Chand Prakash Mehra vs Praveen Bansal

[Arising out of Order dated 08th November, 2019 passed by the Adjudicating Authority, National Company Law Tribunal, Kolkata Bench, Kolkata in CP (IB) No. 522/KB/2018]

IN THE MATTER OF: Chand Prakash Mehra Having its Registered Address at P-22, CIT Road, Entally, KoLkata - 700014 ...Appellant.

Versus 1. Praveen Bansal Interim Resolution Professional of Silverton Spinners Limited Having his registered address at LLP, J-347, Sarita Vihar, New Delhi - 110076 ...Respondent No. 1 2. State Bank of India Having its registered address at State Bank Bhavan, Corporate Centre, Madam Cama Road, Mumbai - 400021 ...Respondent No. 2.

For Appellant: Mr. Abhijeet Sinha, Mr. Sidhartha Sharma, Mr. Arjun Asthana, Mr. Aditya Shukla and Mr. Saikat Sarkar, Advocates.

For Respondent: Mr. PBA Srinivasan, Mr. Avinash Mohapatra, Ms. Icchha Kalash and Mr. Parth Tandon, Advocates for R-2. Mr. Mohit Jolly, Advocate for R-1. 2

(20th September, 2021)

A.I.S. Cheema, J.: The Appellant-Erstwhile Director of Corporate

Debtor-"M/s. Silverton Spinners Ltd." has filed this Appeal against Order of

Admission of Application under Section 7 of Insolvency and Bankruptcy

Code, 2016 (IBC in short) against the Corporate Debtor.

2. Respondent No. 2-State Bank of India (hereinafter referred as "Bank")

filed CP(IB) No. 522/KB/2018 before the Adjudicating Authority (National

Company Law Tribunal, Kolkata Bench, Kolkata). The Bank claimed before

the Adjudicating Authority that the Corporate Debtor was granted credit

facility initially by Canara Bank in 1995 and subsequently the State Bank of

India and Central Bank of India became part of the lenders and granted

credit facilities to the Corporate Debtor. Necessary documents were

executed. In 2010, there was revival structuring effort. New Sanction Letter

was issued on 18th March, 2013. The name of the Corporate Debtor earlier

was "M/s. Pacific Cotspin Limited". This name was changed to the present

name of Corporate Debtor namely "M/s. Silverton Spinners Limited". The

Bank claimed that new Sanction Letter was issued on 18th March, 2013. The

Corporate Debtor failed to act as per the CDR Package and the Account was

termed NPA on 25.08.2015 subsequently as per Procedure under the RBI

Guidelines date of NPA was revised to 15.01.2013 based on when the CDR

Package had been formalized. The Bank pointed out the acknowledgements

of the Corporate Debtor and the existence of the outstanding debt which was

in default. The Bank claimed that the debt outstanding was Rs.

Company Appeal (AT) (Ins) No. 1378 of 2019 3

151,19,70,185.24/- which was to be recovered by the Bank as on 31st

December, 2017. The Application under Section 7 of IBC was filed on 05th

March, 2018. The Bank also claimed before the Adjudicating Authority that

the balance sheets of the Corporate Debtor showed the overall borrowings

and that anything contrary in any instrument would not be applicable in

view of the Section 238 of IBC. Thus, the Bank claimed that the debt was

within limitation. The Bank relied on letter of authority given by Deputy

General Manager to Sri Subratabarman as per the provisions of the State

Bank of India Act and that the signatory was authorized to file the

Application.

3. The Adjudicating Authority heard the Bank as well as the Corporate

Debtor. Corporate Debtor claimed that the Debt was barred by Limitation. It

was claimed that the original amounts became NPA on 15.01.2013. Because

of the CDR Package time was given to the Corporate Debtor which ultimately

failed in August, 2015. The Corporate Debtor claimed the debt to be time-

barred.

4. The Adjudicating Authority looked in the record as well as the

acknowledgments in the correspondence and came to the conclusion that

there was debt outstanding which attracted provisions of Section 7 of IBC;

that the Debt was within limitation; and admitted the Application under

Section 7 of IBC.

