M/S Rudra Auto Tech Engineering Private ... vs The Nainital Bank Limited

(Arising out of the Order dated 03.06.2024 passed by the National Company Law Tribunal, Allahabad Bench, Allahabad in CP(IB) No. 56/ALD/2023)

Vishal Singh, Promoter and Director of the suspended Board of Directors of Corporate Debtor, Rudra Auto Tech Engineering Private Limited situated at Plot No. 42B, Sector 5, I.I.E. SIIDCUL, Pantnagar, Udham Singh Nagar, Uttarakhand, ...Appellant Versus The Nainital Bank Limited Having its Registered Office at G.B. Pant Road, Nainital Uttarakhand- 263001 ...Respondent

Present For Appellants: Mr. Pulak Raj Mullick, Advocate. For Respondent: Mr. Amol Vyas, Advocate. JUDGEMENT

(06.02.2026)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed by the Appellant i.e., Vishal Singh,

Promoter & Director of the suspended Board of Director of Corporate Debtor,

Rudra Auto Tech Engineering Pvt. Ltd., under Section 61 of the Insolvency and

Bankruptcy Code, 2016 ('Code') against the Impugned Order dated 03.06.2024

passed by the National Company Law Tribunal, Allahabad Bench

("Adjudicating Authority") in CP(IB) No. 56/ALD/2023. Page 1 of 27

The Nainital Bank Limited, who is the Financial Creditor, is the

Respondent herein.

2. The Appellant contended that the Respondent had filed CP(IB) No.

56/ALD/2023, under Section 7 of the Code read with Rule 4 of the Insolvency

and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, on

20.07.2023, before the Adjudicating Authority, seeking initiation of Corporate

Insolvency Resolution Process (CIRP) against the Corporate Debtor.

3. The Appellant submitted that upon receipt of notice, the Corporate Debtor

duly filed a detailed reply along with all requisite annexures, raising a categorical

preliminary objection that the Section 7 Application was ex-facie barred by

limitation. It was specifically pleaded that the Date of Default was 23.10.2018,

and therefore the limitation period of three years expired on 22.10.2021. It was

further pointed out that the Respondent committed serious illegalities by not

providing adequate Term Loan and Cash Credit limits, and by resorting to illegal

"teeming and lading" adjustments between the Corporate Debtor and its sister

concern, Naini Auto Tech, thereby falsely portraying both units as going concerns

for recovery of principal and interest, even during the period when both accounts

had already been declared NPA as per RBI guidelines.

4. The Appellant further submitted that the Appellant specifically highlighted

the statutory provisions and settled judicial precedents to establish that the Date

of Default is a sine qua non for computing limitation under the Code, but despite

this, the Adjudicating Authority, by the Impugned Order dated 03.06.2024,

Page 2 of 27 admitted the Section 7 Application and initiated CIRP against the Corporate

Debtor, declared moratorium under Section 14 of the Code, and formed a prima

facie view that the Application was within limitation and fulfilled the

requirements of Section 7(5)(a) of the Code.

5. The Appellant contended that it is a settled proposition of law that the

"Date of Default" is mandatory and must be specifically mentioned in Form-

1/Form-5 filed under Section 7 of the Code. The Date of Default determines the

limitation period for filing an application. Non-mentioning or incorrect mention

of the Date of Default renders the Application incomplete and defective, thereby

attracting Section 7(5)(b) of the Code. The Appellant submitted that in the present

case, the Respondent has mentioned the Date of Default as 31.10.2019 in Part IV

of Form-1, whereas it is an admitted position that the account of the Appellant

was classified as NPA on 23.01.2019, as per RBI guidelines.

6. The Appellant contended that the RBI Master Circular on Prudential

Norms on Income Recognition, Asset Classification and Provisioning clearly

defines a Non-Performing Asset as a loan where interest or instalment of principal

remains overdue for more than 90 days in the case of a term loan. Thus, once

default continues beyond 90 days, the account is mandatorily to be treated as

NPA. The Appellant submitted that applying the mandatory RBI norms, the

deemed Date of NPA would automatically fall 90 days after the Date of Default.

