Pegasus Asset Reconstruction Pvt. Ltd vs Yashomati Hospitals Pvt. Ltd

[Arising out of Order dated 10th October, 2019 passed by National Company Law Tribunal, Bengaluru Bench in I.A. No.69 of 2019 in CP(IB)No.144/BB/2017]

IN THE MATTER OF: Before NCLT Before NCLAT

Pegasus Assets Financial Creditor Appellant Reconstruction Private (Original Applicant- Limited, Respondent in I.A.) (Pegasus ARC) 507, Dalamal House, Nariman Point, Mumbai - 400021

Vs.

Yashomati Hospitals Corporate Debtor Respondent Private Limited, (Original Respondent/ No.2371/3, Applicant of I.A) HAL Airport, Varthur Main Road, Munnekolalal, Marathahalli, Bangalore 560 037

For Appellant: Mr. Dinkar Singh & Ms. Priyanka Narang, Advocates

For Respondent: Mr. Ajesh Kumar Shankar & Ms. Saranya Devi, Advocates 2

JUDGEMENT

(24th November 2020)

A.I.S. Cheema, J. :

1. The Appellant - M/s. Pegasus Assets Reconstruction Pvt.

Ltd., Financial Creditor has filed this Appeal against Impugned

Order dated 10th October, 2019 passed by the Adjudicating

Authority (National Company Law Tribunal, Bengaluru Bench). The

Appellant is assignee of South Indian Bank (SIB - in short) and had

filed CP(IB)No.144/BB/2017 under Section 7 of Insolvency and

Bankruptcy Code, 2016 (IBC - in short) before the Adjudicating

Authority. In the Application filed under IBC, the Respondent -

Corporate Debtor filed I.A. 69 of 2019 under Rule 11, read with

Rule 51 of National Company Law Tribunal Rules, 2016 (Rules - in

short), to dismiss the Company Petition. The Adjudicating Authority

has allowed I.A. 69 of 2019 and dismissed the Company Petition

CP(IB)No.144/BB/2017 reserving liberty to the Appellant -

Financial Creditor to file fresh Company Petition in accordance with

law after High Court of Karnataka decides the issues pending

before the High Court. Thus, the present Appeal.

2. The Appellant filed the Application on 23.11.2017 under

Section 7 of IBC on assigning of the debt as per registered deed of

Company Appeal (AT) (Ins) No.1337 of 2019 3

assignment (Annexure A-11) dated 30.03.2016 by which deed

South Indian Bank assigned its debt to the Appellant.

We will refer to the South Indian Bank as "SIB" or, unless

context is otherwise - as "Appellant" for sake of convenience.

3. The case of the Appellant, in short, is that the Corporate

Debtor (CD - in short) earlier filed Statement of Objections

(Annexure A-17) opposing Section 7 Application, on 11.06.2018.

Later Corporate Debtor filed I.A. 69 of 2019 on 30th January, 2019

vide Annexure A-18 (Page - 321) and challenged maintainability of

Section 7 Application. Initially, the said I.A. was dismissed by

Adjudicating Authority on 21st February, 2019 vide Order

(Annexure A-19 - Page 327) on the ground that the grounds raised

can be taken up at the time of hearing for admission of the Petition

under Section 7. Corporate Debtor, however, filed Writ Petition

14107/2019 (Annexure A-20 - Page 329) and the Hon'ble High

Court of Karnataka by Order dated 25th April, 2019 (Annexure A-21

- Page 350) set aside the Order dated 21st February, 2019 and

directed the Adjudicating Authority to decide the I.A. 69 of 2019 by

Speaking Order and decide the objections regarding

maintainability. Subsequently, the Adjudicating Authority on

hearing the parties has allowed the I.A. 69 of 2019, and dismissed

the Application under Section 7 of IBC, with liberty as mentioned.

Company Appeal (AT) (Ins) No.1337 of 2019 4

4. The Appeal has referred to the facts of the case (in para - 7)

and the documents filed with the Appeal. We have considered the

Appeal as well as the statement of objections filed by the Corporate

Debtor (Diary No.18701) and Rejoinder (Diary No.18953). The

Appeal as well as Impugned Order has referred to the

developments. It would be appropriate to have the chronology of

events in Telegraphic language to have a birds eye view, clarity and

reference.

5. To introduce, it may be mentioned that State Bank of India

(SBI - in short) and South Indian Bank (SIB) had a Consortium

Lending Agreement (Annexure A-3) in 2009 and Annexure A4 -

Supplementary Agreement dated 29.01.2011 with the Corporate

Debtor. The State Bank of India initiated actions earlier as

consortium leader and later chose to take actions for itself. The

Financial Creditor (SIB) granted term loan of Rs.15 Crore as part of

Consortium arrangement with SBI as per Sanction Order dated 26th

February, 2009 and subsequently, in 2011, had also granted

separate overdraft facility to the extent of Rs.1.35 Crores (see

Annexure A-5 - Page 121 @ 128). The Application under Section 7

of IBC (Annexure A-16 - Page 307) was filed on 23rd November,

2017 on the basis of amounts lent under both these arrangements

and the debt on the basis of both these arrangements was claimed

to be in default.

Company Appeal (AT) (Ins) No.1337 of 2019 5

6. Now, keeping this broad outline before us, we are referring to

the Chart of chronology of events in telegraphic language as

appearing from the record. The same is as under:-

Chart

Sl. Date/ From Record Chronology of relevant Events No. Annexure/ in Telegraphic Language Page

1. 25.03.2009 SBI & South Indian Bank (SIB) entered into Annexure - A3 Term Loan Consortium Lending Agreement Page - 60 dated 25.03.2009 and sanctioned and granted financial facility to CD of Rs.20 Crores and Rs.15 Crores respectively.