5. In Appeal before us, the Appellant is claiming and it is argued that the

Corporate Debtor deals in Cotton Yarn Manufacturing and that it did avail of

credit facilities from Canara Bank in 1995 and that when the business

Company Appeal (AT) (Ins) No. 1378 of 2019 4

increased Inter Se Agreement dated 25.09.1998 was executed when the

Canara Bank acted as Lead Banker while other Bankers included the State

Bank of India. The Appellant claims that the Corporate Debtor executed

common loan Agreement dated 25.09.1998 along with joint deed of

hypothecation and other documents on 25th September, 1998 which

included working capital consortium Agreement dated 25.09.1998 in favour

of the consortium. Appellant claims that Corporate Debtor had the

understanding that in the event of any default by the Corporate Debtor the

Lead Banker-Canara Bank shall be only authorized Banker to initiate any

recovery or restructuring proceedings against the Corporate Debtor.

Appellant claims that on 30th July, 2002 overall sanction limit of Rs.

8005.75 Lacks was extended and the Corporate Debtor executed necessary

documents on 31st July, 2002. The Appeal refers to the further financial

services availed. Relying on Inter Se Agreement dated 12th January, 2007

Appellant claims that only the Lead Banker i.e. Canara Bank can initiate

proceedings. The other Banks had nominated Canara Bank as the Lawful

Attorney for them. Referring to RBI Guidelines regarding CDR the Appellant

claims that the CDR package was reworked on 15th March, 2013 and Loan

Account of Corporate Debtor was reverted back to the state of NPA classified

by Canara Bank, as on 27.07.2009 as per RBI Guidelines. It is claimed that

in the Letter dated 21st May, 2015 (Appeal Page 561) the Corporate Debtor

had intimated only the Canara Bank with regard to the change of the name

in the context of CDR Master Restructuring Agreement dated 22.03.2013.

Appellant claims that the said nomination became redundant on CDR Exit

with the Lead Bank reverting to the status of NPA on 27.07.2009. Thus the

Company Appeal (AT) (Ins) No. 1378 of 2019 5

Appellant claims that the said debt is time-barred and that State Bank of

India could not have initiated proceedings under Section 7 of IBC.

6. The Learned Counsel for the Appellant has argued the matter on the

above lines. On one hand it is argued that as per the documents executed

between the parties only the Lead Bank i.e. Canara Bank could initiate

action and that State Bank of India could not have filed Application under

Section 7 of IBC and on the other hand it is claimed that the date of NPA is

the trigger point from where limitation starts running. It has been argued

that when Corporate Debtor failed to comply with the terms of CDR Package

the Corporate Debtor was reverted to state of NPA classified on 27.07.2009

as per RBI Guidelines. The Learned Counsel relied on Letter dated 23rd

December, 2016 (Annexure A-22 Page 831) to point out that the Canara

Bank had stated that the Corporate Debtor availed facilities as per

agreement terms and the Account became irregular and the Loan Account

has been classified NPA on 27.07.2009 as per directives of RBI. The Letter

stated that in spite of efforts on CDR Package the Corporate Debtor failed

and the account reverted to state of NPA as classified on 27.07.2009. The

Learned Counsel has argued that Judgments of Hon'ble Supreme Court of

India show that once time starts running, the Application under Section 7 of

IBC needs to be filed within three years as per Article 137 of the Limitation

Act. The Learned Counsel referred to the documents and RBI Circulars with

regard to the manner in which CDR Schemes are entered into and worked

out. It is also argued that the CDR restructuring schemes cannot be

considered to be acknowledgments of debts and Section 18 of the Limitation

Act could not be relied on in view of the Judgments passed by the Hon'ble

Company Appeal (AT) (Ins) No. 1378 of 2019 6

Supreme Court. It is argued that the entries in the balance sheets of the

Corporate Debtor with regard to the amounts due show overall amounts due

and does not reflect any specific debt owed to the State Bank of India. It is

also argued that in view of the agreements between the parties only the Lead

Bank Canara Bank could have initiated proceedings.

7. Against this, the State Bank of India has filed Reply opposing the

Appeal. Learned Counsel for the Bank referred to the documents executed

between the parties. Learned Counsel referred to the Inter Se Agreement

dated 25.09.1998 to argue that the State Bank of India is entitled to enforce

its rights when debt is due and outstanding. The Learned Counsel referred

to (Annexure A-3, Page 81) the Inter Se Agreement and to its clauses to argue

that it was an agreement between the State Bank of India and the Canara

Bank in which mechanism was laid as to how to initiate action and on

recovery how to distribute the proceeds and rights were reserved in clause 7

(Appeal Page 87) with regard to the Lead Bank distributing the realizations

and the right of the State Bank of India relating to the Borrower was saved

with regard to the action State Bank of India can take regarding money that

may still remain to be due. It is argued that this was between the Banks and

the Corporate Debtor cannot take advantage of the same and that Section 7

of IBC clearly gives right to the Financial Creditor to initiate action and there

is no bar under the law for State Bank of India to initiate action when debt is

due and payable. It is argued that if the Lead Bank for any reason does not

take action the rights are still there with the other Banks of the consortium

to initiate action if the debt has become due and in default.

