Digamber Bhondwe, Director, Turning ... vs Jm Financial Asset Reconstruction ...

National Company Law Appellate Tribunal Principal Bench, New Delhi COMPANY APPEAL (AT) (INSOLVENCY) No. 187 of 2020 (Arising out of Order dated 10th January, 2020 passed by National Company Law Tribunal, Mumbai Bench, in C.P. (IB) No.- 3714/NCLT/MB/2019).

IN THE MATTER OF:

Digamber Bhondwe, Director Turning Point Estates Private Limited Shop No. 118, 1st Floor V Mall, Thakur Complex, Kandivali East Mumbai - 400101, Maharashtra, India ...Appellant

Versus

1. JM Financial Asset Reconstruction Company Limited (in capacity as Trustee of JMFARCO-UCO March 2014-Trust) 7th Floor, Cnergy, Appasaheb Marather Marg, Prabhadevi, Mumbai - 400025. ...Respondent No. 1

2. Turning Point Estates Private Limited Shop No. 118, 1st Floor V Mall, Thakur Complex, Kandivali East Mumbai - 400101, Maharashtra, India. ...Respondent No. 2

For Appellant: Mr. K. Datta, Sr. Advocate with Mr. Sunil Mund, Advocates.

For Respondent No. 1: Mr. Vivek Sibal, Sr. Advocate with Mr. Mohak Sharma, Mr. Abhishek Anand, Advocates for R- 1.

For Respondent No. 2 Mr. Kunal Kunungo, Ms. Tanushree Sogani and /RP: Mr. Atishay Jain, Advocates for R-2/RP.

JUDGEMENT

[Per; Shreesha Merla, Member (T)]

1. Aggrieved by the Impugned Order dated 10.01.2020 passed by the

Learned Adjudicating Authority (National Company Law Tribunal, Mumbai

Bench), in CP (IB) No.- 3714/NCLT/MB/2019, the Director of 'M/s. Turning

Point Estates Private Limited'/the 'Corporate Debtor' preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, (hereinafter

referred to as 'The Code'), challenging the Order of Admission of the Section

7 Application filed by the Respondent/'JM Financial ARC Ltd.'/the 'Financial

Creditor'.

2. The Adjudicating Authority, held that the Section 7 Application was

well within the period of Limitation and observed as follows:

"10. The Applicant has stated that Rs.25,87,87,909.98 was due and payable by the Corporate Debtor to the Applicant as on 22.10.2016. The account of the Corporate Debtor was declared as Non-Performing Asset by the Financial Creditor w.e.f. 31.03.2013. The Applicant filed original Application on 30.09.2013 under section 19 of the Recovery of Debts Due to Banks and Financial Institution Act, 1993 for Recovery of Debts. The Decree passed by Debt Recovery Tribunal, Jabalpur is in favour of Applicant stating that, "the Original Application is partly allowed and ordered as:

i. The Defendant No.1 and 7 are liable to pay jointly and severally Rs.65,33,48,041.98 with pendentelite and future interest @12%p.a. from the date of filling of the original Application i.e., 30.09.2013, with costs till its realization."

11. It is pertinent to note that out of the above dues, decreed amount of UCO Bank is Rs.25,87,87,908.98 as on the date filling of the original Application with DRT and the amount of Rs.44,57,95,852.82 as on 07.10.2019 together with interest and other charges till date of realization of all the outstanding dues. It is further noted that the Applicant filed current Application within period of 3 years from the date of Decree passed by Debt Recovery Tribunal, Jabalpur i.e., 22.10.2016 which is the date of default. Thus, the current Application filed by Applicant is not barred by the law of Limitation.

12. On perusal of the documents submitted by the Applicant, it is clear that financial debt amounting to more than 1,00,000/- (Rupees One Lakh Only) is due and payable by the Corporate Debtor to the Applicant. The Applicant filed current Application within period of 3 years from the date of Decree passed by Debt Recovery Tribunal, Jabalpur i.e., 22.10.2016 and

-2- Company Appeal (AT) (Insolvency) No. 187 of 2020 there is default by the Corporate Debtor in repayment of the loan amount Therefore, we do not have any objection on record against the application filed for initiation of CIRP against the corporate debtor."

