Harsukhbhai P. Lakkad vs Bank Of Baroda (Erstwhile Dena Bank) & ...

Mr. Harsukbhai P. Lakkad ....Appellant

Vs.

Bank of Baroda (Erstwhile Dena Bank) & Anr. ....Respondents

Present:

For Appellant: Ms. Debolina Roy, Ms. Anshula Grover and Mr. Dhaval Mehrotra, Advocates.

For Respondents: Mr. Arun Aggarwal and Mr. Anup Kumar Pandey, Advocates.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

'Bank of Baroda' (erstwhile Dena Bank)- ('Financial Creditor') filed

an application under Section 7 of the Insolvency and Bankruptcy Code,

2016 ("I&B Code" for short) for initiation of the 'Corporate Insolvency

Resolution Process' against 'Sunrise Ginning Private Limited'-

('Corporate Debtor'). The Adjudicating Authority (National Company Law

Tribunal), Ahmedabad Bench, Ahmedabad, by impugned order dated

20th November, 2019 admitted the application.

2. Learned counsel for the Appellant submitted that the application

under Section 7 filed by the 'Bank of Baroda' is barred by limitation as 2

default took place on 1st June, 2015 and recorded as NPA on 28th

October, 2015.

3. Learned counsel appearing on behalf of the Respondents

submitted that the claim is not barred by limitation. The equitable

mortgage has already been detailed in the Affidavit under the head

'collateral security'. Therefore, Article 62 of the Limitation Act, 1963

would apply. As admittedly period of limitation 12 years would remain

there, the claim cannot be held to be barred by limitation.

Reliance has been placed on the decision of this Appellate

Tribunal in "A. Maheshwaran v. Stressed Assets Stabilization Fund

& Anr.− IV (2019) BC 171 (NCLAT)".

4. The 'Dena Bank' (now 'Bank of Baroda') by letter dated 27th

September, 2012 sanctioned cash credit hypothecation facility of

Rs.9,00,00,000/- in the favour of the 'Corporate Debtor'. Further, the

Respondent Bank sanctioned another cash credit hypothecation facility

of Rs. 1,50,00,000/- to the 'Corporate Debtor'.

5. As per the account statement filed by the Respondent Bank, the

'Corporate Debtor' defaulted in repayment of the loan facility on 31st

May, 2015. The account of the 'Corporate Debtor' was declared NPA on

28th October, 2015.

Company Appeal (AT) (Insolvency) No. 32 of 2020 3

6. After account was declared NPA, the Bank issued notice on 28th

December, 2015 under Section 13(2) of the SARFAESI Act, 2002 to the

'Corporate Debtor' demanding payment of an amount of

Rs.12,57,86,554.88/- within 60 days. The 'Corporate Debtor' filed

objections on 24.02.2016. The Bank thereafter took steps under Section

13(4) of the SARFAESI Act, 2002 on 8th March, 2016. On 10th March,

2016, the Bank also moved Original Application bearing O.A. No. 239 of

2016 before the Debt Recovery Tribunal, Ahmedabad for recovery of a

sum of Rs.13,07,14,630/- taking the date of trigger point of limitation

as 30th January, 2014.

7. On 26th July, 2016, the 'Corporate Debtor' disputed its liability

and action of the Respondent including Section 14 order passed by the

District Magistrate under the SARFAESI Act, 2002 and, therefore,

preferred a Securitisation Appeal No. 155 of 2016 before the Debt

Recovery Tribunal II Ahmedabad.

8. When the matter remained pending, the Bank moved application

under Section 7 on 19th October, 2018 for initiation of the 'Corporate

Insolvency Resolution Process' against the 'Corporate Debtor', in which

the impugned order has been passed.

9. In "B.K. Educational Services Private Limited Vs. Parag

Gupta and Associates─(2019) 11 Supreme Court Cases 633", the

Hon'ble Supreme Court held that for the purpose of Section 7, the

Company Appeal (AT) (Insolvency) No. 32 of 2020 4 Limitation Act, 1963 is applied from the date of inception of the Code.

The Hon'ble Supreme Court noticed Section 238A, inserted by

Insolvency and Bankruptcy Code (Second Amendment) Act, 2018,

which relates to the 'proceedings' or 'appeals' before the Adjudicating

Authority, the National Company Law Appellate Tribunal, the Debt

Recovery Tribunal or the Debt Recovery Appellate Tribunal.