Company Appeal (AT) (Ins) No. 1378 of 2019 7

8. We have heard the parties and gone through the material on record.

Although much is argued with regard to the circular issued by RBI, we keep

Section 238 of IBC in view which provides that the code applies

notwithstanding anything inconsistent therewith contained in any other law

for the time being in force or any instrument having effect by virtue of any

such law. Keeping this provision in view, we refer Section 7 of IBC which

provides that Financial Creditor either by itself or jointly with other Financial

Creditors or any other person on behalf of Financial Creditor as may be

notified by the Central Bank may file an Application for initiating Corporate

Insolvency Resolution Process against a Corporate Debtor before the

Adjudicating Authority when a default has occurred. Considering this, even

if the State Bank of India was part of the consortium or there are documents

executed between the parties, or there are circulars of RBI as to how Banks

should try to help the defaulting debtors with CDR Packages and how date of

NPA should be calculated, still in IBC for Section 7 of IBC, the material

factor is that the State Bank of India is a Financial Creditor whose debt is

outstanding and it was in default on the part of the Corporate Debtor and

thus the State Bank of India has a right to move Application under Section 7

of IBC. The personal documents between the parties cannot take away such

statutory right of the Bank to initiate proceedings. If the Lead Bank for any

reason does not take steps or fails to take steps, the other Banks in the

consortium cannot be left high and dry without any remedy, as Limitation

Act does not differentiate on such count.

9. Respondent No. 2-State Bank of India filed Application before the

Adjudicating Authority pointing out debt due to the Bank which turned NPA

Company Appeal (AT) (Ins) No. 1378 of 2019 8

on 25.08.2015 and when the CDR Package failed the date was revised to

15.01.2013 when CDR Package was formalized. Thus the debt relating to the

State Bank of India became NPA on 15.01.2013. If time is calculated from

this date of 15.01.2013, firstly there is a Letter dated 21st May, 2015 (Appeal

Annexure A-19, Page 561G). Admittedly, at that time there was a consortium

existing and Corporate Debtor had taken loan from Canara Bank, State

Bank of India and Central Bank of India. In this context, the Corporate

Debtor on 21st May, 2015 wrote to the Lead Bank informing that there was

change in the name of the Company from "M/s. Pacific Cotspin Limited" to

"M/s. Silverton Spinners Limited". The contents of the Letter may be

reproduced as under:

"SUB: CHANGE IN THE NAME OF THE COMPANY

Pursuant to our application dated nil, the Bank has sanctioned credit facility [WC] upto a maximum of Rs. 77.49 crores along with TL of Rs. 85.55 cr subject to the terms and conditions stipulated in the Bank's sanction letter bearing reference no MSCR:PACIFIC:643:2012-13:GD dated 15.03.2013 and MRA dt. 22.03.2013.

Accordingly, we have executed loan documents dated 22.03.2013 and Master Restructuring Agreement & Inter Se Agreement among Canara Bank, State Bank of India & Central Bank of India dated 22.3.2013.

Our name of the Company has been changed from M/S PACIFIC COTSPIN LIMITED to M/S SILVERTON SPINNERS LTD. The earlier loan papers executed by us in the name of M/S PACIFIC COTSPIN LIMITED is Continuing and Binding on us.

Yours Faithfully

[Borrower]"

Company Appeal (AT) (Ins) No. 1378 of 2019 9

Thus, the Corporate Debtor clearly referred to the credit facilities and

documents executed between the parties and the binding liability under the

documents on the Corporate Debtor.

10. Then, reference needs to be made to another acknowledgment of the

Corporate Debtor which is dated June 15, 2016 (Reply of the Bank,

Annexure A-1, Diary No. 19139). This Letter was addressed by the Corporate

Debtor to (1) Deputy General Manager CDR Cell, (2) Canara Bank, (3) State

Bank of India and also (4) Central Bank of India. The subject was proposal

for resolution of debts and in the proposals, relevant part of Paragraphs 14

needs to be reproduced which reads as under:

"14) Based on discussions with them, since it is now proposing to invest substantial amount of money through supply of raw material, the cash flow for which would be rolled over within the overall fund flow which is reflected in the enclosed projections, therefore the company has proposed the following in consultation with M/s. Manjeet Cotton Pvt.