In the present case, reckoning the Date of Default as 23.10.2018, the deemed Date

of NPA is 23.01.2019.

Page 3 of 27

7. The Appellant contended that the Section 7 Application was filed on

20.07.2023 and even after granting the benefit of exclusion of limitation as per

the Hon'ble Supreme Court's suo motu orders relating to Covid-19, from

15.03.2020 to 28.02.2022, with an additional 90 days thereafter, the Application

remains barred by limitation, a fact ignored by the Adjudicating Authority.

8. The Appellant submitted that the Respondent's argument that the NPA was

declared only on 23.01.2019 pursuant to an RBI audit cannot override the binding

RBI Master Circular. The Date of Default cannot be altered at the whims of the

Bank. The Appellant contended that the Date of Default in the present case, at the

highest, could only be 23.10.2018, being 90 days prior to the Date of NPA, and

the limitation expired on 22.10.2021, whereas the Application was filed only on

20.07.2023.

9. The Appellant contended that the Adjudicating Authority failed to properly

appreciate binding judgments including B.K. Educational Services Pvt. Ltd. v.

Parag Gupta & Associates, (2019) 11 SCC 633; Babulal Vardharji Gurjar v.

Veer Gurjar Aluminium Industries P. Ltd. &Anr., (2020) 15 SCC 1; Jignesh

Shah v. Union of India, & Anr., (2019) 10 SCC 750; Laxmi Pat Surana v.

Union Bank of India, (2021) 8 SCC 481 and Ramdas Dutta v. IDBI Bank Ltd.,

[Company Appeal (AT) (Ins) No. 1285 of 2022, all of which unequivocally hold

that limitation begins from the Date of Default and not from the Date of NPA.

10. The Appellant submitted that reliance placed by the Adjudicating

Authority on Asset Reconstruction Company (India) Ltd. v. Tulip Star Hotels

Page 4 of 27 Ltd. & Ors. (2022) IBC Law.in 94 (SC) has been misapplied. A harmonious

reading of the said judgment reinforces that limitation runs from the Date of

Default and not otherwise.

11. The Appellant contended that the conduct of the Financial Creditor is

reprehensible, as interest and penal interest continued to be debited to the loan

account even after the account had become NPA, instead of being parked in a

memorandum account, thereby illegally inflating the debt. The Appellant

submitted that illegal and unilateral adjustments by way of teeming and lading

between the Corporate Debtor and its sister concern were made with mala fide

intent to artificially extend the deemed Date of NPA, clearly demonstrating abuse

of position by the Financial Creditor.

12. The Appellant contended that despite Techno-Economic Feasibility reports

by Resurgent India and Dun & Bradstreet, adequate funding was denied, while

inter-firm adjustments were carried out to create a false picture of financial

viability, thereby burdening both sick units.

13. The Appellant submitted that large-scale adjustment of Fixed Deposit

Receipts belonging to both Rudra Auto Tech Engineering Pvt. Ltd. and Naini

Auto Tech during February 2019 further establishes that both accounts were

treated as NPA as early as 23.01.2019. The Appellant contended that multiple

joint meetings between the Appellant and the Financial Creditor from December

2019 till November 2020 consistently acknowledged the NPA status and explored

Page 5 of 27 revival and rehabilitation packages, which further demolishes the Respondent's

stand on limitation.

14. The Appellant submitted that the issuance of demand notice under Section

13(2) of the SARFAESI Act and subsequent correspondence unequivocally

confirms declaration of NPA on 23.01.2019, thereby fixing the Date of Default

much earlier than alleged by the Financial Creditor. The Appellant contended that

the Financial Creditor also failed to comply with the conditions of the lease deed

executed with SIDCUL, particularly Clause 9 of the allotment letter dated

22.12.2011, by not depositing the balance land premium from the first

disbursement, thereby rendering the alleged mortgage legally infirm. The

Appellant submitted that even though a charge was registered under Section 77

of the Companies Act, 2013, the failure of the Financial Creditor to clear

SIIDCUL dues and obtain necessary no-objection vitiates the mortgage and

attracts Section 100 of the Transfer of Property Act, 1882.

