

interfered with by the Hon‟ble Supreme Court.

Thus the limitation of 3 years to file an application

under section 7 expired on 30.1.2013. Even

assuming that the balance sheets and other

documents relied on are authentic and do contain

acknowledgements, these acknowledgements have

purportedly been made well after the expiry of

limitation period on 30.1.2013

(v) The statutory auditor of the Corporate Debtor has,

through an affidavit, certified that the balance

sheets of the Corporate Debtor for the financial

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 24 of 45 years 2013-14 and 2014-15 produced by the

Financial Creditor before the Hon‟ble Supreme

Court and Hon‟ble NCLAT are fabricated and

forged. Further, only such balance sheets that are

duly passed by the shareholders at an appropriate

meeting can be relied upon for the purpose of

section 18 of the Limitation Act.

(vi) In order to extend limitation, the balance sheet

must contain a clear acknowledgement of liability.

A balance sheet containing a qualification to the

alleged debt does not extend limitation as has been

held in the matter of Bengal Silk Mills Company

vs. Ismail Golam Hussain Ariff, (1961 SCC

Online CAL 128), Reliance Asset Reconstruction

Company Limited vs. Hotel Poonja International

Private Limited (2021 SCC Online SC 289), and

ARCIL vs. Bishal Jaiswal (2021 SCC Online SC

321).

(vii) Far from being acknowledgement of debt, the reply

dated 13.11.2015 of the Corporate Debtor

submitted before DRT is a document in which a

demand of about Rs. 1500 crores has been made by

the Corporate Debtor. The reply makes a

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 25 of 45 categorical statement that there is no amount due

to the bank. Therefore, on reading the document as

a whole, it cannot be relied upon as an

acknowledgement of liability.

(viii) The counter claim was filed by the Corporate

Debtor on 9.8.2018, which is after the filing of the

section 7 Application on 25.4.2018. Therefore, the

filing of counter claim is a subsequent event and

any admission included in it cannot be taken to

extend limitation for the application under IBC that

was filed at an early date.

25. The Learned Counsel for Appellant has also cited the

following judgments in support of his case:-

(1) Swiss Ribbons (P) Ltd. vs. Union of India [(2019)

4 SCC 17].

(2) Innoventive Industries Ltd. v ICICI Bank [(2018)

1 SCC].

(3) B.K. Educational Services (P) Ltd. v Parag Gupta

& Associates [(2019) 11 SCC 633].

(4) Bengal Silk Mills co. V. Ismail Golam Hossain

Ariff (1961 SCC Online Cal 128).

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 26 of 45 (5) Reliance Asset Reconstruction Co. Ltd. v. Hotel

Poonja International Pvt. Ltd. (2021 SCC Online SC

289.)

(6) Pandam Tea Co. Ltd. v. Unknown [1973 SCC

Online Cal 93)

26. Arguments of Learned Senior Counsel for Respondent No. 1 (State Bank of India on behalf of the Consortium of Banks

(i) In Civil Appeal No. 323 of 2021 videjudgment dated

15.4.2021 Hon‟ble Supreme Court has held that

acknowledgments in balance sheet would extend

the period of limitation under section 18 of the

Limitation Act in connection with an application

under section 7 of IBC.

(ii) Consequently, Respondent No. 1 has filed IA No.

1091 of 2021, placing on record an amended

application under section 7, for consideration in

terms of the judgment of Hon‟ble Supreme Court

dated 15.4.2021 (supra). The amended application

under section 7 has been taken on record by order

dated 15.7.2021 passed by Hon‟ble NCLAT.

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 27 of 45

(iii) The starting dates of cause of action i.e. right to

apply in respect of each financial creditor (member

of the consortium of banks) which are relevant for

the purpose of counting limitation are as follows: -

(a) State Bank of India - 28.05.2014

(b) Punjab National Bank (PNB) - 30.06.2014

(c) Corporation Bank - 10.10.2014

(d) UCO Bank - 31.12.2014

The above dates have been taken as such because

the Corporate Debtor and the banks of consortium

took actions relating to restructuring of loans

between 2010 and 2014. Even though the

restructuring efforts failed and the dates of NPA

with reference to RBI Master Circular dated July 1,

2013 (attached at pp. 166-167 of Written

Submissions and Convenience Compilation of

Respondent No. 1, Vol. I) were moved back to 2010,

all through the period from 2010 upto 2014 there

was a clear and explicit acknowledgment of the

previous debts of the Corporate Debtor and hence

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 28 of 45 the cause of action for section 7 application arose

on the dates given earlier in this paragraph.

