Hussan Kadri vs Edelweiss Asset Reconstruction Co. Ltd

(Arising out of Order dated 25th July, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad in C.P. (I.B) No. 407/7/NCLT/AHM/2018)

IN THE MATTER OF:

Hussan Kadri ....Appellant

Versus

Edelweiss Asset Reconstruction Co. Ltd. & Anr. .....Respondents

Present:

For Appellant: Mr. Ramesh K. Mishra and Mr. Manasvi Thapar, Advocates.

For Respondents: Mr. Amit Singh Chadha, Senior Advocate with Mr. R.P. Aggarwal, Ms. Srishti Govil, Mr. Sahil Mongia, Mr. Nitish Kumar, Advocates.

BANSI LAL BHAT, J.

The limited question involved in this appeal is whether the

application under Section 7 of the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as "I&B Code") filed by Respondent No.1-

'Edelweiss Asset Reconstruction Company Limited'- ('Financial

Creditor') is barred by limitation.

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2. Application filed by the 'Financial Creditor' seeking initiation of

'Corporate Insolvency Resolution Process' in respect of Respondent No.2

'M/s. K.K. Kadri Paper Mills Pvt. Ltd.' ('Corporate Debtor') for alleged

default in discharge of liability in respect of financial debt to the tune of

Rs.44,51,74,964/- came to be admitted in terms of the impugned order

dated 25th July, 2019 passed by the Adjudicating Authority (National

Company Law Tribunal), Ahmedabad Bench, Ahmedabad which is

primarily challenged on the ground that the application is barred by

limitation. For understanding the controversy raised in appeal, it would

be appropriate to advert to the factual matrix of the case in brief.

3. The 'Corporate Debtor' approached the Bank of Baroda in 2011 to

extend credit facilities for promoting its business. The said Bank

sanctioned loan in the form of Cash Credit, Letter of Credit and various

Term Loan Facilities amounting to Rs. 14.80 Crores to the 'Corporate

Debtor' vide Sanction Letter dated 6th January, 2011. The loan was

secured by executing various documents by the 'Corporate Debtor'.

However, the 'Corporate Debtor' failed to repay the loan amount despite

demand by the 'Financial Creditor'. The 'Corporate Debtor' executed

letters of continuing security/ revival letters dated 18th January, 2011

and 11th May, 2012 as also letters acknowledging its liability on 9th

May, 2012 and 11th May, 2012. This was supported by the Resolution of

the Board of Directors of the 'Corporate Debtor'. The 'Bank of Baroda',

vide Assignment Agreement dated 26th March, 2014 assigned the debts

Company Appeal (AT) (Insolvency) No. 1073 of 2019 3

of the Respondent Company to the 'Financial Creditor' who worked out

the liability of the 'Corporate Debtor' to the tune of Rs.44,51,74,964/-

as on 31st July, 2018 which was payable and the 'Corporate Debtor'

defaulted in discharging its outstanding liability.

4. It is contended on behalf of the Appellant that neither the

document dated 20th August, 2014 nor the document dated 13th

November, 2015 or the OTS dated 02nd December, 2015 amount to

acknowledgment under Section 18 of the Limitation Act, 1963 and even

if such document is assumed to have the character of acknowledgment

of debt on the part of the 'Corporate Debtor', such acknowledgment and

payment of Rs.1,47,50,000/- made in pursuance of OTS having been

made after the expiry of limitation period would not extend the period of

limitation as the claim of the 'Financial Creditor' would be barred by

limitation. It is worth mentioning that the Appellant has not disputed

any document or communication inter se the parties including the letter

dated 20th August, 2014 filed by the 'Financial Creditor'. It is thus

evident that making of part payment on 5th December, 2015 and 31st

March, 2016 alluded to by the 'Financial Creditor' in its affidavit dated

24th October, 2019 as having been effected in pursuance of the OTS

dated 02nd December, 2015, is not disputed, rebutted or controverted

by the 'Corporate Debtor', who harps on the tune of the application

under Section 7 being hit by limitation on the plea that such documents

had been executed after the expiry of period of limitation.

Company Appeal (AT) (Insolvency) No. 1073 of 2019 4

5. Per contra, it is submitted on behalf of 'Financial Creditor' that

the financial debt has not been disputed by the 'Corporate Debtor' who

defaulted in discharging the liability qua such financial debt

culminating in such debt being declared NPA on 30th September, 2012.

