M/S Advance Engineering Services vs The Baroda Rayon Corporation Limited

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 1 of 24 (Virtual Mode)

[Per.: Dr. Alok Srivastava, (Member Technical)]

1. The present Appeal has been filed by the Appellant aggrieved

by the order dated 27.1.2021 (hereinafter called 'impugned order')

passed by the Adjudicating Authority (National Company Law

Tribunal, Ahmedabad Bench) in Company Petition No. IB

(AHM)/555 of 2018.

2. The Appellant, who is an operational creditor of the

corporate debtor "The Baroda Rayon Corporation Limited" is

aggrieved by the Impugned Order by which the section 9

application under the Insolvency and Bankruptcy Code, 2016 (in

short 'IBC') filed by the Appellant has been rejected by the

Adjudicating Authority.

3. In brief, the facts of the case are that the Appellant, which is

a sole proprietorship firm carrying on its business in engineering

sector, performed flooring work on the Mezzanine floor of the plant

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 2 of 24 of the corporate debtor at Fateh Nagar, Udhna. The Appellant has

stated that the work order for the job under question was issued

by the respondent company vide letter dated 12.07.2004. The

Appellant completed the assigned work and was made some

payments by the respondent. Regarding rest of the payment, it

was informed by the Respondent Company vide fax dated

19.6.2007 that as per their ledger for the period 1.4.2003 till

30.09.2004, an amount of Rs. 39,00,631.50 (Rupees Thirty Nine

Lakhs Six Hundred Thirty One and Paise Fifty Only) is owed to the

Appellant. The Appellant has stated that the fact that the

respondent company was declared a sick unit under the provisions

of the Sick Industrial Companies Act, 1985 (hereinafter referred as

'SICA') and therefore, it performed the job assigned to it in good

faith and was awaiting payment of the amount involved in

completing the work. The Appellant has further claimed that the

respondent company acknowledged the operational debt due to the

Appellant on numerous occasions through numerous fax message

and hand written acknowledgements on its letters requesting

payment of the operational debt. Upon not receiving the due

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 3 of 24 amount, the Appellant gave a demand notice under section 8 of the

IBC and thereafter filed company petition IB No.555/9/NCLT/

AHM/2018. The said application was contested by the respondent

company, inter alia, raising the ground that the application was

barred by limitation and the Adjudicating Authority vide the

Impugned Order dated 27.1.2021 rejected the section 9

application.

4. We heard the arguments advanced by the Learned Counsels

of the Appellant and the Respondent and also perused the record.

5. The Learned Counsel for Appellant has argued that after the

work order for the said job was issued by the Respondent on

12.07.2004, the Appellant completed the said work and raised 31

invoices for payment. She has claimed that payment was made for

about 13 invoices by the Respondent, whereafter the respondent

stopped making payment and kept on giving assurances at various

points and time to the Appellant that the dues shall be paid, but

eventually failed to do so. She has further argued that the

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 4 of 24 respondent sent fax dated 19.06.2006 and thereafter

acknowledged receipt of his letters dated 25.10.2005, 20.12.2007,

5.6.2008, 15.6.2009, 7.10.2010, 4.6.2012, 8.7.2013, 9.9.2014,

29.5.2015, 3.7.2017 and 11.7.2017 wherein these letters carried

receipts/endorsements from the Respondent along with the official

rubber stamp of the respondent company. He has thus urged that

an employee of the respondent has not only endorsed the said

letters, but also in some endorsements entered the remark

"Received. Sent to Surat for payment" by signing and affixing the

company's rubber stamp, which shows that the Respondent

acknowledged the owed debt and was promising to pay the

operational debt. She has further submitted that the Respondent

admitted finally its liability vide letter dated 21.10.2015, and in

this letter he has admitted that part payments were made to the

Appellant and the Respondent owes a debt which it promises to

pay.