3. Submissions of the Learned Sr. Counsel Mr. K. Datta appearing on

behalf of the Appellant:

• Learned Sr. Counsel strenuously contended that the Application is

'barred by Limitation' as the date of NPA is 31.03.2013, whereas the

Section 7 Petition was filed on 17.10.2019. The Respondent had

initially filed O.A. 228 of 2013 before the Debt Recovery Tribunal

('DRT'), Jabalpur seeking recovery of the loan. Vide Order dated

22.10.2016, DRT decreed the Original Application and directed the

issuance for Recovery Certificate. It is submitted that it is settled law

that the 'date of default' has to be the date of NPA and that the decree

cannot extend or renew the period of Limitation.

• It is further submitted that the decree passed by DRT does not fall

under the definition of 'Financial Debt' as defined under Section 5(8)

of the Code. The trigger for Insolvency on account of 'Financial Debt' is

not based on the 'decree' but on the 'default' as the time begins to run

from the 'date of default' and not from the date of decree.

• It is contended that the ground of winding up Petition under Section

434(1)(b) of the Companies Act, 1956 is not a case covered under the

Code. The ground 'a Company shall be deemed to be unable to pay its

debt if execution or other process issued on decree or Order of any

Court or Tribunal in favour of a Creditor of the Company is returned

and satisfied in whole or in part', is absent in the Code and hence the

Petition is not maintainable.

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Company Appeal (AT) (Insolvency) No. 187 of 2020 • The first Respondent for the first time in their Reply before this

Tribunal have pleaded extension of Limitation on new grounds which

were never pleaded before the Adjudicating Authority.

• A conjoint reading of Sections 3(6), 3(10), 3(11) & 3(12) of the Code

does not state that the 'default' accrues upon the date being

crystallized by a Court or a Tribunal and therefore it is to be

construed that the default occurred on 30.06.2013 which is 3 months

(90 days) subsequent to the date of NPA i.e., 31.03.2013.

• In support of his contentions that the Section 7 Petition is 'barred by

Limitation', Learned Sr. Counsel for the Appellant relied on the

following Judgements:

o 'B.K. Educational Services Private Limited' Vs. 'Parag Gupta and

Associates', 2018 SCC OnLine SC 1921.

o 'Jignesh Shah and Another' Vs. 'Union of India and Another',

2019 SCC OnLine SC 1254.

o 'Gaurav Hargovindbhai Dave' Vs. 'Asset Reconstruction Company

(India) Ltd. and Another', 2019 SCC OnLine SC 1239.

o 'Swiss Ribbons Private Limited and Another' Vs. Union of India

and Others', (2019) 4 SCC 17.

o 'Babulal Vardharji Gurjar' Vs. 'Veer Gurjar Aluminium Industries

Pvt. Ltd.', 2020 SCC OnLine SC 647.

o 'V. Padmakumar' Vs. 'Stressed Assets Stabilisation Fund (SASF)

& Anr.', Comp. App. (AT) (Ins.) No. 57 of 2020.

o 'Sh. G Eswara Rao' Vs. 'Stressed Assets Stabilisation Fund',

Comp. App. (AT) (Ins.) No. 1097 of 2019.

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Company Appeal (AT) (Insolvency) No. 187 of 2020

4. Submissions of the Learned Sr. Counsel Mr. Vivek Sibal,

appearing on behalf of the Respondents:

• Learned Sr. Counsel appearing for the Respondent submitted that the

Adjudicating Authority has rightly observed that the Petition was well

within the period of Limitation, taking into consideration the ratio of

the Hon'ble Supreme Court in 'Dena Bank (now Bank of Baroda) Vs. C.

Shivkumar Reddy & Anr.', (2021) 10 SCC 330. The DRT, Jabalpur on

22.10.2016 allowed the O.A. preferred by this Respondent and issued

Recovery Certificate against the Appellant. The Section 7 Application

was filed on 17.10.2019 and is therefore within the period of

Limitation prescribed under Article 137 of the Limitation Act, 1963.

