Hemant Goenka vs Uco Bank & Anr

Hemant Goenka ...Appellant

Versus

UCO Bank & Anr. ...Respondents

Present: For Appellant: Mr. A. Prasad, Sr. Advocate with Mr. Rivesh Agrawal, Mr. Teejas Bhatia, Advocates For Respondent:

ORDER

23.08.2022: Heard Learned Sr. Counsel for the Appellant.

2. This Appeal has been filed against the Order dated 22nd June, 2022

passed by the Adjudicating Authority. By which Order, the Application under

Section 7 filed by the UCO Bank-the Respondent herein has been admitted.

3. The UCO Bank has sanctioned financial credit facilities to the Corporate

Debtor on different dates. The UCO Bank declared the Corporate Debtor as

Non-Performing Assets on 30.09.2012 and thereafter Notices were issued

under Section 13(2) of the SARFAESI Act, 2002. The Corporate Debtor has

taken steps to challenge the proceedings before the DRT, the UCO Bank filed

an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016

on 28th March, 2019 being CP(IB) No. 600/KB/2019 on which notices were

issued. An exhaustive Reply was filed by the Corporate Debtor. The UCO Bank

had also filed a supplementary affidavit. By the impugned Order, the -2-

Adjudicating Authority has admitted Section 7 Application under Insolvency

and Bankruptcy Code, 2016.

4. Learned Counsel for the Appellant challenging the Order contends that

the Application filed by the Bank was barred by time and reasons given by the

Adjudicating Authority in paragraph 11.3 are not sufficient to hold that there

was extension of limitation under Section 18 of the Limitation Act since the

entries in the Balance-Sheets year 2012-13 to 2018-19 have not been looked

into as per law laid down by the Hon'ble Supreme Court in "Asset

Reconstruction Company (India) Limited Vs. Bishal Jaiswal & Anr."

[(2021) 6 SCC 366]. He further submits that the Balance Sheets also

contained the notes of Auditor when it is read, it is clear that the Balance

were not confirmed hence the acknowledgment cannot be said to be

acknowledgment within the meaning of Section 18 of the Limitation Act. He

further submits that although the submissions were made only on the

question of limitation but the Adjudicating Authority proceeded to admit the

Application. It is further submitted by Learned Counsel that although the

Order was passed on 22nd June, 2022 but IRP has neither taken charge nor

issued any publication.

5. We have heard the submissions of Learned Counsel for the Appellant

and have perused the record.

6. The reasons given by the Adjudicating Authority for rejecting the

submissions of the Appellant that Section 7 Application was barred by time

is contained in paragraph 11.3 which is to the following effect:

Company Appeal (AT) (Insolvency) No. 992/2022 -3-

"11.3 The second contention of the Corporate Debtor is that the instant petition is barred by limitation. It can be seen that the date of default is mentioned to be 30.09.2012 i.e. the date on which the account became NPA. Accordingly, the limitation period for filing the application would ordinarily end on 30.09.2015.

However, balance sheets of the Corporate Debtor from the year 2012 to 2019 have been placed on record by the Financial Creditor in the supplementary affidavit dated 06.02.2020. In these Balance Sheets, multiple acknowledgements of debt to the Financial Creditor have been made by the Corporate Debtor, specifically, the Corporate Debtor has acknowledged the debt in the balance sheets of Financial Years 2012-13, 2014-15, 2015-16, 2016-17, 2017-18 and 2018-19.

.............."

7. Learned Counsel for the Appellant has referred to the Judgement of the

Hon'ble Supreme Court in "Asset Reconstruction Company (India) Ltd. Vs.

Bishal Jaiswal & Anr." paragraph 21 and 35 which are to the following effect:

"21. Importantly, this judgment in Bengal Silk Mills holds that though the filing of a balance sheet is by compulsion of law, the acknowledgement of a debt is not necessarily so. In fact, it is not uncommon to have an entry in a balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor's report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgement of debt for reasons given in the said note.