Reference is also made to OTS proposal emanating from the 'Corporate

Debtor' admitting liability as on 26th March, 2014, followed by letter

dated 13th November, 2015 admitting liability or making offer of

settlement to the tune of Rs.9.5 Crores. It is submitted that this was

followed by another acknowledgment of liability in the nature of

Settlement Terms agreed upon inter se the parties on 02nd December,

2015 and payment of Rs.47.50 lakhs was made in pursuance of such

Settlement Terms on 05th December, 2015, further followed by deposit

of Rs.1 Crore by way of cheque with further payment of Rs.1.5 Crore on

09th February, 2017, thereby giving fresh lease of life to the claim on

account of financial debt with limitation commencing from 09th

February, 2017. Reference is also made to another letter emanating

from 'Corporate Debtor' on 19th March, 2018. It is further submitted

that the application under Section 7 of the 'I&B Code' was filed on 16th

August, 2018 i.e. within three years from the last acknowledgment of

debt as also from the date of part payment having been made by the

'Corporate Debtor'. Thus, the plea of limitation raised by the Appellant

has no substance.

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6. After hearing learned counsel for the parties and rummaging

through the record, we find that the facts with regard to advancement of

loan facility by the 'Bank of Baroda' to the 'Corporate Debtor' and

assignment of debt to the 'Financial Creditor' are not in controversy. It

is also not in dispute that the outstanding liability qua the financial

debt was declared as NPA on 30th September, 2012 and Demand Notice

was issued on 01st October, 2012 by the 'Bank of Baroda' who

subsequently assigned the debt to the 'Financial Creditor'. Further

notice of demand appears to have been issued by the 'Financial

Creditor' on 9th July, 2015. These facts clearly emerge from the

application of 'Financial Creditor' in Form-1 filed before the

Adjudicating Authority on 16th August, 2018 (Page 87-98 of the appeal

paper book). It is by now well settled that an application under Section

7 of the 'I&B Code' is governed by Article 137 of the Limitation Act,

1963 prescribing three years' time for triggering of the 'Corporate

Insolvency Resolution Process' and such period of limitation is to

commence from the date the financial debt is declared as NPA.

Reference in this regard may be made to the dictum of law laid down by

the Hon'ble Apex Court in "Gaurav Hargovindbhai Dave vs. Asset

Reconstruction Company (India) Ltd. & Ors.− (2019) 10 Supreme

Court Cases 572". Section 3 of the Limitation Act, 1963 dealing with

bar of limitation inter alia provides that every application made after the

prescribed period shall be dismissed, although limitation has not been

set up as a defence. This general Rule has been subjected to the

Company Appeal (AT) (Insolvency) No. 1073 of 2019 6

provisions contained in Sections 4 to 24 of the Limitation Act, 1963

dealing with extension and exclusion of time in certain eventualities and

effect of acknowledgment in writing and effect of payment on account of

debt or of interest on legacy made before expiration of prescribed period.

Sections 18 and 19 of the Limitation Act, 1963, relevant for disposal of

this appeal are reproduced hereunder:

"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 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 (1 of

1872), oral evidence of its contents shall not be

received.

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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, 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."

"19. Effect of payment on account of debt or of

interest on legacy.--Where payment on account of

a debt or of interest on a legacy is made before the

expiration of the prescribed period by the person

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liable to pay the debt or legacy or by his agent duly

authorised in this behalf, a fresh period of limitation

shall be computed from the time when the payment

was made:

Provided that, save in the case of payment of

interest made before the 1st day of January, 1928,

an acknowledgment of the payment appears in the

handwriting of, or in a writing signed by, the person

making the payment.

Explanation.--For the purposes of this

section,--

(a) where mortgaged land is in the possession

of the mortgagee, the receipt of the rent or

produce of such land shall be deemed to be a

payment;

(b) "debt" does not include money payable

under a decree or order of a court."

7. The effect of Section 18 of the Limitation Act, 1963 is that an

acknowledgment of liability in respect of a right made in writing and

signed by the debtor before expiration of prescribed period for a suit or

an application would result in a fresh period of limitation being

computed from the time when acknowledgment was so signed. It is

abundantly clear that such acknowledgment of liability must be made

Company Appeal (AT) (Insolvency) No. 1073 of 2019 9

by the debtor in writing and signed by him before the expiration of

prescribed period of limitation. Interpreting this provision in "Hiralal

vs. Badkulal reported in AIR 1953 SC 225", the Hon'ble Apex Court

held that an unqualified acknowledgment of liability by a party not only

saves the period of limitation but also gives a cause of action to the

plaintiff to base its claim. Same principle was reiterated in "Syndicate

Bank v. R. Veeranna and Ors. reported in (2003) 2 SCC 15". Again

in "J.C. Budhraja v. Orissa Mining Corporation Limited & Anr.

reported in (2008) 2 SCC 444", the Hon'ble Apex Court held as under:

"21. It is now well settled that a writing to be an

acknowledgement of liability must involve an

admission of a subsisting jural relationship

between the parties and a conscious affirmation of

an intention of continuing such relationship in

regard to an existing liability. The admission need

not be in regard to any precise amount nor by

expressed words. If a defendant writes to the

plaintiff requesting him to send his claim for

verification and payment, it amounts to an

acknowledgement. But if the defendant merely

says, without admitting liability, it would like to

examine the claim or the accounts, it may not

amount to acknowledgement. In other words, a

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writing, to be treated as an acknowledgement of

liability should consciously admit his liability to

pay or admit his intention to pay the

debt................ What can be acknowledged is a

present subsisting liability. An acknowledgment

made with reference to a liability, cannot extend

limitation for a time barred liability or a claim that

was not made at the time of acknowledgment or

some other liability relating to other transactions.