However, as Section 238A does not deal with application under

Sections 7, 9 or 10 of the 'I&B Code', the decision of the Hon'ble

Supreme Court in "B.K. Educational Services Private Limited Vs.

Parag Gupta and Associates" (Supra) being law of land under Article

141 of the Constitution of India, Article 137 of the Limitation Act, 1963

will be applicable to application under Sections 7, 9 or 10 of the 'I&B

Code' since the date of inception of the Code (commencement of the

Code i.e. 1st December, 2016).

10. In "Jignesh Shah and another vs. Union of India and

another - (2019) 10 SCC 750", the Hon'ble Supreme Court taking into

consideration the fact of filing of an application under Sections 433 and

434 of the Companies Act, 2013 observed as follows:

"13. Dr Singhvi relied upon a number of judgments in which proceedings under Section 433 of the Companies Act, 1956 had been initiated after suits for recovery had already been filed. These judgments have held that the existence of such suit cannot be construed as having either revived a

Company Appeal (AT) (Insolvency) No. 32 of 2020 5

period of limitation or having extended it, insofar as the winding-up proceeding was concerned. Thus, in Hariom Firestock Ltd. v. Sunjal Engg. (P) Ltd., a Single Judge of the Karnataka High Court, in the fact situation of a suit for recovery being filed prior to a winding-up petition being filed, opined:

"8. ... To my mind, there is a fallacy in this argument because the test that is required to be applied for purposes of ascertaining whether the debt is in existence at a particular point of time is the simple question as to whether it would have been permissible to institute a normal recovery proceeding before a civil court in respect of that debt at that point of time. Applying this test and dehors that fact that the suit had already been filed, the question is as to whether it would have been permissible to institute a recovery proceeding by way of a suit for enforcing that debt in the year 1995, and the answer to that question has to be in the negative. That being so, the existence of the suit cannot be construed as having either revived the period of limitation or extended it. It only means that those proceedings are pending but it does not give the party a legal right to institute any other proceedings on that basis. It is well-settled law that the limitation is extended only in certain limited situations and that the existence of a suit is not necessarily one of them. In this view of

Company Appeal (AT) (Insolvency) No. 32 of 2020 6

the matter, the second point will have to be answered in favour of the respondents and it will have to be held that there was no enforceable claim in the year 1995, when the present petition was instituted."

14. Likewise, a Single Judge of the Patna High Court in Ferro Alloys Corpn. Ltd. v. Rajhans Steel Ltd. also held:

"12. ... In my opinion, the contention lacks merit. Simply because a suit for realisation of the debt of the petitioner Company against Opposite Party 1 was instituted in the Calcutta High Court on its original side, such institution of the suit and the pendency thereof in that Court cannot ensure for the benefit of the present winding- up proceeding. The debt having become time- barred when this petition was presented in this Court, the same could not be legally recoverable through this Court by resorting to winding-up proceedings because the same cannot legally be proved under Section 520 of the Act. It would have been altogether a different matter if the petitioner Company approached this Court for winding-up of Opposite Party 1 after obtaining a decree from the Calcutta High Court in Suit No. 1073 of 1987, and the decree remaining unsatisfied, as provided in clause (b) of sub- section (1) of Section 434. Therefore, since the

Company Appeal (AT) (Insolvency) No. 32 of 2020 7

debt of the petitioner Company has become time-barred and cannot be legally proved in this Court in course of the present proceedings, winding up of Opposite Party 1 cannot be ordered due to non-payment of the said debt."

Finally, the Hon'ble Supreme Court after taking into consideration

the date of default observed: -

"21. The aforesaid judgments correctly hold that a

suit for recovery based upon a cause of action that

is within limitation cannot in any manner impact

the separate and independent remedy of a winding-

up proceeding. In law, when time begins to run, it

can only be extended in the manner provided in the

Limitation Act. For example, an acknowledgment of

liability under Section 18 of the Limitation Act

would certainly extend the limitation period, but a

suit for recovery, which is a separate and

independent proceeding distinct from the remedy of

winding up would, in no manner, impact the

limitation within which the winding-up proceeding

is to be filed, by somehow keeping the debt alive for

the purpose of the winding-up proceeding.