15. The Appellant contended that the cumulative conduct of the Financial

Creditor clearly establishes abuse of process, suppression of material facts, and

filing of a time-barred application, which ought to have been rejected at the

threshold under Section 7(5)(b) of the Code.

16. The Appellant submitted that for all the aforesaid reasons, the Impugned

Order dated 03.06.2024 is unsustainable in law and on facts and deserves to be

set aside, and the Section 7 Application filed by the Respondent/Financial

Creditor deserves to be dismissed as barred by limitation and otherwise not

Page 6 of 27 maintainable. The Appellant requested this Appellant Tribunal to allow the

appeal and set aside the Impugned Order.

17. Per contra, the Respondent refuted all the averments of the Appellant

treating these as baseless and misleading.

18. The Respondent submitted that the stage of admission of an application

under the Code, the Adjudicating Authority is statutorily obliged to prima facie

determine: (i) that the debt in question qualifies as a financial debt; (ii) that the

quantum of such debt exceeds Rs. 1 crore; and (iii) that there exists a default

in repayment thereof.

19. The Respondent submitted that the Appellant, on the one hand, alleges that

the Respondent Bank omitted to specify the date of default in its application

under Section 7 of the Code, while, on the other hand, the Appellant himself

concedes in subsequent grounds that the Respondent Bank has indeed

mentioned the date of default as 31.10.2019.

20. The Respondent stated that in the application filed under Section 7 of the

Code, the date of default has been correctly specified as 31.10.2019. This is

because, during an inspection conducted by the RBI on that date, it came to the

notice of the Respondent Bank that the account of the Corporate Debtor had

turned NPA. Pursuant to the RBI guidelines, the said account was accordingly

declared as NPA with retrospective effect from 23.01.2019. Consequently, the

date of default has been reckoned as the date on which the NPA classification

came to the notice of the Respondent Bank. The Respondent contended that

Page 7 of 27 that the Corporate Debtor's account was classified as NPA based on

information received during the annual audit of the Respondent Bank

conducted by the RBI. Accordingly, the date of default has been appropriately

taken as 31.10.2019.

21. The Respondent submitted that the application under Section 7 of the Code,

was filed on 27.06.2023 and is not barred by limitation, as the Corporate

Debtor unequivocally acknowledged the financial debt owed to the

Respondent Bank through its Letter of Acknowledgement dated 31.12.2021,

duly signed by the Appellant, Mr. Vishal Singh, and Ms. Sweety Singh, the

Suspended Directors of the Corporate Debtor; further, the existence of such

debt was admitted in the Corporate Debtor's audited balance sheets for the

financial years ended 31.03.2019, 31.03.2020, and 31.03.2021, wherein under

the head "Short Term Borrowings," Cash Credit (Loan Repayable on Demand

from Banks) was recorded at Rs. 59,05,09,718/- for the years ended 31.03.2019

and 31.03.2020, and similarly at Rs. 59,05,09,718/- for the year ended

31.03.2021, while under the head "Long Term Borrowings," amounts of Rs.

7,41,21,374/- were acknowledged for the years ended 31.03.2019 and

31.03.2020, and Rs. 11,19,52,853/- for the year ended 31.03.2021.

Additionally, in terms of the Hon'ble Supreme Court of India's judgment in

Miscellaneous Application No. 21/2022 in Miscellaneous Application No.

665/2021 in Suo Moto Writ Petition (Civil) No. 3/2020 (regarding cognizance

for extension of limitation), the period from 15.03.2020 to 28.02.2022 stands

Page 8 of 27 excluded for computing limitation under any general or special law in respect

of all judicial or quasi-judicial proceedings, thereby rendering the subject

application well within the prescribed limitation period.

22. The Respondent stated that the date of default is ordinarily the date on which

the default in repayment of the debt is committed by the Corporate Debtor. In

the present case, however, it was during the annual inspection by the RBI that

the Respondent Bank became aware that the Corporate Debtor had committed

such default and that its account had turned NPA. Accordingly, the date of

default is the date on which the RBI audit team directed the account to be

declared as NPA. The respondent argues that the default date in the Section 7

application merely proves the repayment default occurred and confirms timely

filing within the limitation period. The bank specified this date, making the

application complete any appellant objection doesn't render it deficient. Even

if the default predates NPA classification, the filing remains within limitation,

as the corporate debtor acknowledged the debt in its balance sheets for

FY2019, 2020, and 2021.