• It is also submitted that entries in Balance Sheets amounts to

'acknowledgement of debt' and the Appellant in the Board Report

dated 03.08.2018, under the signature of the Appellant himself, filed

with the RoC, has admitted and acknowledged the 'Debt'. Further, the

'acknowledgement of debt' by the 'Corporate Debtor' on 25.09.2012,

04.12.2013, 02.09.2015, 26.08.2017 and on 03.08.2018, strengthens

that the Section 7 Petition is well within the period of Limitation.

• It is submitted that the Appellant in its Audited Financial Statement

pertaining to Financial Year ending on 31.03.2012, 31.03.2013 &

31.03.2015 admitted their liability towards the Answering Respondent

to the tune of Rs.23,59,17,493/-:

Particulars Amount Principal Interest Indian Overseas Bank 308,954,152 54,799,736 UCO Bank 198,249,906 37,667,587 Punjab National Bank 198,019,222 45,423,072 Total 70,52,23,280 13,78,90,395

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Company Appeal (AT) (Insolvency) No. 187 of 2020 • The 'Corporate Debtor' in its Audited Financial Statement pertaining

to Financial Year ending on 31.03.2017, admitted their liability

towards the Answering Respondent to the tune of Rs.23,59,17,493/-.

Further, the Auditor's report dated 26.08.2017 further discloses that

"in our opinion and according to the information and explanation

given to us, except as stated hereunder the Company has not

defaulted in repayment of dues to a Financial Institutions, Bank or

Debenture Holders:

Particulars Amount Principal Interest Indian Overseas Bank 308,954,152 54,799,736 UCO Bank 198,249,906 37,667,587 Punjab National Bank 198,019,222 45,423,072 Total 70,52,23,280 13,78,90,395

• The Learned Sr. Counsel relied on the following Judgements in

support of his case:

o 'M M Ramachandran' Vs. 'South Indian Bank Ltd. & Ors.',

Company Appeal (AT) (Insolvency) No. 1509 of 2019.

o 'Laxmi Pat Surana' Vs. 'Union Bank of India & Anr.', (2021) 8

SCC 481.

o 'Sesh Nath Singh & Anr.' Vs. 'Baidyabati Sheoraphuli Co-

Operative Bank Ltd. & Anr.', (2021) 7 SCC 313.

o 'V. Padmakumar' Vs. 'Stressed Assets Stabilisation Fund (SASF)

& Anr.', Comp. App. (AT) (Ins.) No. 57 of 2020.

o 'Asset Reconstruction Company (India) Limited' Vs. 'Bishal

Jaiswal & Anr.', 2021 SCC OnLine SC 321.

-6- Company Appeal (AT) (Insolvency) No. 187 of 2020 Assessment

5. The brief point which falls for consideration in this Appeal is whether

it is Section 7 Application preferred by the Respondent/'Financial Creditor'

is within the period of Limitation. For better understanding of the case, a

few dates are relevant:

• On 31.03.2013, the account of the 'Corporate Debtor'

was declared as an NPA and a Notice under Section

13(2) of the SARFAESI Act 2002 dated 18.05.2013 was

served by UCO Bank calling upon the 'Corporate Debtor'

to pay a sum of Rs.19,82,49,906/- within 60 days.

• On 26.03.2014, the UCO Bank assigned its outstanding

Debt Recovery from the Appellant to the Respondent

herein.

• On 22.10.2016, DRT Jabalpur decreed the Original

Application No. 228/2013 with the direction to the

'Corporate Debtor' to pay an amount of

Rs.65,33,48,041.98/-. A Recovery Certificate was issued

under Section 19(22) of Recovery of Debts Due to Banks

and Financial Institutions Act, 1993.

• On 23.06.2017, the Respondent initiated the process of

sale of assets of the 'Corporate Debtor'.

• On 17.10.2019, Section 7 Application was preferred by

the Respondent.

6. Learned Sr. Counsel for the Appellant has placed reliance on the

Judgement of this Tribunal in 'Sh. Sushil Ansal' Vs. 'Ashok Tripathi and

Ors.', Company Appeal (AT) Insolvency No. 452 of 2020 dated 14.08.2020, in

-7- Company Appeal (AT) (Insolvency) No. 187 of 2020 which this Tribunal has held that the 'Homebuyers who initiated the Section

7 proceedings did not approach the Adjudicating Authority in the purported

capacity of an Allottee but came in the capacity of the decree holders'. It was

held that the Respondents can no more claim to be Allotees of a Real Estate

Project after issuance of Recovery Certificate by RERA, this Judgement was

passed on a completely different premises and is not applicable to the facts

of this case as the main point for consideration which arises in this matter

is whether any Order/decree of the DRT and the Recovery Certificate issued

in favour of the 'Financial Creditor', would give rise to a fresh cause of action

to the 'Financial Creditor'. Subsequently vide Order dated 04.08.2021, the

Hon'ble Supreme Court in 'Dena Bank (now Bank of Baroda) Vs. C.