- Annexure A4 - Later Supplementary Agreement dated 29.01.2011 entered into.

2. 30.01.2014 As per Appeal there was Default - CD classified as NPA by Appellant/SIB.

3. 10.01.2014 SBI filed OS 88/14 in DRT Bengaluru under Section 19 of RDDB&FI Act, 2002 against CD for Rs.19,96,71,133. (Appeal Para - 7.4)

4. 15.07.2014 SIB filed OA 932/14 in DRT under Section 19 of Annexure - A5 RDDB&FI Act, 1993 for Rs.11,18,21,775.83 Page - 121 towards Term Loan in Consortium arrangement and Rs.71,93,509.00 towards Overdraft facility outside Consortium as on 04.04.2014, as there was default in debt of SIB also.

5. 27.10.2014 SBI as consortium leader issued Demand Notice Annexure A/6 to CD under Section 13(2) SARFAESI Act, 2002 Page 142 for Rs.33,69,18,099 as on 07.10.2014 (which included Rs.11,89,08,577 as dues of SIB under Consortium).

6. 28.11.2014 CD made repayment of Rs.3,47,00,000/- to SIB Annexure A-7 as seen from Statement of Account of CD. Page - 148 Another Rs.53 Lakhs repaid on 03.12.2014.

7. 29.11.2014 CD sent Reply to Annexure - 6 Demand Notice dated 27.10.2014 which was sent by SBI.

(Appeal Para 7.8)

Company Appeal (AT) (Ins) No.1337 of 2019 6

8. 05.08.2015 SBI issued Possession Notice to CD - under Rule 8(1) of Security Interest (Enforcement) Rules, 2002. (Appeal Para - 7.9)

9. 10.08.2015 - CD moved DRT under Section 17 of SARFAESI Act.

- DRT passed Order dated 10.08.2015 restraining Bank from further proceeding under SARFAESI (Appeal Para - 7.10)

10. 14.09.2015 SBI withdrew Demand Notice dated 27.10.2014, which had been sent for Consortium. (Appeal Para - 7.11)

11. 17.10.2015 SBI issued fresh Demand Notice for Consortium Annexure A-8 to CD for Rs.26,35,26,643 as on 15.10.2015. CD Page - 149 informed by SBI that account of CD was classified NPA by Consortium Banks on 30.01.2014. Demand Notice dated 27.10.2014 and recovery measures therein were withdrawn.

12. 04.12.2015 - CD filed W.P. 52886-52887/2015 in HC at Annexure A-9 Bengaluru challenging Notice dated 17.10.2015 The W.P. against Respondent No.1 - Authorised Officer of Page - 156 SBI and Respondent No.2 - SBI.

- Respondent - SBI restrained from further proceeding other than what has been impugned before DRT, by High Court Order dated 04.12.2015 (Annexure R-4 - Page 22 of Statement of Objections Diary No.18701)

13. 22.03.2016 DRT allowed OA 88/14 of SBI. Issued Recovery Annexure A-10 Certificate in favour of SBI, against CD, for Page 172 Rs.19,96,71,133.

14. 30.03.2016 SIB assigned its debt to Appellant vide Annexure A-11 Registered Deed of Assignment. Page - 187

15. 14.02.2017 SBI withdrew its Annexure A-8 Notice dated Annexure A-12 17.10.2015 and recovery actions initiated under Page - 285 Section 13(2) of SARFAESI Act reserving right to initiate legal proceedings deemed necessary under law.

Company Appeal (AT) (Ins) No.1337 of 2019 7

16. 09.03.2017 SBI, in individual capacity (and not as Annexure A-13 Consortium) issued fresh Notice and demanded Page - 289 Rs.20,05,05,013 to CD, under Section 13(2) of SARFAESI Act. The Notice limited itself to liabilities of SBI only.

19.08.2017 SBI issued Possession Notice under SARFAESI

17. Annexure A-14 Act read with Rule 8(1) of The Security Interest Page - 296 (Enforcement) Rules, 2002 in individual capacity pursuant to Demand Notice (Annexure A-13) dated 09.03.2017.

18. 12.10.2017 - CD filed IA 1/17 in WP 52886- 52887 of 2015 -

Annexure A-15 challenging Notices dated 09.03.2017 and Page - 300 19.08.2017. Respondent No.1 is Authorised Officer of SBI and Respondent No.2 is SBI.

Prayer made was to direct the Bank not to take further proceeding under SARFAESI Act and Security Interest Rules as per Notice dated 19.08.2017.

- HC passed Order dated 12.10.2017 directing SBI not to precipitate further till Main Petition is decided.

(Appeal Page 306/306A)

19. 23rd November, Appellant/SIB filed IBC Section 7 Application 2017 before Adjudicating Authority at Bengaluru - Annexure A-16 CP/IB/144/BB/2017.

Page - 307

19A. (W.e.f. (Section 238 A inserted in IBC - applying 06.06.2018) provisions of the Limitation Act, 1963, as far as may be made applicable to proceedings.)

20. 11.06.2018 CD filed Statement of Objections, to Annexure A-

Annexure A-17 16.

Page - 313

21. 30.01.2019 CD filed IA 69/2019 under Rule 11 read with Annexure A-18 Rule 51 of NCLT Rules, 2016 challenging Page - 321 maintainability of Section 7 Application, when DRT proceeding was pending and High Court had stayed the proceeding. Dismissal was sought.

22. 21.02.2019 Order dated 21.02.2019 passed by Adjudicating Annexure A-19 Authority/A.A. - Dismissed IA 69/2019, on the Page - 327 ground that the grounds raised can be taken up

Company Appeal (AT) (Ins) No.1337 of 2019 8

at the time of hearing for admission of Petition under Section 7.