xxx xxx xxx

Company Appeal (AT) (Insolvency) No. 32 of 2020 8

28. A reading of the aforesaid provisions would

show that the starting point of the period of

limitation is when the company is unable to pay its

debts, and that Section 434 is a deeming provision

which refers to three situations in which a company

shall be deemed to be "unable to pay its debts"

under Section 433(e). In the first situation, if a

demand is made by the creditor to whom the

company is indebted in a sum exceeding one lakh

then due, requiring the company to pay the sum so

due, and the company has for three weeks

thereafter "neglected to pay the sum", or to secure

or compound for it to the reasonable satisfaction of

the creditor. "Neglected to pay" would arise only on

default to pay the sum due, which would clearly be

a fixed date depending on the facts of each case.

Equally in the second situation, if execution or other

process is issued on a decree or order of any court

or tribunal in favour of a creditor of the company,

and is returned unsatisfied in whole or in part,

default on the part of the debtor company occurs.

This again is clearly a fixed date depending on the

facts of each case. And in the third situation, it is

Company Appeal (AT) (Insolvency) No. 32 of 2020 9

necessary to prove to the "satisfaction of the

Tribunal" that the company is unable to pay its

debts. Here again, the trigger point is the date on

which default is committed, on account of which the

company is unable to pay its debts. This again is a

fixed date that can be proved on the facts of each

case. Thus, Section 433(e) read with Section 434 of

the Companies Act, 1956 would show that the

trigger point for the purpose of limitation for filing of

a winding-up petition under Section 433(e) would

be the date of default in payment of the debt in any

of the three situations mentioned in Section 434."

11. Similar issue fell for consideration before the Hon'ble Supreme

Court in "Gaurav Hargovindbhai Dave vs. Asset Reconstructions

Company (India) Limited and another - (2019) 10 SCC 572". In the

said case, the Hon'ble Supreme Court has noticed that the Respondent

was declared NPA on 21st July, 2011. The Bank had filed two OAs

before the Debts Recovery Tribunal in 2012 to recover the total debt.

Taking into consideration the facts, the Supreme Court held that the

default having taken place and as the account was declared NPA on 21st

July, 2011, the application under Section 7 was barred by limitation.

For proper appreciation, it is better to note the facts of the

judgment as follows: -

Company Appeal (AT) (Insolvency) No. 32 of 2020 10

"In the present case, Respondent 2 was declared NPA on 21-7-2011. At that point of time, State Bank of India filed two OAs in the Debts Recovery Tribunal in 2012 in order to recover a total debt of 50 crores of rupees. In the meanwhile, by an assignment dated 28-3-2014, State Bank of India assigned the aforesaid debt to Respondent 1. The Debts Recovery Tribunal proceedings reached judgment on 10-6-2016, the Tribunal holding that the OAs filed before it were not maintainable for the reasons given therein.

2. As against the aforesaid judgment, Special Civil Application Nos. 10621-622 were filed before the Gujarat High Court which resulted in the High Court remanding the aforesaid matter. From this order, a special leave petition was dismissed on 27- 3-2017.

3. An independent proceeding was then begun by Respondent 1 on 3-10-2017 being in the form of a Section 7 application filed under the Insolvency and Bankruptcy Code in order to recover the original debt together with interest which now amounted to about 124 crores of rupees. In Form-I that has statutorily to be annexed to the Section 7 application in Column II which was the date on which default occurred, the date of the NPA i.e. 21-

72011 was filled up. The NCLT applied Article 62 of the Limitation Act which reads as follows:

"Description of suit Period of Time from which period limitation begins to run

Company Appeal (AT) (Insolvency) No. 32 of 2020 11

62. To enforce Twelve When the money sued payment of money years for becomes secured by a due."

mortgage or otherwise charged upon immovable property

Applying the aforesaid Article, the NCLT reached the conclusion that since the limitation period was 12 years from the date on which the money suit has become due, the aforesaid claim was filed within limitation and hence admitted the Section 7 application. The NCLAT vide the impugned judgment held, following its earlier judgments, that the time of limitation would begin running for the purposes of limitation only on and from 1-12-2016 which is the date on which the Insolvency and Bankruptcy Code was brought into force.

Consequently, it dismissed the appeal.