(iv) The documents submitted by Respondent No. 1 in

the amended application u/s 7 that are being relied

upon for the purpose of extension of limitation are:-

(a) Balance sheets for financial years 2013-14

and 2014-15, both dated 30.09.2015

(attached at pp 17-32of the Written

Submissions and Convenience Compilations

filed by Respondent No. 1, volume 1).

(b) Reply dated 13.7.2015 filed by the Corporate

Debtor in response to notice under Section

13(2) of SARFAESI Act (attached at pp 33-59

of the Written Submissions and Convenience

Compilation filed by Respondent No.1,

volume 1).

(c) Counterclaim dated 9.8.2018 filed by the

Corporate Debtor before DRT, Bengaluru

(attached at pp 60 - 97 of the Written

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 29 of 45 Submissions and Convenience Compilation

filed by Respondent No.1 volume 1.

(v) Corporate Debtor has acknowledged the debt to

different banks in its balance sheets (supra), both

dated 30.9.2015, relating to financial years 2013-14

and 2014-15 in the heading "Long Term Borrowing"

(page 18 and 27 of Written Submissions and

Convenience Compilation of Respondent No.1, Vol.I)

and "Short Term Borrowings" (at pages 19 and 28

of Written Submissions and Convenience

Compilation, Vol. I). They also appear under the

heading "Other Current Liabilities" (page 19 and 28

of Written Submissions and Convenience

Compilation of Respondent No.1, volume 1) and

Letter of Credit (attached at page 21 and 30 of

Written Submissions and Convenience Compilation

filed by Respondent No.1, Vol.I).

(vi) Appellant's contention that the balance sheets filed

by Respondent No.1 in the amended section 7

application are forged and fabricated is untenable

and incorrect, because the balance sheets dated

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 30 of 45 30.9.2015 were actually filed by the CD in DRT

proceedings in January 2016.It is surprising as to

how the Auditor's reports have not been shown as

part of the balance sheets filed before DRT when

the balance sheets are purported to have been

prepared on 30.9.2015, much before their filing

before DRT in January, 2016. Thus, the Auditor's

reports, which form part of both balance sheets

dated 30.9.2015 are clearly forged and added as

afterthought. In order to further misguide the

tribunal, an attempt has been made by the

Corporate Debtor by filing an affidavit of the Auditor

to contend that the balance sheets filed by SBI are

fabricated and forged. This is a tactic adopted by

the Corporate Debtor to mislead this Hon‟ble

Tribunal.

(vii) The qualified opinion given in the Auditor's Report

(attached at pp. 98-104 of Written Submissions and

Convenience Compilation of Respondent No. 1, Vol.

I) is as follows: -

"In view of the bank taking over physical possession of secured assets of the company all the business activities are closed down, we are unable to express Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 31 of 45 an opinion on the company's affairs as a going concern in the case of financial statements of the company as at 31st March 2014".

Even assuming the Auditor‟s Report was part of the

balance sheets as is claimed by the Appellant, the

above statement is only about the company's status

as a going concern, and it is certainly not any

caveat which could detract from the fact of

acknowledgment of debt by the Corporate Debtor.

The above statements in both balance sheets are

clearly the same and therefore there cannot be any

confusion about the debt and their

acknowledgment.

(viii) The only point canvassed by the Appellant is that

he has made a counterclaim which is recorded by

the auditor even though the debt is acknowledged

through separate entries in the balance sheets.

Even if there is valid counterclaim (which is yet to

be adjudicated), the acknowledgment of debts is

sufficient for the purpose of Section 18 of Limitation

Act.

(ix) If the contention of the Appellant were to be Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 32 of 45 accepted, it would lead to undesirable and

disastrous consequences inasmuch as the

corporate debtors in various cases could then go

ahead and make fanciful and wrong set-

off/counterclaims to defeat the limitation aspect

based on acknowledgment of debt.

27. The point is to be seen in this appeal is whether the

limitation of the cause of action relating to application under

section 7 for the consortium of banks comprising of State Bank

of India, Punjab National Bank, Corporation Bank and UCO

Bank, are within a period of three years from 25.4.2018, which

is the date of filing of section 7 application by SBI, (who has

been authorized by the other three banks to file section 7

application on their behalf), after considering the

acknowledgements in the balance sheets and other documents

filed by the Corporate Debtor as part of amended section 7

application, which are mentioned earlier in this judgment.