23. 26.03.2019 CD filed WP 14107/19 against Appellant Annexure A-20 challenging Annexure A-19 Order dated Page - 329 21.02.2019, in High Court of Karnataka at Bangalore, referring to restrain Order dated 04.12.2015 and 12.10.2017 against SBI (Para 11, 12 of Writ Petition 52886 - 52887/2015 and OA 932/2014 by SIB in DRT.

24. 25.04.2019 High Court Order dated 25.04.2019 which set Annexure A-21 aside Order dated 21.02.2019 of Adjudicating Page - 350 Authority and directed A.A. to decide IA 69/2019 by speaking Order with regard to the objections regarding maintainability.

25. 10.10.2019 Adjudicating Authority passed Impugned Order.

Annexure A-1 IA 69/2019 allowed and CP IB/144/BB/17 Page - 44 dismissed.

7. Referring to the events as appearing from the above, it has

been argued by the learned Counsel for Appellant that when the

Adjudicating Authority passed Orders (Annexure A-19) dated 21st

February, 2019, the Corporate Debtor instead of filing Appeal to

this Tribunal, filed Writ Petition. It is argued that the Hon'ble High

Court of Karnataka at Bengaluru allowed the Petition and set aside

the Order dated 21st February, 2019 directing the Adjudicating

Authority to decide the Interim Application on maintainability.

Subsequently, the Adjudicating Authority has by cryptic Order

allowed the I.A. 69 of 2019 on the basis that the Hon'ble High Court

has in a proceeding which was basically against the State Bank of

India, restrained further proceeding (Annexure R-4 Diary No.18701)

Company Appeal (AT) (Ins) No.1337 of 2019 9

and by another Order dated 12th October, 2017 (Page - 306)

directed the State Bank of India not to precipitate further. The

learned Counsel has argued that although State Bank of India

initially invoked actions under SARFAESI acting in consortium

against which Writ Petition 52886 - 52887 of 2015 was filed by

Corporate Debtor, the Notice dated 27th October, 2014 (Annexure

A/6) which had been issued by State Bank of India as consortium

leader, was withdrawn by State Bank of India on 14.09.2015 and

S.B.I. issued fresh Demand Notice (Annexure A-8) on 17.10.2015.

This led Corporate Debtor to file Writ Petition 52886-52887 of 2015

in High Court of Karnataka and Order dated 04.12.2015 was

passed against SBI. That, even this Notice was withdrawn on 14th

February, 2017 vide Annexure A-12. The Counsel submitted that

Writ Petition 52886 - 52887 of 2015 filed by Corporate Debtor

became infructuous when the said Notice dated 17.10.2015 was

withdrawn by State Bank of India and the Writ Petition would no

more survive. The learned Counsel submitted that subsequently on

9th March, 2017 by Annexure A-13 (Page 289), State Bank of India

in individual capacity and not as a consortium leader demanded

dues from Corporate Debtor and issued Possession Notice

(Annexure A-14) dated 19th August, 2017 due to which the

Corporate Debtor filed I.A. 1 of 2017 in WP 52886 - 52887 of 2015

challenging Notices dated 09.03.2017 and 19.08.2017 and High

Court passed Order dated 12th October 2017, copy of which is at

Company Appeal (AT) (Ins) No.1337 of 2019 10

Page - 306. Argument is that SIB is not party to the said Writ

Petition. It is argued that the Notice issued by SBI as Consortium

Leader was already withdrawn and subsequent individual action of

State Bank of India and Order passed in view of that action under

SARFAESI cannot be reason for Adjudicating Authority to dismiss

the Application under Section 7 as not maintainable. Argument is

that action under Section 7 of IBC is not adversarial but to save the

Corporate Debtor by bringing about resolution so that the debts

can be fairly paid.

8. It is argued that the Application under Section 7 was also

within limitation as SIB had classified default with regard to the

amounts lent by SIB as NPA on 30th January, 2014 and Corporate

Debtor made repayment of Rs.3,47,00,000/- to SIB on 28th

November, 2014 as can be seen from Statement of Account

(Annexure A-7 - Page 148). Learned Counsel referred to Reply filed

by the Corporate Debtor (Diary No.18701) where in Para - 34, it is

claimed that the Corporate Debtor was denying that subsequent to

repayment of Rs.3,47,00,000 to the Appellant on 28.11.2014, the

Corporate Debtor did not pay a single penny. The learned Counsel

referred to the Statement of Account (Annexure A-7) to submit that

yet another amount of Rs.53 Lakhs was repaid on 3rd December,

2014. It is argued that it is quite clear that under Section 19 of the

Limitation Act, fresh period of limitation would run from the date of

Company Appeal (AT) (Ins) No.1337 of 2019 11

these repayments on 28th November, 2014 and 3rd December, 2014.

The argument is that the Section 7 Application filed on 23.11.2017

was thus within limitation. Counsel submitted that apart from this,

the Corporate Debtor had in the High Court in Writ Proceeding filed

Certificate (Annexure R A/2 - Rejoinder Diary No.18953) which

clearly acknowledged outstanding dues of South Indian Bank to the

tune of Rs.8.60 Crores as on 15th November, 2015. Thus, it is

argued that there is also acknowledgement of debt even from the

date of NPA dated 30th January, 2014. Counsel argued that Section

18 of the Limitation Act applies to Suit as well as Application and

under Section 7, it being an Application, the limitation is clearly

saved.

9. It is argued that in the proceeding which was filed before the

Hon'ble High Court of Karnataka, it was relating to only action

initiated under SARFAESI and the Appellant was not party to the

litigation and had not been restrained from pursuing its statutory

remedy under Section 7 of the Code. By the Order dated 12th

October, 2017 (Page - 306), the direction was only to the State

Bank of India not to precipitate further. The SIB is not party to any

such individual actions of State Bank of India and the SIB is not

even arrayed as party in the Writ Petition and Adjudicating

Authority wrongly expected SIB to get permission from High Court.