Shivkumar Reddy & Anr.', (2021) 10 SCC 330, held that Order/decree of the

DRT and the Recovery Certificate in favour of the 'Financial Creditor' would

extend the period of Limitation to initiate proceedings under Section 7 of the

Code. At this juncture, we find it apt to reproduce the relevant portions of

the Judgement:

"128. In the instant case, Rs.111 lakhs had been paid towards outstanding interest on 28th March, 2014 and the offer of One Time Settlement was within three years thereafter. In any case, NCLAT overlooked the fact that a Certificate of Recovery has been issued in favour of Appellant Bank on 25th May 2017. The Corporate Debtor did not pay dues in terms of the Certificate of Recovery. The Certificate of Recovery in itself gives a fresh case of action to the Appellant Bank to institute a petition under Section 7 of IBC.

The petition under Section 7 IBC was well within three years from 28th March 2014"................

..............................................................................

"132. We see no reason why the principles should not apply to an application under Section 7 of the IBC which enables a financial creditor to file an application initiating the Corporate Insolvency

-8- Company Appeal (AT) (Insolvency) No. 187 of 2020 Resolution Process against a Corporate Debtor before the Adjudicating Authority, when a default has occurred. As observed earlier in this judgment, on a conjoint reading of the provisions of the IBC quoted above, it is clear that a final judgment and/or decree of any Court or Tribunal or any Arbitral Award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7 of the IBC.".......

..............................................................................

"135. As observed above, the Appellant Bank filed the Petition under Section 7 of the IBC on 12th October 2018. Within three months, the Appellant Bank filed an application in the NCLT, for permission to place additional documents on record including the final judgment and order/decree dated 27.3.2017 in O.A. 16/2015 and the Recovery Certificate dated 25.05.2017, enabling the Appellant Bank to recover Rs.52 crores odd. The Judgement and order/decree of the DRT and the Recovery Certificate gave a fresh cause of action to the Appellant Bank to initiate a petition under Section 7 of the IBC."...............

..............................................................................

"138. A final judgment and order/decree is binding on the judgment debtor. Once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of Recovery is also issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the Recovery Certificate.

139. The Appellant Bank was thus entitled to initiate proceedings under Section 7 of the IBC within three years from the date of issuance of the Recovery Certificate. The Petition of the Appellant Bank, would not be barred by limitation at least till 24th May, 2020."........................

...........................................................................

"143. Moreover, a judgment and/or 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 for

-9- Company Appeal (AT) (Insolvency) No. 187 of 2020 the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if dues of the Corporate Debtor to the Financial Debtor, under the judgement and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid.

(Emphasis Supplied)

7. In the instant case, as can be seen from the dates, the decree passed

by the DRT is on 22.10.2016 and the Section 7 Application was filed within

three years on 17.12.2019. Keeping in view, the ratio of the Hon'ble Apex

Court in 'Dena Bank (now Bank of Baroda)' (Supra) the contention of the

Learned Sr. Counsel for the Appellant that a "decree" is not a ''Financial

Debt' as per Section 5(8) of the Code is untenable. The question here is not

whether a decree is a 'Financial Debt'. The issue here is whether a Recovery

Certificate/decree can extend the period of Limitation which has already

been answered by the Hon'ble Apex Court in 'Dena Bank (now Bank of

Baroda)' (Supra).