23. The Respondent stated that the Respondent Bank has not, at any stage,

shifted or altered the date of default as alleged by the Appellant. The date of

default is, and has consistently been, the date on which the RBI inspection team

directed the Respondent Bank to declare the Corporate Debtor's account as

NPA.

Page 9 of 27

24. The Respondent submitted that that upon an acknowledgement of the debt by

the Corporate Debtor, whether through its balance sheets or a Letter of

Acknowledgement, the Respondent Bank acquires a fresh cause of action for

instituting the application under Section 7 of the Code.

25. The Respondent submitted that while admitting an application under

Section 7, the Adjudicating Authority does not adjudicate upon the legality or

quantum of interest/penal interest levied on the loan account, rendering the

ground raised by the Appellant wholly baseless and bereft of merit;

furthermore, the grounds raised by the Appellant in the Appeal are extraneous

and irrelevant in the context of proceedings under the Code, as in the present

matter, the Adjudicating Authority is required to examine only whether there

exists a financial debt exceeding Rs. 1 crore and whether the Corporate Debtor

has committed a default thereunder.

26. Concluding its arguments, the Respondent contended that the appeal is

devoid of merits and therefore deserves to be dismissed with cost.

Findings

27. We have already noted the submissions of both the parties in the previous

discussion. It is a case of the Appellant that the Impugned Order has been

wrongly passed as the date of default in the present case was 23.10.2018 and

therefore the period of limitation had expired on 23.10.2021, whereas the

Page 10 of 27 Respondent initiated an application under Section 7 of the Code on 20.07.2023.

Thus, the application was barred by limitation and therefore, the Adjudicating

Authority erred in allowing the same.

28. The Appellant further argued before us that even the benefit of judgement

of the Hon'ble Supreme Court of India in the matter of Suo-moto Writ Petition

(Civil) No. 03 of 2020 granting the extension of limitation period from

15.03.2020 to 20.02.2022, does permit such admission of Section 7 petition. We

take into consideration that the application should have been filed by the

Respondent within 90 days from 01.03.2022 i.e., on or before 01.06.2022

whereas the application was filed on 20.07.2023.

29. The Appellant also challenged the alleged debt on the strength of the

acknowledgement of the debts even after the date of NPA, as the same was not

in accordance with the guidance note issued by the Institute of Chartered

Accountant ('ICAI') particularly in terms of Clause 8.3.1.2 on the revised

schedule - VI to the Companies Act, 1956. The Appellant empathetically pleaded

that in the guidance note under "8.3.1- long term borrowing" it has been

categorically mentioned that in terms of guidance note, borrowings need to be

further classified into different types of borrowings as per guidance note in terms

of Clause 8.3.1.1. The Appellant pleaded that in terms of Clause 8.3.1.2, the

borrowings were required to be classified as secured and unsecured loans and

nature of security was required to be specified separately in each case.

Page 11 of 27

30. It is the case of the Appellant that the balance-sheets of the Corporate

Debtor where acknowledgements have been reflected, do not contain such

classification and therefore, such acknowledgements cannot be treated as valid.

The Appellant submitted that this issue is squarely covered in the ratio of

judgment delivered by the Hon'ble Supreme Court of India in the matter of

Collector of Central Excise vs. Dai Ichi Karkaria Limited [ 1999 (112) ELT 353

SC/ 1999 (7) SCC 448].

31. We asked the Appellant, if any other point are pressed in the appeal before

us other than two points mentioned by the Appellant i.e., debt was not crystalized

in terms of 8.3.1.2 of guidance note issued by ICAI and further, the

acknowledgement could not have been relied upon by the Respondent, the answer

of the Appellant was negative. Therefore, points raised by the Appellant are only

relating to law of limitation based on the alleged incorrect acknowledgements of

debt in the balance sheets of the Corporate Debtor, the Appellant once again

confirmed the same.