Company Appeal (AT) (Ins) No.1337 of 2019 12

Thus the learned Counsel submitted that the Adjudicating

Authority erred in dismissing the Application of the Appellant.

10. Against this, the Corporate Debtor has raised objections

(Diary No.18701) and it is argued that the Corporate Debtor had

borrowed loan to the tune of Rs.35 Crores, under consortium

banking arrangement wherein - from State Bank of India Rs.20

Crores and from South Indian Bank Rs.15 Crores was the amount.

The Agreement was dated 25th March, 2009 and supplementary

Consortium Agreement was executed on 29th January, 2011. On

30th December, 2010, SBI sanctioned further loan of Rs.5 Crores.

The Corporate Debtor has partially repaid State Bank of India and

SIB. The Corporate Debtor claims that the Notice under Section

13(2) of the SARFAESI Act was issued by SBI on 27.10.2014 vide

Annexure A-6. In the said Notice, the debt was declared NPA as on

30th January, 2014. On 24th November, 2014, the Appellant - SIB

filed OA 932 of 2014 (Annexure A-5) before DRT. On 10th January,

2014, SBI filed OA 88 of 2014. Both the OAs were based on Notice

dated 27th October, 2014. It is stated that in the interim, Corporate

Debtor repaid Rs.11,94,00,000 to consortium banks which was

confirmed by SBI vide Annexure R-2 dated 22.01.2015, and it

withdrew Notice dated 27.10.2014 vide Annexure R-3 dated

14.09.2015. Respondent claims that in spite of payment to the

State Bank of India, it issued subsequent Notice dated 17th

Company Appeal (AT) (Ins) No.1337 of 2019 13

October, 2015 (Annexure A-8) for itself and SIB. The Corporate

Debtor challenged the same before High Court of Karnataka vide

Writ Petition No.52886 of 2015. [Corporate Debtor in Reply - Diary

No.18701, accepts that SBI had later on withdrawn the Demand

Notice dated 17th October, 2015 as well as recovery action initiated

under Section 13(2)]. Statement of Objections (Diary No.18701) in

para - 14 mentioned as under:-

"14. By order dated 04.12.2015, the Hon'ble High court was pleased to restrain SBI from taking any further proceedings. The operative part of the order is extracted hereunder:

"Since the Petitioner alleges action on the part of the respondents which are an over- reach of their authority and the law it would be appropriate for this petition to be entertained notwithstanding the embargo imposed by the Supreme Court and the statute that the proceedings shall not lie before this Court.

Accordingly, the respondents are restrained from taking any further proceedings other than what has been impugned before the Debts Recovery Tribunal.

Emergent notice regarding rule." (emphasis supplied)

True copy of the order of Hon'ble High Court of Karnataka in W.P. No.52886/2015 dated 04.12.2015 is annexed herewith as Annexure R-4 (pg 22 to 23)"

[Emphasis supplied]

Company Appeal (AT) (Ins) No.1337 of 2019 14

11. Corporate Debtor states that DRT passed final Order dated

22nd March, 2016 (Annexure A-10) in the Suit filed by State Bank of

India and gave directions to pay amounts as mentioned to State

Bank of India. It is claimed that said proceedings were not pursued

by State Bank of India as per communication dated 14th February,

2017 (Annexure A-12). It is claimed that subsequently, DRT stayed

the OA 932 of 2014 which had been filed by the Appellant referring

to High Court Order dated 4th December, 2015. Respondent claims

that State Bank of India then issued letter dated 9th March, 2017

(Annexure A-13) in its own capacity and not on behalf of SIB

demanding certain repayments and the Notice was challenged by

filing I.A. 1 of 2017 in WP 52886 of 2015 and State Bank of India

was restrained from proceeding further. Para - 18 of the Statement

of Objections filed reads as under:-

"18. The Notice dated 09.03.2017 was challenged by the Respondent in I.A. No. 01/2017 in W.P.No.52886/2015. By order dated

12.10.2017, the Hon'ble High Court was pleased to restrain SBI from initiating further proceedings until the main petition is considered in full (pg.306 of Annexure A-15)."

[Emphasis supplied]

12. On such basis, the Corporate Debtor claims that there is stay

Order dated 4th December, 2015 which enjoins SBI and SIB from

Company Appeal (AT) (Ins) No.1337 of 2019 15

taking any further proceeding and the said Order dated 12th

October, 2017 is another stay Order. Thus, the Corporate Debtor

claims that the Impugned Order is required to be maintained. It is

further the defence and it is argued that the Application under

Section 7 is time barred considering the Judgement of Hon'ble

Supreme Court in the matter of "B.K. Educational Services Pvt.

Ltd. vs. Parag Gupta and Associates" (MANU/SC/1160/2018)

(AIR 2018 SC 5601) and Judgement in the matter of "Gaurav

Hargovindbhai Dave Vs Asset Reconstruction Company (India)

Ltd & Anr" - Civil Appeal No.4952 of 2019 which laid down that

Application under Section 7 of IBC is time barred if it is filed three

years from the date on which the debt has fallen due, that is, from

date of default. Corporate Debtor claims that Form submitted by

Appellant shows the date of default as 30th January, 2014. The

Corporate Debtor wants the Appeal to be dismissed.