28. Section 18(1) of the Limitation Act, 1963 is as follows:-

"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 Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 33 of 45 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."

29. Article 137 in the Schedule included in the Limitation Act

with reference to Section 2 and Section 3, stipulating periods of

limitation, is as follows:

Description of application Period of Time from which limitation period begins to run

137. Any other application Three When the right to for which no period of years apply accrues limitation is provided elsewhere in this division.

30. In accordance with Section 18(1) and Article 137, the

limitation period for an application under Section 7 of IBC is

three years. According to Section 18 (1), where before the

expiration of the prescribed period i.e three years for an

application under Section 7, an acknowledgment of liability has

been made in writing signed by the party against whom such

right is claimed, a fresh period of limitation shall be computed

from the time when the acknowledgment was so signed. Thus, it

is to be seen whether the acknowledgments of the liability of

debt has been made in writing signed or acknowledged by the

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 34 of 45 Corporate Debtor within a period of three years from the date

when the limitation starts to run to provide fresh lease of life to

limitation, upto the time when section 7 application was filed.

31. The table below gives the relevant dates in connection

with the debts of the Corporate Debtor owed to the four banks

in the consortium, which are as per arguments and pleadings of

the Respondent No. 1, and which would be necessary for

calculating the limitation and the dates when the Corporate

Debtor acknowledged the debts through various documents :-

Action SBI PNB Corporat- UCO Bank ion Bank CD‟s loan 28.5.2014 30.6.2014 10.10.2014 31.12.2014 accounts declared defaulter by banks with implicit acknowled- gement of debts which is relevant for counting limitation CD‟s debts 30.9.2015 30.9.2015 30.9.2015 30.9.2015 entered in its balance sheets for year ending 31.3.2014 and 31.3.2015 CD‟s reply 13.11.2015 13.11.2015 13.11.2015 13.11.2015 to Section 13(2) SARFAESI notice filed

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 35 of 45 with debt details

32. From the dates in the table in the previous paragraph, the

Ld. Sr. Counsel for Respondent No. 1 has argued that banks

and CD were discussing restructuring of debts, and thereby CD

implicitly acknowledged the respective debts as relevant for

counting limitation in accordance with the judgment of Hon‟ble

Supreme Court in ARCIL vs. Bishal Jaiswal (2021 SCC

Online SC 321). Debt restructuring efforts with SBI went on

till 28.5.2014, with PNB till 30.6.2014, with Corporation Bank

till 10.10.2014 and with UCO Bank till 31.12.2014. As a result

of the restructuring efforts certain letters of arrangement and

consortium agreements were entered into by the consortium of

banks and the CD. Hence these are relevant dates when debts

were in default and cause of action started. As regards the

claim of the Appellant that the dates of default of debts of the

banks were in 2010, it was clarified by Ld. Senior Counsel for

Respondent No. 1 that the date of NPA which was shifted to

2010 was in accordance with an RBI Master Circular dated

1.7.2013 for the purposes of banks‟ working and asset

classification. The actions taken by the banks and the CD

between 2010 and 2014 when CD‟s debt was being

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 36 of 45 restructured, including signing of new working capital

consortium agreements and their sanction, in continuation of

the old debts did provide acknowledgments of the loans by CD.

The Statement of Accounts are detailed in items 7 & 8 of Part-IV

of the section 7 application are, therefore, sufficient for purpose

of acknowledgment of debt liability to the four banks.

33. Ld. Senior Counsel for Respondent No. 1 has stated in his

written submissions (attached at pp. 33-34 of the Convenience

Compilation of the Appellant Vol. I filed vide Diary No. 27721

dated 1.7.2020) that while originally the account of the

Corporate Debtor was classified as NPA on 21.1.2010, it is an

admitted fact that there were actions taken thereafter during

2010 to 2014 to restructure the account of the Corporate

Debtor. As a result, various consortium agreements were

executed between the four banks and the Corporate Debtor.