Ltd.

173) Position of Debt as on date with all the Lending Banks to be resolved in 10 years.

(Rs. In Cr.)

Category Type of loan Can Bk SBI CBI Total

Sustainable as RTL 14.21 11.03 4.30 29.54 per CDR LOA

Non-Sustainable FITL 17.76 15.45 7.75 40.96 as per CDR LOA WCTL 6.31 6.68 2.02 15.01

WC 37.60 30.14 20.72 88.46

Total 61.67 52.27 30.49 144.43

Grand Total 75.88 63.30 34.79 173.97

"

The Letter which is a proposal was sent by Director of the Corporate

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Debtor. Thus, again there is a clear acknowledgments of the debts

outstanding of the State Bank of India. This acknowledgment is dated June

15, 2016.

11. It is clear from the above that if that account of the Corporate Debtor

with the State Bank of India became NPA on 15.01.2013 there is firstly

acknowledgement in Letter dated 21st May, 2015 and then there is another

acknowledgment vide letter dated 15.06.2016 as referred above. As such,

Section 7 of IBC Application filed on 05th March, 2018 must be said to be

within limitation.

12. It is much argued for the Appellant that there has to be a categorical

acknowledgments and that Letter dated 25th May, 2015 to Canara Bank

could not be relied on. It would be appropriate to reproduce Section 18 of the

Limitation Act, 1963 which reads as under:

"18. Effect of acknowledgment in writing. --

(1) Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment of liability in respect of such 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.

(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872, oral evidence of its contents shall not be received.

Explanation.--For the purposes of this section,--

(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy,

Company Appeal (AT) (Ins) No. 1378 of 2019 11

or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;

(b) the word "signed" means signed either personally or by an agent duly authorised in this behalf; and

(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right."

It is clear from Clause (a) of the Explanation of Section 18 of the

Limitation Act that even if an acknowledgment is made to person other than

a person entitled to the property or right, still it shall fall in the definition of

Explanation below the Section 18 of the Limitation Act. The Learned Counsel

for the Appellant referred to the various earlier Judgments of the Hon'ble

Supreme Court of India. We are not burdening this Judgment with the

analysis made by the Ld. Counsel for Appellant of the earlier Judgments.

The Hon'ble Supreme Court of India itself has referred to its earlier

Judgments and legal positions with regard to the applicability of the

Limitation Act to provisions of IBC has made quite clear in recent Judgments

of Hon'ble Supreme Court of India in the matter of "Laxmi Pat Surana Vs.

Union Bank of India & Anr." MANU/SC/0221/2021

(Civil Appeal No. 2734 Of 2020), "ARCIL Vs. Bishal Jaiswal & Anr"

MANU/SC/0279/2021 (Civil Appeal No.323 Of 2021) and "Dena Bank vs. C.

Shivkumar Reddy & Anr." MANU/SC/0502/2021 (Civil Appeal No. 1650 of

2020). Now the legal position is quite clear with regard to the applicability of

Section 18 of the Limitation Act and other provisions of Limitation Act, as far

as may be. In view of the Hon'ble Supreme Court of India itself explaining

the law of limitation referring to its earlier Judgments, the earlier Judgments

referred to by the Learned Counsel for the Appellant do not require detailed

reference here.

Company Appeal (AT) (Ins) No. 1378 of 2019 12

13. For the above reasons, we find that there is no substance in the

Appeal. The Adjudicating Authority rightly found the Application to be within

limitation and has rightly admitted the Application filed by the State Bank of

India.

14. When this Appeal was filed, this Appellate Tribunal on 29th November,

2019 had granted interim relief directing the Interim Resolution Professional

not to constitute Committee of Creditors, till next date of hearing, if not yet

constituted. Subsequently the Interim Order has been continued during

pendency of the Appeal. We exercise powers under Rule 11 of NCLAT rules to

exclude period.

15. We proceed to pass the following order:

i. There is no substance in the Appeal, the Appeal is dismissed.

ii. Interim Order passed in this Appeal dated 29th November, 2019

does not survive. The period from 29th November, 2019 till today will be

excluded for the purpose of Section 12 of IBC. No costs.

[Justice A.I.S. Cheema] The Officiating Chairperson

[Kanthi Narahari] Member (Technical)

New Delhi Basant

Company Appeal (AT) (Ins) No. 1378 of 2019