32. On these points we observe that, the Respondent Bank refuted all the

allegations and stated that the Appeal is devoid of any merit and present appeal

is nothing except misuse of process of law with only intent to derail process for

the resolution of the Corporate Debtor. The Respondent Bank submitted that

there is no dispute regarding disbursal of loans and non payment of i.e., default

by the Appellant and therefore, the Respondent had no choice but to file Section

7 petition before the Adjudicating Authority.

Page 12 of 27

33. The Respondent Bank pleaded that all the relevant balance sheets of the

Corporate Debtor reflect and acknowledge clearly the liability of the Corporate

Debtor towards the Respondent Bank. The Respondent further submitted that

there was yet another OTS proposal from the Appellant to the Respondent Bank,

which further acknowledged the debt extending the limitation period.

34. Since, the issue is limited to the limitation which is based on the

acknowledgements of the debt by the Corporate Debtor in the balance sheets, we

shall also refer to the relevant balance sheets of the Corporate Debtor.

35. At this stage, we take into consideration that the Respondent Bank had

granted six loans as the following details :-

36. We further note that the Appellant failed to repay the instalments in time

and accordingly the demand notice under Section 13(2) of the SARFAESI Act,

2002 was issued by the Respondent Bank to the Corporate Debtor.

Page 13 of 27

37. We also take into consideration that the bank accounts of the Appellant

were declared as NPA w.e.f. 23.01.2019. We further note that the Impugned

Order has gone into the various documentation while establishing the debt and

default which included the mortgaged deeds, sanction letters issued by the

Respondent Bank, record of the default with CIBIL and NeSL, etc.

38. We also note that Section 7 petition was filed by the Respondent and in

part IV, the total amount of outstanding debt is stated to be Rs.100,56,04,473/-

and the date of default is stated to be 31.10.2019. Bearing in mind that the

disbursement of loan has not been contested by the Appellant, this is taken as

undisputed fact.

39. Having regard to the fact that the Respondent claim of default took place

on 31.10.2019, whereas the Appellant claims that the default date should have

been considered as 23.10.2018 and therefore, the period of limitation should have

expired on 23.10.2021. Thus, we find that the bone of contention between the

Appellant and Respondent is about date of default and its impact on the limitation.

We observe that taking into account the judgement of the Hon'ble Supreme Court

of India in Suo-Moto (Supra), according to which the limitation period from

15.03.2020 to 28.02.2022 was extended. Thus, we have to examine whether this

period was further extended by any acknowledgement by the Corporate Debtor,

since the admittedly and undisputedly, the Section 7 petition was filed by the

Respondent on 20.07.2023 beyond the period of 28.02.2022 as per the Hon'ble

Supreme Court of India judgement in Suo-moto.

Page 14 of 27

40. During the pleadings, it has been brought to our notice that in Section 7

application filed by the Respondent, the date of default was mentioned as

31.10.2019 which was based on the inspection conducted by RBI. We also take

into consideration that the Corporate Debtor had acknowledged the debt of

Respondent Bank in the letter of acknowledgement dated 31.12.2021, which was

signed by the present Appellant along with Ms. Sweety Singh as Suspended

Director of the Corporate Debtor i.e. by both the Suspended Directors of the

Corporate Debtor. We shall take into consideration the relevant

acknowledgements which have been made by the Corporate Debtor. We also

need to note that the debt is also acknowledged in the balance sheet of the

Corporate Debtor for the period ending 2019 to 2021 under the heading of short

terms borrowing and long term borrowings.

41. The balance sheet as on 31.03.2020 reads as under :-

Page 15 of 27 Page 16 of 27

In this connection, we also reproduce the notes on short terms borrowing

and long terms as indicated in the balance sheets which reads as following:-

From above, we observe that as per note "short term borrowing", the

Corporate Debtor has admitted cash credit to the extent of Rs. 59,05,09,718/- and

under the heading of long term borrowings, the Corporate Debtor has admitted

the amount of Rs. 7,41,21,374/-.

Page 17 of 27

42. We will also take into consideration the balance sheet and the relevant

notes as on 31.03.2021 which read as under :-

Page 18 of 27

Similarly, in the balance sheets as on 01.04.2021, the short term

borrowings have been shown to the tune of Rs. 59,05,09,718/- and the long term

borrowings have been shown as Rs. 11,19,52,853/-. Thus, the acknowledgements

of debts of the Corporate Debtor are clear.