6. The Learned Counsel for Appellant has, therefore, claimed

that vide letter dated 21.10.2015, the acknowledgment and

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 5 of 24 confirmation of the balance amount is akin to promise to pay and

any written acknowledgment after the confirmation of the balance

amount can safely be treated as a promise to pay and not mere

acknowledgment, a principle which has been held in the matter of

State Bank of India vs. Kanahiya Lal and Anr. (2016 SCC

Online Del 2639). The Appellant's Learned Counsel has further

claimed that the jural relationship that of debtor and creditor as

laid down by Hon'ble Bombay High Court in the matter of Uma

Kumar vs. Reunion Electrical Manufacturers (P) Ltd. (2006

SCC Online Bom 1291) was established hen the Respondent's

employee noted receipt of Appellant's fax and letters and the onus

for payment is therefore on the Respondent who has made a

promise to pay. The Learned Counsel for Appellant has also

urged that the provisions of the Limitation Act, 1963 are applicable

to the IBC and with the promise to pay as included in section 25

(3) of the Indian Contract Act, 1872, a debt is not time-barred as

there is a fresh promise to pay the amount.

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 6 of 24

7. The Learned Counsel for Appellant has argued in response

to the allegations made by the Respondent that the seal-stamp and

signature on letters of the Appellant were forged and fabricated

and that Mr. Janardan R. Devrukar was a peon with no authority

to acknowledge the debt, that these arguments are nothing but a

counter-blast to the Appellant's section 9 application. She has

said that issues like insufficient stamping of documents are weak

efforts to defeat the claim of the Appellant and are therefore not

maintainable.

8. The Appellant filed an application before this tribunal for

production of Respondent company's balance sheets for the period

31.3.2014 to 31.3.2020 to show that there is acknowledgement of

the debt in the balance sheets which would extend the period of

limitation for section 9 application, as it amounts to admission of

liability as has been held by the Hon'ble Supreme Court in Asset

Reconstruction Company Limited vs. Bishal Jaiswal (2021 SCC

Online 321). The Learned Counsel for Appellant has thus urged

that the issue of limitation of section 9 application has been

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 7 of 24 incorrectly adjudicated in the Impugned Order in view of repeated

remarks made by the employee of the Respondent company which

amount to acknowledgment of debt, and the promise to pay in

accordance with section 25 (3) of the Indian Contract Act, 1872,

the section 9 application ought to have been admitted.

9. The Learned Counsel for Appellant has also claimed that the

Respondent company was a sick company and under SICA the

Appellant right to move against the Respondent company for

recovery of debt was suspended. Hence, the relevant period

should not be counted for the purpose of limitation.

10. In reply, the Learned Counsel for Respondent has argued

that it is the admitted case of the Appellant that the invoices on

the basis of which the Appellant has claimed operational debt due

pertain to the year 2004 and whereafter the Appellant has sought

to rely upon remarks on receiving the various document to

contend that section 9 application is not barred by limitation. The

Learned Counsel for Respondent has claimed that the documents,

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 8 of 24 on whose basis the Appellant has tried to show that the debt was

acknowledged by the Respondent, are forged and fabricated and

cannot be relied upon. He has further contended that even in the

event that these documents are accepted to be genuine the

remarks thereon do not show acknowledgment of the debt by the

Respondent and therefore the section 9 application is barred on

the ground of limitation.

11. The Learned Counsel for the Respondent has given the

following reasons why the documents produced by the Appellant

should be considered forged and fabricated: -

(i) The letters allegedly issued by the Appellant on which

the receipt of the Respondent's employee is shown

pertain to the period of about 14 years, between 2005-

2018, but they all have the same font and style which

raises doubt that all the letters were printed around

the same time.

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 9 of 24

(ii) The alleged letters which bear dates upto 2017 contain

the receipt signed by Mr. Janardan R. Devrukar, but

the fact is that he had resigned from the Respondent

No.1 company w.e.f. 31.10.2000 and later worked with

the Respondent on contractual basis till 31.8.2008

only. Therefore, it is inconceivable that he would give

receipt on a letter of Appellant for any dates after

2008, when he was no longer working with the

Respondent company.

(iii) The stamp-seal on the letters along with signature of

receipt have the name of the city mentioned as

Bombay even though the city's name had changed to

Mumbai much earlier.

(iv) Mr. Janardan R. Devrukar has denied having received

the said documents vide letter dated 28.1.2019

(attached at page 195 of the appeal paperook, vol. II).

(v) In letter dated 5.6.2008 (attached at page 127-A of the

appeal paperbook, Vol. I), which is a typed copy of the

original letter, the signature of the proprietor is real

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 10 of 24 one (in free flowing hand) whereas the signature of the

person receiving the letter has been shown as "sd -".