Any admission of jural relationship in regard to the

ascertained sum due or a pending claim, cannot be

an acknowledgement for a new additional claim for

damages."

It is manifestly clear that the liability acknowledged by the debtor

must be a subsisting liability on the date of such acknowledgment.

8. Section 19 of the Limitation Act, 1963 gets attracted if two

conditions are satisfied:

(a) payment must be made within prescribed period of limitation

(b) such payment must be acknowledged either by writing of the

person making such payment or signed by him.

9. What extends the period of limitation is the payment made and

not the writing but since such writing is construed as a mode of proof of

Company Appeal (AT) (Insolvency) No. 1073 of 2019 11

such payment, such acknowledgment becomes relevant. This view is

fortified by the judgment of the Hon'ble Apex Court rendered in

"Shapoor Freedom Mazda v. Durga Prasad Chamaria reported in

AIR 1961 SC 1236".

10. It further emerges from the record that the proposal for OTS was

made by the 'Corporate Debtor' on 26th March, 2014 which is in the

nature of first acknowledgment of liability and the period of limitation of

three years would commence from such date. This was followed by the

'Corporate Debtor' further admitting its liability and making an offer to

pay Rs.9.5 Crores in settlement to the 'Financial Creditor'. This

happened on 13th November, 2015. The Settlement Terms were finally

recorded, signed and accepted on 2nd December, 2015 and in

pursuance thereof Rs.47.50 lakhs was paid by the 'Corporate Debtor' on

5th December, 2015. This is in the nature of part payment made within

three years from the date of Settlement which itself is within the period

of limitation of three years as acknowledgment of liability made before

expiry of period of limitation computed from the date of declaration of

the financial debt as NPA. Subsequently, an amount of Rs.1 Crore was

paid by the 'Corporate Debtor' by way of cheque on 31st March, 2016.

This is again a part payment made on 31st March, 2016 in pursuance of

the Settlement Terms giving further lease of life to period of limitation

commencing from 5th December, 2015. It further emerges from record

that in terms of letter/ acknowledgment of payment of Rs.1.5 Crores

Company Appeal (AT) (Insolvency) No. 1073 of 2019 12

approximately in terms of OTS by the 'Corporate Debtor' on 9th

February, 2017, the limitation period would further commence w.e.f.

such date. Acknowledgment has also been made by the 'Corporate

Debtor' in its letter dated 19th March, 2018. These two letters are at

pages 12 & 14 of the Additional Affidavit of the 'Financial Creditor'. It is,

therefore, abundantly clear that the acknowledgment in the form of

letters/ OTS/ Settlement terms has been made by the 'Corporate

Debtor' before expiry of period of limitation. The sequence of events is

clearly demonstrated by the documents forming a chain of events and

the application under Section 7 having been filed on 16th August, 2018

by the 'Financial Creditor' is clearly within the period of limitation.

11. The ample evidence brought on record by the 'Financial Creditor'

and not disputed, denied or refuted by the 'Corporate Debtor' brings it

to the fore that the financial debt is payable and the acknowledgment in

writing before expiry of period of limitation by the 'Corporate Debtor'

through a series of written communications in the form of letters,

settlement, proposal, settlement agreement and payments made in

pursuance thereof have extended the limitation as each of these has the

effect of giving a fresh lease of life to the liability with fresh period of

limitation commencing from such acknowledgment in writing having

been made within limitation period, OTS followed by settlement

agreement and part payments made on two occasions in pursuance

thereof. Admittedly, application under Section 7 of the 'I&B Code' has

Company Appeal (AT) (Insolvency) No. 1073 of 2019 13

been filed within three years of the last part payment of Rs. 1.5 Crore

approx. effected on 9th February, 2017.

12. This factual position emerging from documentary evidence on

record stares in the face of the Appellant who has preferred the appeal

without substantial grounds. Given the nature of evidence on record, we

have no hesitation in holding that the appeal is frivolous. We

accordingly dismiss the appeal. There shall be no order as to costs.

[Justice Bansi Lal Bhat] Member (Judicial)

[Justice Venugopal M.] Member (Judicial)

[V.P. Singh] Member (Technical)

NEW DELHI 22nd May, 2020

AR

Company Appeal (AT) (Insolvency) No. 1073 of 2019