Company Appeal (AT) (Insolvency) No. 992/2022 -4-

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

35. 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 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."

8. The law laid down by the Hon'ble Supreme Court in the above judgment

is clear. It has been held that whether an acknowledgment is an

acknowledgment within the meaning of Section 18 of the Limitation Act

depends on the facts of each case and as to whether an entry made in Balance

Company Appeal (AT) (Insolvency) No. 992/2022 -5-

sheet qua any particular year is unequivocal or has been entered into with

caveats has to be examined on case to case basis.

9. Learned Counsel for the Appellant has referred to balance sheets of the

Corporate Debtor which have been brought on record along with the Appeal.

We may refer the balance sheet along with the Auditor's note for consideration

of the submissions made by the Appellant. The Balance sheet as for the year

ending 31st March, 2018 is at page 189A of the Paper Book and at page 189B

with the heading "Long Term Borrowings". Following details of the loan from

UCO Bank has been mentioned the aforesaid entry in the balance sheet is in

following words:

Particulars As on As on As on As on 31/03/2018 31/03/2017 31/03/2018 31/03/2017 2.3 LONG-

TERM BORROWINGS Secured (Refer to note no.

2.28 and 2.30) A. Loans from Bank UCO Bank 102306268 21922772 80383496 Term Loan 1 UCO Bank 34813900 10879344 23934556 Term Loan 2 UCO Bank 17809766 17809766 CC Account

10. Learned Counsel for the Appellant has referred to the notes of Auditor

in the Report on the Financial Statement. He has referred to paragraph 1

which is to the following effect:

Company Appeal (AT) (Insolvency) No. 992/2022 -6-

"1. Refer to Note No. 2.25, which states that -

"During the current year as well as from the financial year 2012-13, the Company has not provided any interest on the following back accounts, as the bank has declared the account as NPA.

i. Term Loan 1 ii. Term Loan 2 iii. U.CO. Bank CC Account iv. External Commercial Borrowings

Instalment of Term Loans from UCO Bank, which was to begin from December 2011, but not a single instalment has been repaid during the year. Also repayment of External Commercial Borrowing has not been done. The quantification of interest payable has not been done in absence of bank confirmation." Any information on subsequent movements on the case is not known to us."

11. When we read the entry in the balance sheet as extracted above along

with the Auditor's Notes the said notes in no way detract the acknowledgment

under Section 18 of the Limitation Act. The loan is acknowledged by the entry

in the balance sheets and the opinion expressed by the Auditor cannot be

read to mean that acknowledgement in balance sheet is detracted in any

manner. Learned Counsel for the Appellant has also referred to management

contention towards dispute with the UCO Bank with regard to the Balance

Sheet ending as on 31st March, 2016 page 260 which is paragraph 2.25 is to

the following effect:

"2.25 Management Contention towards dispute with UCO Bank

Company Appeal (AT) (Insolvency) No. 992/2022 -7-

The Company had received its first sanction letter in December 2005 in which the interest rate of BPLR - 2.5% was awarded. The completion of the commercial operation date was Oct-2008.

The company invested more than 900 lacs into the project. A revalidated sanction was received after a delay of nearly 3 yrs from the initial sanction but was also drastically different from earlier one wherein the interest rate was BPLR +2.5% instead of BPLR - 2.5% (an increase of 6% in effective interest rate).

The Company was compelled to accept this sanction as it had already invested more than Rs. 900 Lacs and 4 years into the project.

The letter of credit for the import of machinery had been opened for Rs. 463 Lacs in June 2008. After the expiry of the L/C in Feb 2009 the company availed suppliers credit till Feb 2010. After that it was converted into buyers credit.