This shows that this letter is forged and is not a typed

copy otherwise the signature of the author of the letter

should also have been shown "sd-".

(vi) There is a clear overwriting in the date of receipt of

letter dated 15.6.2009 (attached at page 128 of the

appeal paperbook, Vol. I) from 2008 to 2009.

(vii) None of the documents have been referred to in the

demand notice dated 6.8.2018 issued under section 8

of the IBC by the Appellant.

(viii) Mr. Ramesh Vohra, who has alleged to have issued

letter dated 21.10.2015 (attached at page 136 of the

appeal paperbook vol. I) had retired from the service of

the Respondent Company way back in the year 2000

(related documents attached at pgs.116-117A of the

appeal paperbook, Vol.I).

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 11 of 24

12. The Learned Counsel for the Respondent has urged that in

the light of the above mentioned discrepancies in the said letters,

the letters are definitely forged and fabricated. He has argued that

even if these letters are taken as genuine, mere receipt of the

letters in Mumbai office of the Respondent and forwarding them to

Surat office by an employee who is a peon, cannot be considered

as valid acknowledgment as is required under section 18 of the

Limitation Act for extension of limitation for the application under

section 9 of the IBC. He has further argued that Mr. Janardan R.

Devrukar, who was working with the Respondent only as a peon

on contractual basis from the year 2000 till 2008, had no valid

authority to give any acknowledgment on behalf of the Respondent

company and even assuming that he had such an authority, no

such authority continued after 2008, when Mr. Janardan R.

Devrukar had demitted office from the contractual post of peon

too. Further, he has stated that the last endorsement referring to

payment was allegedly made in the letter dated 7.10.2010 and the

next acknowledgment in letter dated 21.5.2015 has been issued

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 12 of 24 after more than 3 years from this date and therefore it cannot

extend the period of limitation as required under section 18 of the

Limitation Act.

13. The Learned Counsel for Respondent has also controverted

the reliance placed by the Appellant on section 25 (3) of the Indian

Contract Act, 1872 because this provision requires an express

promise to pay and a mere alleged acknowledgement of debt, does

not attract the said provision. He has contended that the

extension of limitation of section 9 application has to be seen with

the light of section 18 of the Limitation Act and therefore,

limitation should be extended continuously through a series of

acknowledgments starting from the year 2006, whereas the first

acknowledgment purportedly in the letter dated 21.10.2015. He

has also rebutted the claim of the Appellant that in view of the fact

that the Respondent company was a sick company under Sick

Industrial Companies Act, section 22 of the SICA cannot extend

the period of limitation for initiating proceedings under IBC when

the alleged debt did not form the part of the scheme before BIFR.

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 13 of 24 He has finally urged that the section 9 application is clearly barred

by limitation and therefore, the appeal should be dismissed.

14. On perusal of the Impugned Order (attached at pp.35-37 of

the appeal paperbook, Vol. I), we note that the Adjudicating

Authority has held that the date of default of the operational debt

has been stated as 19.06.2006 and thereafter there is a letter of

acknowledgment of debt dated 21.10.2015. In view of the no

continuation of limitation through acknowledgment of debt

starting from the date of default upto the date of filing the section

9 applicant debtor made in 21.10.2015, the section 9 application is

barred by limitation.

15. We note that the Appellant undertook to do the work in

accordance with the letter of intent given by the Respondent

company dated 3.4.2004 and an amended letter of intent vide

letter dated 26.5.2004 (attached at paged 74-75 of the appeal

paperbook, Vol.I). Thereafter certain payments were made on the

basis of the invoices submitted by the Appellant (attached at

pp.81-124 of the appeal paperbook), the last payment having been

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 14 of 24 made ostensibly on 19.6.2006. Thereafter, the Appellant has

placed on record a fax message and letters purportedly sent by

him to Respondent No. 1 company demanding payment, which

were received supposedly by Mr. Janardan R. Devrukar. One such

letter for release of payment dated 25.10.2005 is attached at page

125 of the appeal paperbook, Vol. I) wherein the following is

recorded:-

"Received on 25.10.2005

Sent to Surat.