The existence of the consortium agreements and letter of

arrangement are given in item5 of Part-V of amended section 7

application (attached at pp. 93-114 of Written Submissions and

Convenience Compilation of Appellant, Vol.I).These Working

Capital Consortium Agreements and letter of arrangement and

their existence has not been denied by the Corporate Debtor. It

is the contention of the Respondent No.1 that, through these

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 37 of 45 consortium agreements the Corporate Debtor has inter-alia

admitted its debt default and liability to pay to all the four

banks till the date of signing of the Working Capital Consortium

Agreement dated 21.3.2014.

34. The judgments of Hon‟ble Supreme Court in Swiss

Ribbons (P) Ltd.(supra), Innoventive Industries Ltd.(supra)

and B.K. Educational Services (P) Ltd. (supra) do not

explicitly cover the issue of acknowledgment of debt through

document such as balance sheet. In the matter of ARCIL v

Bishal Jaiswal (supra), the Hon‟ble Supreme Court has held

that fresh period of limitation will start from the date of

acknowledgment in the balance sheet of the CD. This judgment

of Supreme Court now holds the fort insofar as calculation of

limitation period is concerned taking into account the

acknowledgments by CD in certain documents like the balance

sheets and in other documents. In the case of Reliance Asset

Reconstruction Co. Ltd. v Hotel Poonja International Pvt.

Ltd., the balance sheets were not relied upon because no

evidence had been put forward to show that they were signed

before the expiry of the prescribed period of limitation and there

was no pleading to the said effect in the application under

section 7 of IBC. As opposed to this situation, in the present

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 38 of 45 case the balance sheets relate to the period within 3 years from

the date of NPA of the four banks, which are 28.5.2014 for SBI,

30.0.2014 for PNB, 10.10.2014 for Corporation Bank and

31.12.2014 for UCO Bank and hence the acknowledgments

which we implicit in these balance sheets are within 3 years of

the date of start of limitation, and therefore extend limitation as

per section 18 of the Limitation Act.

35. In the case of Indian Overseas Bank vs. Patel Woods

Products Limited (2020 SCC Online NCLAT 551), the

Securitization Application filed by Indian Overseas Bank had

been disposed off. Section 7 application, which was filed

thereafter, took the date of default as barred by the limitation

and expressly for recovery of amount. Hence the section 7

application was not admitted. In contrast, in the present appeal,

there is no decree for execution and the section 7 application is

also considered to be within limitation, due to various

acknowledgments in balance sheets for the financial years

2013-14 and 2014-15 and reply filed before DRT, which provide

fresh lease of life to the issue of limitation.

36. The Learned Counsel for Respondent No. 1 has cited the

following judgments of Hon‟ble Supreme Court in support of his

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 39 of 45 contentions:-

(i) Swiss Ribbons (P) Ltd. v. Union of India

[(2019) 4 SCC 17]

(ii) Dena Bank (now Bank of Baroda) vs. C.

Shivakumar Reddy and Anr. (2021 SCC

Online SC 543).

(iii) ARCIL v. Bishal Jaiswal (2021 SCC Online

SC 321).

37. In Swiss Ribbons (P) Ltd. case (supra), Hon‟ble Supreme

Court has held that insofar as set-off and counterclaim is

concerned, such set-off may be considered at the stage of filing

of proof of claims during the resolution process by the

Resolution Professional. In the present appeal, only

counterclaim has been made before DRT, but no set-off amount

has been adjudicated upon. Moreover, any amount of

counterclaim cannot retract from the fact of acknowledgement

of the debts.

38. In ARCIL v. Bishal Jaiswal (supra), Hon‟ble Supreme

Court has very clearly held that section 18 of the Limitation Act

gets attracted the moment acknowledgment in writing signed by

the party against whom such right to initiate resolution process

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 40 of 45 under section 7 of IBC enures. This ratio is supportive of claim

made by Respondent No. 1 SBI in the present case, where

acknowledgments in writing signed by the Corporate Debtor

come into play to extend the period of limitation under section

18 of the Limitation Act.

39. In the Bengal Silk Mills Co. (supra), it was held that a

compulsion in law to prepare a balance sheet does not imply

compulsion to make any particular admission and if a

qualification regarding a particular creditor or credit is made

with caveats, the case has to be examined on the basis of its

context to establish whether an acknowledgment of liability has,

in fact, been made for extending the limitation. In the present

case, there is no caveat regarding acknowledgment or otherwise

of the debt. On the contrary the Auditor‟s report in the balance

sheet only adverts to the fact that the Corporate Debtor is not a

going concern, but makes no qualifying remarks about the debt

which is included in the balance sheet.