13. We have heard the parties and perused the record. The

Impugned Order referred to the averments made in I.A. 69 of 2019

by the Corporate Debtor and the Statement of Objections filed to

the I.A. by the Financial Creditor and in para - 9 of the Impugned

Order, referring to the Assignment Agreement in favour of the

Appellant, observed that the Assignment Agreement dated 30 th

March, 2016 was filed in DRT only in October, 2016 for

substitution and observed that unless proper Application is filed for

Company Appeal (AT) (Ins) No.1337 of 2019 16

substitution in cases and granted by the Court/Tribunal, it cannot

be automatic. We find these observations irrelevant for what

Adjudicating Authority had to decide.

Adjudicating Authority then referred to the Assignment

Agreement where reference is made to pending cases. Impugned

Order then observed in para -11:-

"Apart from the above cases as referred to in the said Assignment Agreement, OA No.932 of 2014 filed by SIB is also pending.

All these cases are in the name of Lead Bank which includes SIB, the Assignor of Financial Creditor herein. Without settling/withdrawing the above cases, the instant case is filed by the Petitioner on the basis of Assignment Agreement in question, by conveniently referring some of the issues involved in the case. Though individual Bank of Consortium Banks can maintain an application/Petition, in normal circumstances, under the extant provisions of the Code, the circumstance as available in the instant case do not justify maintaining an independent application/Petition, without clarifying this issue by the Hon'ble High Court in the issue pending before it. We have granted sufficient time to the Petitioner to get necessary clarification over the matter pending with reference to the instant Petition. However, the Petitioner tried to justify the maintainability on un-tenable grounds.

12. Even though, technically, there is no bar in provisions of Code for the Petitioner/Assignee of SIB to initiate CIRP in respect of Corporate Debtor, the preliminary objections raised by the Corporate Debtor to be considered before taking up the admission of main case.

Company Appeal (AT) (Ins) No.1337 of 2019 17

Moreover, it is settled provision of law that Original jurisdiction of Hon'ble High Courts as conferred on them Under Articles 226 and 227 of Constitution of India is intact. Admission of the case under the Code pre-suppose imposition of Moratorium apart from appointing IRP etc. The Adjudicating Authority is not empowered to pass any order over jurisdiction of Hon'ble High Court or to clarify over interim orders passed by it. The above facts and circumstances clearly indicate rather suggest that the broad issue of Loans given to Applicant and subsequent defaults are issues to be decided by the Hon'ble High Court of Karnataka in the pending cases. And we are not convinced with the reasons cited by the Petitioner/Financial Creditor that the main Company petition is still maintainable.

13. On careful perusal of the judgement of Rita Machines (India) Ltd. vs. DRAT and others, relied upon by the learned Senior Counsel for the Respondent/Financial Creditor, we found that the facts and circumstances and issue raised are totally different from the facts and issue involved in the instant case. In this case, broad issues are the validity of Assignment in question and the alleged violation of interim orders passed by Debt Recovery Tribunal.

14. For the aforesaid reasons and circumstances and the law on the issue, we are of the considered view that the instant Application deserves to be allowed by granting liberty to the Petitioner to file an appropriate Petition duly following the extant provisions of Code, after the Hon'ble High Court decides the issues pending before it.

15. In the result, the instant I.A. No.69 of 2019 in CP (IB) No.144/BB/2017 is hereby allowed.

Consequently dismissed main Company Petition bearing C.P. (IB) No.144/BB/2017 by reserving liberty to the Petitioner/Financial

Company Appeal (AT) (Ins) No.1337 of 2019 18

Creditor to file fresh Company Petition, in accordance with law, after the Hon'ble High Court decides the issues pending before it. No order as to costs."

[Emphasis supplied]

14. Thus, these are the reasons recorded by the Adjudicating

Authority for allowing the I.A. and dismissing the Application under

Section 7. It is apparent that the Adjudicating Authority did not

apply itself to the Orders which were being relied on by the

Corporate Debtor and simply recorded that it is not empowered to

pass any Order over jurisdiction of Hon'ble High Court or to clarify

interim orders passed by the Hon'ble High Court. It appears to us

that the Adjudicating Authority avoided to decide the issues raised

and without going into the Record, it has thrown out the

Application under Section 7 without justifiable reasons.

Adjudicating Authority accepted individual Bank can maintain

application beyond consortium and there is no bar to invoke

provisions of Code but without even showing how the Orders in

Writ Petition in which SIB was not even party, it should wait.

15. The chronology of events as noted in the above chart as

appearing from the record shows that OA 932 of 2014 was filed by

SIB before SBI sent Notice dated 27.10.2014, which it withdrew on

14.09.2015. Later SBI issued Notice again for Consortium on

17.10.2015 which led the Corporate Debtor to file Writ Petition

Company Appeal (AT) (Ins) No.1337 of 2019 19

52886 - 52887 of 2015. State Bank of India had issued that Notice

for itself and SIB which Demand Notice was under Section 13(2) of

SARFAESI on 27th October, 2014 (Annexure A-6). Annexure A9-

Copy of the Writ Petition No. 52886-87/2015 shows that, in the

Writ Petition, Corporate Debtor made only (1) Authorized Officer of

SBI and (2) SBI as Respondents. SIB was not arrayed as

Respondent. Interim Prayer was to restrain the Authorized Officer

of the Bank from taking further steps pursuant to the SARFAESI

Notice dated 17.10.2015. The Hon'ble High Court of Karnataka

passed following Order on 4th December, 2015:-

"Since the petitioner alleges action on the part of the respondents which are an over-reach of their authority and the law, it would be appropriate for this petition to be entertained notwithstanding the embargo imposed by the Supreme Court and the statute that the proceedings shall not lie before this Court.

Accordingly, the respondents are restrained from taking any further proceedings other than what has been impugned before the Debts Recovery Tribunal.

Emergent notice regarding rule."