-Signed"

Similarly a letter dated 20.12.2007 (attached at page 126 of the

appeal paperbook, Vol. I) also has the remarks

"Received on 20.10.2007. Sent to Surat for payment.

-Signed",

There are letters dated 5.6.2005, 15.6.2009, 7.10.2010, 4.6.2012

where similar remarks had been made by the person receiving the

letters. The letters dated 8.7.2017, 9.9.2014, 29.5.2015,

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 15 of 24 11.7.2017 and 23.7.2017 are purportedly received by some

employee of the Respondent company, whose name is not clear.

We then find that a letter dated 21.10.2015 has been issued by

Shri Ramesh J. Vohra,(attached at page 2010 of the appeal paper

book vol.I) wherein a liability of Rs 39,00,631.50 is booked and

confirmed and it is also mentioned that 18% interest on the dues

are in the process of approval with the top management.

16. The Hon'ble Supreme Court has held in the matter of Assets

Reconstruction Company Private Limited vs. Bishal Jaiswal

(supra) that the acknowledgment by the Corporate Debtor should

be clear and unambiguous and only then it can be considered as

an acknowledgment as required under section 18 of the Limitation

Act for the purpose of extending limitation for an application under

IBC. Moreover, in the said matter the acknowledgments that were

under consideration where by way of balance sheets of the

corporate debtor.

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 16 of 24

17. After this tribunal allowed application bearing No. TA 181 of

2021, the Respondent filed an affidavit dated 6.4.2022 along with

Annual Reports for the year 2012-13 till the year 2017-18. These

Annual Reports contained balance-sheets which give consolidated

figures under various heads. The Respondent has also submitted

that in terms of Rule 53 of the Companies (Management and

Administration) Rules, 2014 read with the Companies Act, 2013,

balance-sheets are required to be maintained for only 8 years from

the date of filing with the Registrar of Companies. The Appellant

has claimed that the Respondent has only filed its Annual Reports

2012-13 onwards till 2017-18 and which are incomplete as the

Annual Reports do not have balance sheets showing break-up of

consolidated figures under each head nor individual debtors'

names listed. The balance sheets for the years 2012-13 to 2017-18

do not show any operational debt due to the operational creditor

and thus do not provide any support to the case of the appellant in

extension of limitation for section 9 application.

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 17 of 24

18. Sub-section (1) and (2) of section 9 of the IBC requires that

the application for initiation of Corporate Insolvency Resolution

Process by the Operational Creditor shall be filed before the

Adjudicating Authority in such form and manner and with such

fees as may be prescribed. Further, in the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016,

rule 6 stipulates that the application shall be made in Form 5

accompanied with documents and records required therein and

the Applicant should serve the copy of the application to the

registered office of the Corporate Debtor and the Insolvency and

Bankruptcy Board of India. Furthermore, the format of Form 5 as

provided under sub-rule 1 of rule 6 requires the Operational

Creditor to provide particulars of operational debt in Part IV,

wherein the total amount of debt, details of transactions, date from

such debt fell due, amount claimed in default and the date on

which the default occurred have to be provided. Thus, it is clear

that it is the responsibility of the operational creditor to provide

details about the debt and the amount in default and the date on

which default has occurred alongwith relevant documents in

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 18 of 24 support of his application. Therefore, the appellant/Operational

Creditor cannot put the onus of producing the balance sheets on

the Corporate Debtor.

19. We note that the documents provided by the Appellant in

support of his application are as mentioned earlier in this

judgment and attached at pp.38-161 of the appeal paperbook,

Vol.I. As has been discussed earlier in this judgment, the

documents do not show any clear acknowledgement of the

operational debt that is due.

20. We now examine the claim of the Appellant that as per

section 25 (3) of the Indian Contract Act where there is a "promise

to pay" which amount to acknowledgement of the debt. He has

adverted to the judgment of State Bank of India vs. Kanahiya Lal

& Anr. (supra) to claim that the 'promise to pay' under section 25

of the Indian Contract Act, 1872, is a sufficient acknowledgement

as required under section 18 of the Limitation Act, and such

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 19 of 24 promise provides lead of life to the limitation of section 9

application. Para 24 of this judgment states as follows:-

"24. No doubt, there is a distinction between an acknowledgment under section 18 of the Limitation Act and a promise under Section 25(3) of the Indian Contract Act, inasmuch as though both have the effect of giving a fresh lease of life to the creditor to sue the debtor, but, for an acknowledgment under Section 18 of the Limitation Act to be applicable, the same must be made on or before the date of expiry of the period of limitation, whereas such a condition is non-existent, so far the promise under Section 25(3) of the Indian Contract Act is concerned....."