The Company applied for a fresh Term Loan of Rs. 475 lacs in December 2008. In July 2009 a new sanction was given after 8 months for a term loan of Rs. 352 Lacs increasing the liability of the buyers credit to Rs. 538 Lacs and earmarking Rs. 300 Lacs as Term Loan 1 and Rs. 238 Lacs as Term Loan 2. The rationale behind the increase of foreign exchange liability in the middle of its tenure is questionable. Hence, the company only accepts the value of Rs. 463 Lacs as its liability for letter of credit.

Company Appeal (AT) (Insolvency) No. 992/2022 -8-

The benefit of interest subsidy under TUFS for term loan 2 has not been cleared by the bank inspite of several requests and furnishing of all the requisite papers for the application. The Company hence claims an amount of Rs. 28.43 lacs as the 5% TUFF subsidy to be received in its books from the year 2009 till March 2012 and further claim the amount as and when it is known.

The company had made a claim of Rs. 130 lacs in the year 2010 and the bank had accepted erroneous application of excess interest and charges but refunded only 18.39 lacs and the rest was regretfully disallowed as it was already treated as their income. The company now claims the rest of the money amounting to Rs. 111.61 lacs from the bank.

The Company received another sanction in June 2010 wherein the bank approved of the additional cost of the project to Rs. 718 Lacs which was to be funded by Rs. 557 lacs via ECB, a release of the company's FDR of Rs. 100 Lacs, as this Rs. 100 Lacs was to be invested in the project and a further project margin contribution of Rs. 62 lacs. The company received the sanction letter on 16/06/2010/

This FDR of Rs. 100 lacs was not released and the company was forced to bring in excess capital to the tune of Rs. 166 lacs instead of Rs. 62 lacs. Thereafter the 100 lacs of FDR should have been released, but was not released.

Company Appeal (AT) (Insolvency) No. 992/2022 -9-

After completion of the project and achieving the COD, the Company submitted a proposal for enhancement of working capital limits on 31.01.2011. The Company had requested for enhancement of cash credit limit to Rs. 26 crores and Bank Guarantee Limit to Rs. 5.57 crores in their submitted proposal. It was discussed and agreed between the company and the bank that working capital was essential to enable the company to pay the Term Loan on schedule and as a result of which the Bank issued the company fresh sanctions of working capital limits from June 2012 to 29/09/2012. This sanction however contained terms and conditions that were not possible to be complied with and the company did not accept the sanction.

......................."

12. The Managements Contention as noted above itself give details of

financial facilities/credit facilities taken from the Bank time to time and the

statement noted above clearly acknowledge the debt of the Bank.

13. Learned Counsel for the Appellant has also referred to counter claim by

the Company. When the acknowledgment is unequivocal and Auditor's

opinion in any manner does not detract it from being an acknowledgment

under Section 18 of the Limitation Act, we are of the view that the mere fact

that the financial document contains a counter claim shall not in any manner

take away the acknowledgment under Section 18 of the Limitation Act. The

Adjudicating Authority has rightly held that the balance sheets contain the

Company Appeal (AT) (Insolvency) No. 992/2022 -10-

acknowledgment under Section 18 hence the Application under Section 7 was

not barred by time.

14. It is further to be noticed that the financial documents have been

prepared in the normal course of business and submitted under the

Companies Act.

15. The submission of Learned Counsel for the Appellant that only question

of limitation was argued hence the Adjudicating Authority ought not to have

admitted the Application does not commend us. When we look into the

Impugned Order, all contentions have been noticed and order has been

passed admitting the Application. In so far as the last Submission of Learned

Counsel for the Appellant that IRP has not yet taken charge nor has issued

any publication, it is always open for the Appellant to make appropriate

application before the Adjudicating Authority which may take further action

in accordance with law.

With these observations, we dismiss the Appeal.

[Justice Ashok Bhushan] Chairperson

[Justice M. Satyanarayana Murthy] Member (Judicial)

[Mr. Barun Mitra] Member (Technical)

Basant/nn

Company Appeal (AT) (Insolvency) No. 992/2022