16. The copy of Writ Petition is at Annexure A-9 in which there

are only two Respondents - 1) Authorized Officer of State Bank of

India and 2) State Bank of India. The Appellant or SIB are not

Respondents in this Writ Petition. Rather in Para - 7 of the Writ

Petition, Corporate Debtor claimed that it was mandatory for the

consortium to jointly give Notice of Default. The prayer clauses seek

Company Appeal (AT) (Ins) No.1337 of 2019 20

to quash the Notice dated 17th October, 2015. The earlier Notice

dated 27th October, 2014 (Annexure A-6) had been withdrawn by

State Bank of India on 14.09.2015 and State Bank of India had

issued fresh Notice dated 17th October, 2015 (Annexure A-8 Page -

149) and this was challenged in the Writ Petition 52886 - 52887 of

2015 and the prayer sought quashing of this Notice dated 17th

October, 2015. It is admitted position that this Notice dated 17th

October, 2015 was withdrawn on 14th February, 2017 by SBI vide

Annexure A-12, along with recovery action.

17. Subsequently, when State Bank of India issued Demand

Notice on 9th March, 2017 (Annexure A-13) it was in individual

capacity and Possession Notice dated 19th August, 2017 (Annexure

A-14) was pursuant to the Demand Notice dated 9th March, 2017,

Corporate Debtor filed I.A. 1 of 2017 in the same Writ Petition

52886 - 52887 of 2015 and challenged these Notices. Annexure A-

15 (Page - 300) is the copy of the I.A. which was filed by the

Corporate Debtor. Even in this I.A., only the Authorized Officer of

State Bank of India and State Bank of India are the Respondents

and not the SIB and the Order which was passed on 12th October,

2017 (Appeal Page - 306) is as under:-

"In view of the statement of objections filed by the respondents, the petition would require consideration.

Company Appeal (AT) (Ins) No.1337 of 2019 21

In the meantime, since this court through the order dated 04-12-2015 had restrained the respondents from initiating further proceedings, the said order shall enure to the benefit of the petitioner and the matter shall not be precipitated further by the respondent till a consideration is made in this petition.

IA No.1/17 is disposed of accordingly."

18. From the above, it is clear that in the Writ Petition filed

against State Bank of India and the I.A. referred above, the

Appellant or SIB were not made parties. State Bank of India initially

purported to act for the consortium but after filing of the Writ

Petition, withdrew the Notice dated 17th October, 2015 which was

the basis to file Writ Petition 52886 - 52887 of 2015. The prayers in

the Writ Petition were in context of such Notice and that Corporate

Debtor should be heard regarding declaration of N.P.A.

Subsequently, State Bank of India acted on its own when it raised

demand vide Annexure A-13 on 9th March, 2017 and Possession

Notice (Annexure A-14) on 19th August, 2017. Directions given were

to the Authorized Officer of SBI and State Bank of India which were

the Respondents in Writ Petition. Present the Corporate Debtor is

aware that both the Orders were against SBI as portions

reproduced from its Statement of Objections (Diary No.18701) and

highlighted supra show. We find it difficult to accept that there was

restraint Order against SIB.

Company Appeal (AT) (Ins) No.1337 of 2019 22

19. Apart from above, the action initiated by the Appellant - SIB

by filing Application under Section 7 was not merely relevant to - 1)

term loan facility which was under the Consortium but also, 2)

overdraft facility which was separate arrangement between the

Corporate Debtor and SIB. In the Application, Form 1 (Annexure A-

16 - Page 307), the Appellant in Para - IV calculated amount of debt

granted as Rs.16,35,00,000/- as per sanction dated 26th February,

2009 and the amount claimed to be in default is stated to be

Rs.15,43,83,042.73. The date of default is mentioned as 30 th

January, 2014. In support of claim of such outstanding debt, Part -

V of Form refers to the particulars of financial debt and contents of

documents and records in support and that in those documents,

there is reference to the Consortium Agreement dated 25th March,

2009 and also Supplementary Agreement dated 29th January, 2011

(Annexure A-4) and it is also mentioned that South Indian Bank

also granted separate overdraft facility to a limit of Rs.1.35 Crores

and there is reference to the documents executed on 5th April,

2011. The format shows Annexure - I as attaching all documents

referred in the Application. If such document is kept in view, it is

clear that the Financial Creditor has not merely relied on the

amounts due and outstanding based on the Consortium

Arrangement but also with regard to the separate overdraft facility

granted by it to the Corporate Debtor. Thus even if with regard to

the initial effort of State Bank of India to take action for the

Company Appeal (AT) (Ins) No.1337 of 2019 23

consortium, it was to be said that there were Orders passed against

SBI with SIB indirectly beneficiary, the right of the Financial

Creditor to proceed for dues outstanding based on separate

overdraft facility could not be denied. For such reasons also, it

appears to us that the Adjudicating Authority erred in not applying

itself to the documents and record of the matter.

20. To summarize, it is clear from the above and perusal of the

Chart recorded above that before State Bank of India issued first

Demand Notice dated 27th October, 2014, SIB had already filed OA

932 of 2014 in DRT for dues based, on not only against Term Loan

under Consortium but also against over draft facility which was

outside the Consortium. State Bank of India withdrew the Notice

dated 27th October, 2014 on 14th September, 2015. Thereafter State

Bank of India issued fresh Demand Notice for the Consortium on

17th October, 2015 which led to the Corporate Debtor filing Writ

Petition No.52886 - 52887 of 2015 in High Court of Karnataka and

the Hon'ble High Court passed Order dated 4th December, 2015.

Corporate Debtor did not array South Indian Bank in that Writ

Petition as Respondent. State Bank of India withdrew that Notice

dated 17th October, 2015 which was the basis for the Writ Petition,

on 14th February, 2017. State Bank also withdrew recovery actions

initiated because of the said Notice dated 17th October, 2015.