Thus, it is clear that for the extension of limitation under section

18 of the Limitation Act, insofar section 9 application of the

appellant is concerned, there has to be a clear acknowledgment of

debt within 3 years from 19.6.2006 and mere promise to pay at a

much later date, on 21.10.2015 cannot extend limitation as

required under section 18 of the Limitation Act.

21. The Learned Counsel for Appellant has cited the judgment of

Hon'ble Supreme Court in the matter of Asset Reconstruction

Company Ltd. vs. Bishal Jaiswal & Anr. 2021 SCC online 321

to claim that an acknowledgment by an employee of the corporate

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 20 of 24 debtor by receiving a letter and sending to the Surat office for

payment is 'sufficient' acknowledgment for the purpose of

extending limitation under section 18 of the Limitation Act. In

this connection, we follow para 32 of this judgment wherein the

explicit mention in balance-sheets has been considered as

acknowledgment of the debt in question: -

"32. 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 regarding to acknowledgments 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 the 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 acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act."

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 21 of 24

22. The above elucidation by Hon'ble Supreme Court implies

that there should be unequivocal or clear-cut acknowledgment of

the debt which we do not find in various letters and faxes

produced by the operational creditor mere receipts by a peon

employed with the corporate debtor, who demitted office in 2000

and worked on contractual basis during the period 2000-2008,

cannot be considered as sufficient, proper and unequivocal

acknowledgement of the operational debt.

23. The Learned Counsel of Respondent has referred to the

judgment of this tribunal in the matter of Mazda Agencies

(partnership firm) through its partner Mr. Rakesh Desai vs.

Hemant Plastics & Chemicals Ltd. (2021 SCI online NCLAT 69)

to claim that as per section 20(5) of the Sick Industrial Companies(

Special Provision) Act, 1985 (in short 'SICA'), the Appellant was not

entitled to get exclusion of the time spent under SICA proceedings

in computing the period of limitation. This Tribunal held in

paragraph 20 of this judgment as follows:-

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 22 of 24 "The appellant was not part of the scheme and they have already approached Civil Court. In such circumstances, it cannot be said that the legal right of remedy of the Appellant against the Respondent was suspended as per section 22(1) of the SICA."

Again in paragraph 21 of the same judgment, this Tribunal has held as follows:-

"It is argued on behalf of the Appellant that the reference under section 15 of the SICA was made in 2005 and rehabilitation scheme has been sanctioned by the erstwhile BIFR on 17.07.2013 but the scheme could not be implemented till 2017. Therefore, till 2017 the remedy for enforcement of the right to recovery was suspended under section 22(1) of the SICA. As per the provision of Section 22 (5) of the SICA the Appellant is entitled to get exclusion for aforesaid period in computing the period of limitation. For this purpose, placed reliance on the order passed by the Coordinate Bench of this appellate Tribunal in the case of M/s. Gouri Prasad Goenka Vs. Punjab National Bank & Anr. C.A. (AT)(Ins) No. 28 of 2019."

24. We find that the Appellant was not part of the scheme of

rehabilitation and therefore he is not entitled to claim exclusion of

any period when its legal right of redressal was suspended.

25. In the result, we come to the conclusion that the appellant

has not been able to establish the extension of limitation as

required under Section 18 of the Limitation Act on the basis of

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 23 of 24 valid acknowledgments provided by the corporate debtor to the

operational debt, which is in default from June, 2006. We,

therefore, are of the view that the Adjudicating Authority did not

commit any error in holding that section 9 application of Appellant

was barred by limitation. On finding no merit in the appeal, we

dismiss it.

26. There is no order as to costs.

(Justice Ashok Bhushan The Chairperson

(Dr. Alok Srivastava) Member (Technical)

Dated: New Delhi 13th May, 2022

/aks/

Company Appeal (AT) (Insolvency) No. 222 of 2021 & I.A. No. 1819 of 2021 Page 24 of 24