4. Mr Aditya Parolia, learned counsel appearing on behalf of the appellant has argued that Article 137 being a residuary article would apply on the facts of this case, and as right to sue accrued only on and from 21-7-2011, three years having elapsed since then in 2014, the Section 7 application filed in 2017 is clearly out of time. He has also referred to our judgment in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates [B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633] in order to buttress his argument that it is Article 137 of the Limitation Act which will apply to the facts of this case.

Company Appeal (AT) (Insolvency) No. 32 of 2020 12

5. Mr Debal Banerjee, learned Senior Counsel, appearing on behalf of the respondents, countered this by stressing, in particular, para 11 of B.K. Educational Services (P) Ltd. and reiterated the finding of the NCLT that it would be Article 62 of the Limitation Act that would be attracted to the facts of this case. He further argued that, being a commercial Code, a commercial interpretation has to be given so as to make the Code workable.

6. Having heard the learned counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being "an application"

which is filed under Section 7, would fall only within the residuary Article 137. As rightly pointed out by the learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21-7- 2011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr Banerjee's reliance on para 11 of B.K. Educational Services (P) Ltd., suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred.

7. This being the case, we fail to see how this para could possibly help the case of the respondents. Further, it is not for us to interpret, commercially or otherwise, articles of the Limitation Act when it is clear that a particular article gets attracted. It is well settled that there is no equity

Company Appeal (AT) (Insolvency) No. 32 of 2020 13

about limitation - judgments have stated that often time periods provided by the Limitation Act can be arbitrary in nature.

8. This being the case, the appeal is allowed and the judgments of the NCLT and NCLAT are set aside."

12. Therefore, it will be evident that for triggering application under

Section 7 the date of default is to be noticed for counting the period of

limitation under Article 137 of the Limitation Act, 1963.

13. Application in Form-1 (under Section 7) was filed by the Bank on

19th October, 2018. Therein the date of default has been shown as 28th

October, 2015 i.e. the date of NPA. This is apparent from the relevant

extract of Part IV of Form-1, which reads as follows:

"Part-IV

2. AMOUNT CLAIMED TO BE Rs.17,13,47,983-88 Ps. As IN DEFAULT AND THE on 30-09-2018 DATE ON WHICH THE (Rs.11,98,45,722-88 Ps.

DEFAULT OCCURRED Principal amount + (ATTACH THE WORKINGS Rs.4,35,17,417-00 Ps. FOR COMPUTATION OF Uncharged interest from AMOUNT AND DAYS OF 01-06-2015 to 30-09-2018 DEFAULT IN TABULAR +Rs.79,84,844-00 Ps. FORM) Penal interest from 01-06- 2015 to 30-09-2018).

Date on which default occurred is 28-10-2015, on which date the account was classified as "Non Performing Asset" (NPA).

Company Appeal (AT) (Insolvency) No. 32 of 2020 14

14. To find out as to what is the exact date of default, we have gone

through the records enclosed by the Appellant and not disputed by the

Respondent Bank.

15. The Appellant has brought on record a photocopy of Original

Application No. 239 of 2016 filed on 10th March, 2016 by 'Dena Bank'

enclosed as Annexure A-5 before the Debts Recovery Tribunal No.II at

Ahmedabad under Section 19 of the Recovery of Debts Due to Banks

and Financial Institutions Act, 1993. 'Dena Bank' was the Appellant

therein. 'M/s. Sunrise Ginning Private Limited' ('Corporate Debtor') was

the Defendant No.1. In paragraph 5 (5.l) therein, 'steps taken under

Securitisation Act' has been pleaded showing issuance of Notice under

Section 13(2) on 3rd September, 2014 on declaration of NPA. The

photocopy bears stamp of the 'Dena Bank', as extracted below:

"(5.l) STEPS TAKES UNDER SECURITISATION ACT

That defendant no.1 has committed default in

repayment of the aforesaid facilities of Cash Credit

as a result whereof the said facility has been

declared as 'non performing assets' as per the

Reserve Bank of India's guideline and direction.