Thereafter, State Bank took actions in individual capacity which led

Company Appeal (AT) (Ins) No.1337 of 2019 24

to the Corporate Debtor filing I.A. 01 of 2017 in the same Writ

Petition 52886 - 52887 of 2015. In this I.A. also, South Indian

Bank was not party nor concerned with the action of State Bank of

India. It is apparent that the Orders were against the State Bank of

India and thus, the Adjudicating Authority erred in directing the

South Indian Bank to go and get directions from the High Court or

to await decision of issues by the High Court when South Indian

Bank was not even party in the said Writ Petition. The Adjudicating

Authority accepts that there is no bar in IBC for Bank to initiate

CIRP proceedings even individually when it is part of Consortium.

Still the Adjudicating Authority wrongly insisted that South Indian

Bank should go before the High Court when Corporate Debtor itself

did not make South Indian Bank a party in the Writ Petition.

21. Apart from above, it is clear that the Application under

Section 7 of IBC filed is not confined to debt as arising in the

arrangement due to Consortium Lending which was a term loan,

but was also towards independent overdraft facility and amounts

due in that context. As such, even if one was to stretch the Order of

High Court dated 04.12.2015 to say that it affects SIB, still the

South Indian Bank was competent to maintain Section 7

Application on the basis of overdraft facility which was provided

outside the Consortium. Thus, it appears to us that the Order

Company Appeal (AT) (Ins) No.1337 of 2019 25

passed by the Adjudicating Authority is not at all justified and

deserves to be set aside.

22. As regards limitation, the Counsel for Appellant submitted

that the Appellant treated the account of Corporate Debtor as NPA

on 30th January, 2014 and it is argued that Annexure A-7 shows

that on 28th November, 2014, the Corporate Debtor paid

Rs.3,47,00,000/- to SIB and another Rs.53 Lakhs on 3rd December,

2014. It is argued that under Section 19 of the Limitation Act, when

such repayments were made, fresh limitation would start and thus

the Application under Section 7 filed on 23rd November, 2017 was

within limitation. The Counsel has further relied on Annexure RA/2

which was issued on 20th November, 2015 and in which it is

mentioned that outstanding loan as on 15th November, 2015 of

South Indian Bank was Rs.8.60 Crores. It is argued, it is written

acknowledgement of debt and thus the Application under Section 7

is within limitation.

23. Against this, the learned Counsel for the Respondent has

argued that the letter dated 29th November, 2014 which is at Page -

17 of Statement of Objections (Annexure R-1), was issued without

prejudice to the rights of the Corporate Debtor and thus cannot be

used against the Corporate Debtor. The Counsel further argued

that under IBC, limitation is of three years as per Article 137 of the

Limitation Act, 1963. Counsel referred to Judgement in the matter

Company Appeal (AT) (Ins) No.1337 of 2019 26

of "B.K. Educational Services Pvt. Ltd. vs. Parag Gupta and

Associates" (referred supra) and submitted that it has been held

that the right to sue accrues when default occurs and if default

occurred over three years prior to the date of filing the Application,

the Application would be barred under Article 137 of the Limitation

Act, except, cases where on facts of the case, Section 5 of Limitation

Act may be applied to condone delay. The learned Counsel has then

relied on the Judgement in the matter of "Babulal Vardharji Gurjar

vs. Veer Gurjar Aluminium Industries Pvt. Ltd."

MANU/SC/0589/2020 and Paragraphs - 33 and 33.1 to submit

that in the Application under Section 7 filed before the Adjudicating

Authority (Annexure A-16 - Page 307) the date of default is

mentioned as 30th January, 2014 and thus other arguments to

show that the Application is within limitation, cannot be

maintained.

24. It would be appropriate to reproduce Paragraphs - 33 and

33.1 from the Judgement (As reported in Manupatra) in the matter

of "Babulal Vardharji Gurjar" which read as under:-

"33. Apart from the above and even if it be assumed that the principles relating to acknowledgement as per Section 18 of the Limitation Act are applicable for extension of time for the purpose of the application under Section 7 of the Code, in our view, neither the said provision and principles come in operation in the present case nor they enure to the benefit

Company Appeal (AT) (Ins) No.1337 of 2019 27

of Respondent No. 2 for the fundamental reason that in the application made before NCLT, the respondent No. 2 specifically stated the date of default as '8.7.2011 being the date of NPA'. It remains indisputable that neither any other date of default has been stated in the application nor any suggestion about any acknowledgement has been made. As noticed, even in Part-V of the application, the Respondent No. 2 was required to state the particulars of financial debt with documents and evidence on record. In the variety of descriptions which could have been given by the Applicant in the said Part- V of the application and even in residuary Point No. 8 therein, nothing was at all stated at any place about the so called acknowledgment or any other date of default.

33.1. Therefore, on the admitted fact situation of the present case, where only the date of default as '08.07.2011' has been stated for the purpose of maintaining the application under Section 7 of the Code, and not even a foundation is laid in the application for suggesting any acknowledgement or any other date of default, in our view, the submissions sought to be developed on behalf of the Respondent No. 2 at the later stage cannot be permitted. It remains trite that the question of limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. Indisputably, in the present case, the Respondent No. 2 never came out with any pleading other than stating the date of default as '08.07.2011' in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement. In this

Company Appeal (AT) (Ins) No.1337 of 2019 28

view of the matter, reliance on the decision in Mahaveer Cold Storage Pvt. Ltd. does not advance the cause of the Respondent No. 2."