40. The Learned Counsels for Appellant and Respondent No.

1 both have referred to the Master Circular No. RBI/2013-

14/62 DBOD. No.BP.BC.1/21.04.048/2013-14 dated July 1,

2013 (pp. 166-167 of Written Submissions & Convenience

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 41 of 45 Compilation of Appellant, Vol. I) with Appellant interpreting its

provisions regarding asset classification as NPA to be year 2010

from which the dates of default should be considered whereas

Respondent No. 1 claims that the year should be 2014. We

agree with the argument of Ld. Senior Counsel of Respondent

No. 1 that while the asset classification of the restructured loan

account would be governed as per applicable prudential norms

regarding classification as NPA, insofar as acknowledgement of

the debts is concerned they were implicitly present in Working

Capital Consortium Agreements and other documents executed

by the CD and banks and the debts were therefore alive at the

time these agreements were entered into.

41. We now consider the contention of the Corporate Debtor

that the amount of counterclaim raised against the banks by

the Corporate Debtor being Rs. 1500 crores which is much

more than the amount of debts, hence there will be a net

amount payable to the corporate debtor and not to the banks.

Therefore, there is debt in default and liable to be paid to the

banks. We note that the counterclaim has not been decided and

so it remains just a proposition yet to be adjudicated upon.

Moreover, merely raising a counterclaim in DRT proceedings

does not in any way detract from the fact that debts are

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 42 of 45 acknowledged, and they are in default, and therefore liable to be

paid by the Corporate Debtor as the application under section 7

is found to be in limitation.

42. We are convinced by the argument of Respondent No. 1

that the date of NPA of the debt due to SBI is 31.1.2010 only for

the purposes of the RBI guidelines. The actual date of default is

the dates on which NPAs were initially declared by respective

banks viz. 28.5.2014 for SBI, 30.6.2014 for PNB, but

10.10.2014 for Corporation Bank and 31.12.2014 for UCO

Bank, since the debts of respective banks were acknowledged by

the CD till those dates. This is so because during the period

from 2010 to 2014 when efforts were made by the four banks

and the Corporate Debtor to restructure the debts, there was

admission and implicit acknowledgement of the debts by the

corporate debtor.

43. We then find that the acknowledgement of these debts

have been made, inter alia, in the CD‟s balance sheets for year

ending 31.3.2014 and 31.3.2015 which were signed on

30.9.2015, which is within three years from the dates the debts

were acknowledged in 2014 during debt restructuring process

when Working Capital Consortium Agreements etc. were signed

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 43 of 45 by the CD and the banks. Thus the debts get a fresh lease of

limitation for three years from 30.9.2015. This limitation period

will run till 29.9.2018 in accordance with Article 137 of

Limitation Act. The section 7 application was filed on

25.4.2018, which is within three years from 30.9.2015. Hence

we find that on the basis of amended application under section

7 and the documents attached thereto, as well as pleadings of

Respondent No. 1, the section 7 application is found to be

within limitation. The debts are in default and they are due and

payable to the four banks viz, SBI, PNB, Corporation Bank and

UCO Bank.

44. We are also of the view that criminal complaints filed

against officials of consortium of banks, and further action

thereon have no bearing or relevance to the proceedings under

section 7 of the IBC.

45. In the light of discussion in above paragraphs, we are

convinced that the debts of the four banks (SBI, PNB,

Corporation Bank and UCO Bank) are in default, due and liable

to be paid by the Corporate Debtor as on the date of filing of

amended section 7 application. The amended section 7

application is found to be in limitation. Thus, State Bank of

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 44 of 45 India (Respondent No. 1) and other banks (who have authorized

SBI to act on their behalf) have been able to establish to our

complete satisfaction that the ingredients of application under

Section 7 of IBC against the Corporate Debtor have been met

and the application u/s 7 deserves to be admitted.

46. Thus the appeal filed by the Appellant fails as we find no

reason to interfere with the order dated 14.12.2018 in CP(IB)

No. 103/BB/2018. The CIRP against the corporate debtor will

therefore continue in accordance with the admission order of

the Adjudicating Authority as per provisions of law. All IAs

stand disposed of.

47. There is no order as to costs.

[Justice Jarat Kumar Jain] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical) New Delhi 17th December, 2021

/aks/

Company Appeal(AT) (Ins) No. 68 of 2019 & I.A. No. 1078 of 2021 Page 45 of 45