The applicant-Bank therefore constrained to issue

notice under Section 13(2) of the Securitisation and

Company Appeal (AT) (Insolvency) No. 32 of 2020 15

Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002

(hereinafter referred to as 'Securitisation Act') on

3rd September 2014 and demanded the payment of

Rs.12,57,86,554/88 under the said facilities within

60 days from the receipt of the said notice by the

defendants. Inspite of the service of the said notice,

the defendants have failed to make payment of the

said total amount of Rs.12,57,86,554/88. The

authorized officer of the applicant Bank will take

further action under the provision of the SARFAESI

Act. The action to be taken by Authorized Officer

appointed by the applicant-Bank under the

Securitisation Act is independent action and the

same will not affect the right of the applicant-Bank

to recover the debt by enforcing its remedy under

R.D.B Act."

16. From the aforesaid fact, it will be evident that Section 13(2) notice

was issued on 3rd September, 2014 as the 'Corporate Debtor' (Defendant

No.1) committed default in repayment of the said cash credit facilities

after the said facility has been declared as NPA.

Company Appeal (AT) (Insolvency) No. 32 of 2020 16

17. In paragraph 7(v) of the appeal, the Appellant has specifically

pleaded that the date of default as per the Respondent's own statement

of account is (i) A/c No. 14111331015- 31.05.2015 and (ii) A/c No.

141113031020- over due on 30.09.2015. In reply Affidavit, the Bank

has merely disputed the aforesaid fact and pleaded that the credit

facility has already NPA and the same has correctly been declared so.

18. In the year 2016, before the Debt Recovery Tribunal, the Bank

had already pleaded that the cash credit facility has been declared as

'NPA' on 30th January, 2014. Such plea has been taken as back as in

the year 2016. It emerges from perusal of O.A. No. 239 of 2016 filed

before the Debt Recovery Tribunal No.II at Ahmedabad that the

aforesaid cash credit facility has been declared as NPA culminating in

issuance of notice under Section 13(2) of the SARFAESI Act, 2002 on 3rd

September, 2014. It is abundantly clear that the cash credit facility

stands declared as NPA prior to issuance of notice under Section 13(2)

of the SARFAESI Act, 2002 which happened on 3rd September, 2014.

Even if date of default in the context of cash credit facility being

declared as NPA is taken as 3rd September, 2014, application under

Section 7 of the 'I&B Code' having been filed on 19th October, 2018 is

clearly beyond three years and as such barred by limitation. Showing a

subsequent date of NPA i.e. 28th October, 2015, the Bank cannot derive

advantage of filing an application under Section 7 to suggest that it is

within the time of three years.

Company Appeal (AT) (Insolvency) No. 32 of 2020 17

19. In the facts and circumstances of the case, we hold that the

application under Section 7 has not been filed within three years from

the date of default/ NPA having been declared before 3rd September,

2014, as pleaded before the Debt Recovery Tribunal, Ahmedabad in

Original Application No. 239 of 2016. As the application under Section

7 being barred by limitation, we also hold that the application was not

maintainable and was fit to be dismissed.

20. We, accordingly, set aside the impugned order dated 20th

November, 2019 passed by the Adjudicating Authority, Ahmedabad

Bench, Ahmedabad and dismiss the application under Section 7 filed by

the Bank of Baroda.

21. In effect, order(s), passed by the Adjudicating Authority

appointing 'Interim Resolution Professional', declaring moratorium,

freezing of account, and all other order (s) passed by the Adjudicating

Authority pursuant to impugned order and action, if any, taken by the

'Interim Resolution Professional', including the advertisement, if any,

published in the newspaper calling for applications all such orders and

actions are declared illegal and are set aside. The application

preferred by Respondent under Section 7 of the 'I&B Code' is

dismissed. Learned Adjudicating Authority will now close the

proceeding. The 'Corporate Debtor' (company) is released from all the

Company Appeal (AT) (Insolvency) No. 32 of 2020 18

rigour of law and is allowed to function independently through its

Board of Directors from immediate effect.

22. The Adjudicating Authority will fix the fee of 'Interim Resolution

Professional' and 'corporate insolvency resolution process cost' and

'Bank of Baroda' will pay the fees of the 'Interim Resolution Professional'

and 'corporate insolvency resolution process cost', as may be

determined.

The appeal is allowed with aforesaid observation and direction.

However, in the facts and circumstances of the case, there shall be no

order as to cost.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI 12th March, 2020

AR

Company Appeal (AT) (Insolvency) No. 32 of 2020