8. The Hon'ble Apex Court in 'Laxmi Pat Surana' Vs. 'Union Bank of India

& Anr.', (2021) 8 SCC 481, has held that 'Section 7 comes into play when the

'Corporate Debtor' commits default. Section 7, consciously used the expression

"Default"-not the date of notifying the loan amount of the Corporate Person as

NPA. Further, the expression "Default" has been defined under Section 3(12) to

mean non-payment of "debt" when whole or not part or instalment of the

amount of debt has become 'due and payable' and is not paid by the Debtor

or the 'Corporate Debtor', as the case may be'. Therefore, it is clear that what

has to be seen is essentially not the date of NPA, but actually the 'date of

default'. Hence, the contention of the Learned Sr. Counsel for the Appellant

-10- Company Appeal (AT) (Insolvency) No. 187 of 2020 that the date of NPA being 31.03.2013. The 'date of default' ought to have

been construed as 30.06.2013 (90 days later) and therefore Application is

'barred by Limitation', is unsustainable.

9. Additionally, the matter on record evidences that the Appellant herein

has acknowledged the debt in the Balance Sheets and as per the ratio of the

Hon'ble Apex Court in 'Asset Reconstruction Company (India) Limited' Vs.

'Bishal Jaiswal & Anr.', 2021 SCC OnLine SC 321, 'acknowledgement of debt'

in Balance Sheet would extend the period of Limitation under Section 18 of

the Limitation Act, 1963. It is pertinent to reproduce the relevant paragraph

hereunder:

"22. A perusal of the aforesaid Sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being 39 punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7). Equally, the auditor's report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills (supra), that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act."

10. In the instant case, it is not disputed that the debt has been

acknowledged in the Audited Financial Statements pertaining to the

Financial Year ending 31.03.2017, wherein the 'Corporate Debtor' has

admitted their liability to the tune of Rs.23,59,17,493/-. The Auditor's

-11- Company Appeal (AT) (Insolvency) No. 187 of 2020 Report dated 26.08.2017 also states that 'in our opinion and according to

the information and the explanation given to us, except as stated hereunder

the Company has not defaulted in repayment of dues to a Financial

Institutions, Bank or Debenture Holders:

Particulars Amount Principal Interest Indian Overseas Bank 308,954,152 54,799,736 UCO Bank 198,249,906 37,667,587 Punjab National Bank 198,019,222 45,423,072 Total 70,52,23,280 13,78,90,395

11. Having regard to the ratio of the Hon'ble Apex Court in 'Asset

Reconstruction Company India Ltd.' Vs. 'Tulip Star Hotels Ltd. and Ors.', Civil

Appeal No. 84-84 of 2020, wherein it has been stated that acknowledgement

in Balance Sheets further extends the period of Limitation and has observed

as follows:

"97. To sum up, in our considered opinion 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, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years.

98. In this case, the amount of the Corporate Debtor was declared NPA on 1st December 2008. By a letter dated 7th February, 2011, written well within three years, the Corporate Debtor acknowledged its liability and proposed a settlement. This was followed by several requests of extension of time to make payment and revised settlements. On 6th April, 2013, the Corporate Debtor sought extension of time to pay Rs.239,88,27,673 outstanding as on 31st March 2013. On 19th April, 2013, the Corporate Debtor made payment of Rs.17,50,00,000/-. On 1st July, 2013, the Corporate Debtor acknowledged its liability

- this was after the Appellant Financial Creditor revoked the settlement invoking the default clause. The Corporate Debtor acknowledged its liabilities in

-12- Company Appeal (AT) (Insolvency) No. 187 of 2020 its financial statements from 2008-09 till 2016-17. The application under Section 7(2) of the IBC was filed on 3rd April 2018, well within the extended period of limitation.

99. For the reasons discussed above, the impugned judgment and order is unsustainable in law and facts. The appeals are, accordingly allowed, and the impugned judgment and order of the NCLAT is set aside."

(Emphasis Supplied)

12. In the fourth CoC Meeting, the CoC Members resolved to go ahead

with the Liquidation Process. The RP filed the Status Report stating that on

29.12.2020 a Liquidation Application was filed before the Adjudicating

Authority, but has not yet come on board for hearing. Needless to add, the

Adjudicating Authority shall proceed in accordance with law.

13. For all the aforenoted reasons, this Tribunal is of the earnest view that

the Section 7 Application filed by the Respondent/'Financial creditor' is well

within the period of Limitation and hence this Appeal fails and is

accordingly dismissed. No order as to costs.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical) NEW DELHI 18th August, 2022 himanshu

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