43. As per the Suo-moto judgement of the Hon'ble Supreme Court of India,

the period from 15.03.2020 to 20.02.2020, stand automatically excluded for the

purpose of limitation. The Section 7 petition was filed by the Respondent on

Page 19 of 27 27.06.2023 which fall within limitation on the strength of acknowledgements of

the debts by the Corporate Debtor in the balance sheets as discussed above.

44. We also take into account the acknowledgement letters of debt signed by

the Suspended Directors of the Corporate Debtor as well as the personal

guarantors of the loan dated 31.12.2021 addressed to the Respondent Bank which

read as under :-

Page 20 of 27 Page 21 of 27 Page 22 of 27

45. Thus, all six loans have been acknowledged by the Suspended Directors of

the Corporate Debtor on 31.12.2021, thereby extending the limitation further.

46. Based on above analysis, we are of the considered view that there was clear

debt for which default took place and the same was duly acknowledged by the

Corporate Debtor in their various balance sheets as well as the acknowledgement

letters discussed and quoted above.

Page 23 of 27

47. Having decided the point of limitation, now we shall examine the other

aspect raised by the Appellant, regarding the non-compliance of Clause 8.3.1.2

of the guidance note issued by ICAI and based on which the Appellant pleaded

before us that the acknowledgment in the balance sheet cannot be treated as valid

acknowledgement.

48. We take into consideration that the guidance note which has been provided

by the Appellant in the rejoinder reply dated 18.01.2025 and the guidance note

quoted by the Appellant reads as under :-

Page 24 of 27

49. It is the case of the Appellant that since balance sheets did not provides the

bifurcation of borrowing of the Corporate Debtor under proper heads as mandated

by the guidance notes issued by the ICAI, the acknowledgement relied upto, for

limitation purpose is perverse. On this issue, we do not find any merit in the

contentions of the Appellant for the simple reason that it was for the Appellant to

prepare the balance-sheet in according with the laid down Accounting standards

and guidance note issued by the ICAI. The Appellant, having not complied with

the same, if at all, cannot now take shelter of the same at this stage. Having said Page 25 of 27 so, we do not find Clause 8.3.1.2 at all related to the controversy, the Appellant

tried to raise in the pleadings before us and has brought out in the rejoinder reply.

The purported claims of the Appellant regarding non classification of the

borrowing into sub-classification as per guidance note, do not support the cause

of the Appellant as the sub-classification is basically for secured creditors and

unsecured creditors. In either case, any financial creditor, even being unsecured

creditor, is within the right to file Section 7 petition in case default occurs.

50. Since, the claim 8.3.1.2 of the guidance note itself is negated by us, there

is no need for us to refer to the judgement quoted by the Appellant in this regard.

However, for the sake of completeness, we shall refer to the said judgement of

Collector of Central Excise (supra) also. The relevant portion of the judgement

reads as under :-

"Para 26. The view we take about the cost of the raw material is borne out by the Guidance Note of the Indian Institute of Chartered Accountants and there can be no doubt that this Institute is an Authoritative Body in the matter of laying down accountancy standards."

(Emphasis supplied)

51. We are of considered view that the Apex Court judgement only confirms

that the ICAI is the authoritative body in the matter of laying down the

Accounting standards and the guidance notes. We do not find this issue at all

applicable as the applicability of accounting standard is not an issue before us.

Page 26 of 27

52. Incidentally, the appeal was heard and was reserved for judgement on

19.01.2026 granting 07 days for submitting written submissions vide our order

dated 19.01.2026. We are constrained to record that till date no written

submissions have been submitted, hence we have decided the same, based on

record available with us. In any case, written submissions perhaps would have

only given same/similar details, as such no prejudice would have been caused to

either of the parties.

53. Based on above detailed analysis, we do not find any error in the Impugned

Order. The Appeal devoid of any merits stands rejected. No Cost. I.A., if any,

are closed.

[Justice Mohammad Faiz Alam Khan] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim

Page 27 of 27