25. We have gone through the Judgement in the matter of

"Babulal Vardharji Gurjar" (supra). In that matter of "Babulal

Vardharji Gurjar", para - 2 of the Judgement shows that the

Adjudicating Authority had admitted the Application under Section

7 in that matter which Order was challenged before this Appellate

Tribunal and the Appeal was summarily dismissed. However, the

Hon'ble Supreme Court (in the first round of litigation, when matter

went to the Hon'ble Supreme Court in Civil Appeal No.10710 of

2018) found that the issue relating to limitation though raised in

Appeal was not decided by the Appellate Tribunal. The matter was

thus remanded for this Tribunal to specifically deal with the issue

of limitation. This Appellate Tribunal had, in that matter, thereafter

passed Order dated 14th May, 2019 and again dismissed the Appeal

holding that the Application was within limitation. This was again

challenged before Hon'ble Supreme Court and the above Judgement

dated 14th August, 2020 has been passed. The above Judgement of

"Babulal Vardharji Gurjar" shows that the Hon'ble Supreme Court

in para - 6.3 looked into not only the contents recorded as Point

No.2 of Part - IV of the Application but also looked into the

requirement as in Point No.5 of Part - V where the Applicant was

required to attach the latest and complete copy of the financial

Company Appeal (AT) (Ins) No.1337 of 2019 29

contract reflecting all amendments and waivers to date. Hon'ble

Supreme Court also referred to point No.8 of Part - V which

required to give List of other documents "in order to prove the

existence of financial debt, the amount and date of default". The

Hon'ble Supreme Court reproduced portions from the format which

was filed in that matter and thereafter, Hon'ble Supreme Court

analysed the relevant provisions of the Code of the Limitation Act

and relevant basics of IBC and looked into the various Judgements

passed by the Hon'ble Supreme Court and examined the operation

of law of limitation over IBC proceedings. After noticing relevant

and material observations and enunciations in the case of "Jignesh

Shah vs. Union of India" 2019 SCC Online SC 1254, and other

Judgements observations as seen in the Paragraphs - 33 and 33.1

as reproduced above were recorded.

Keeping the above in view, we have looked into Annexure A-

16, the Format copy of which is filed and contents of Part IV and V

and documents referred in Part - V of the format. In the matter of

"Babulal Vardharji Gurjar", question of limitation was not an issue

when matter was before the Adjudicating Authority. The issue

appears to have been raised when matter was in Appeal and as it

was not dealt with by this Tribunal, Hon'ble Supreme Court had

remanded the matter back to this Appellate Tribunal. After

Judgment was again passed by this Tribunal it was again

challenged. When the matter was again carried to the Hon'ble

Company Appeal (AT) (Ins) No.1337 of 2019 30

Supreme Court, the above observations have been made. In the

present matter if facts are considered, the matter was before the

Adjudicating Authority and even before the Application under

Section 7 of IBC was looked into so as to consider whether or not

the same could be admitted, the Corporate Debtor filed I.A. 69 of

2019 challenging maintainability and the Adjudicating Authority,

although it initially dismissed the I.A. on 21st February, 2019, was

required by the Hon'ble High Court in Writ Petition 14107 of 2019

on 25th April, 2019 to pass Speaking Order with regard to

maintainability. The Adjudicating Authority has then passed the

Impugned Order. We have already recorded that the reasons

recorded by the Adjudicating Authority to hold that the Application

under Section 7 of IBC is not maintainable, cannot be sustained.

We find the application was maintainable. The Impugned Order

shows that the parties did raise question of limitation which

Adjudicating Authority referred in the Impugned Order as the

averments of the parties but it did not deal with the issue of

limitation or decide the same one way or the other.

26. Under the Limitation Act, 1963, as per Section 3, it is the

duty of the Court/Authority to consider whether or not the matter

brought before it is within limitation. It is the duty of the authority

to apply its mind to the question of limitation although limitation

has not been taken as the defence. The authority under law as

Company Appeal (AT) (Ins) No.1337 of 2019 31

appearing from Section 3 of Limitation Act, is bound to raise the

question of limitation suo moto. Keeping this in view, it would be

now appropriate to refer to Section 7 of IBC. Sub-Section 5 of

Section 7 reads as under:-

"(5) Where the Adjudicating Authority is satisfied that -

(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may be, by order, admit such application; or

(b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application:

Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority."

Section 3 of the Limitation Act when it is read with

Sub-Section 5 of Section 7 of IBC, it must be said that it was duty

of the Adjudicating Authority to look into the format submitted and

to consider whether prima facie the Form 1 read with Documents

disclosed material to show debt due which is payable in law or in

fact and if such debt is in default. For this Format's Part IV (2) read

with Part V (8) would be relevant to show "existence" of debt. If not

satisfied the Adjudicating Authority would be required to call upon

Company Appeal (AT) (Ins) No.1337 of 2019 32

the Applicant to rectify the defect if the Application does not show

how the debt is due and within limitation. In the Chart which we

have recorded above, Entry - 19A shows that after the Application

under Section 7 of IBC was filed in the present matter, Section

238A of IBC extending provisions of the Limitation Act was inserted

in IBC with effect from 6th June, 2018. When this is so, in fairness,

it would be appropriate to give opportunity to the Financial Creditor

to rectify defect in the Application before the Adjudicating

Authority. It is necessary for us under Rule 11 of National

Company Law Appellate Tribunal Rules, 2016, to exercise inherent

powers to do Justice to pass such Orders.

27. For the above reasons, we are not going into the disputes

which are being raised with regard to limitation before us. The

matter needs to be remanded back to the Adjudicating Authority so

that the Appellant is given opportunity to rectify defects in the

format, as indicated above. Appellant may amend Format and

annex documents to show, how the debt is due and within

limitation. The Adjudicating Authority will then take a decision,

hearing both sides regarding admission.

28. For the above reasons, we set aside the Impugned Order. The

I.A. 69 of 2019 filed by the Respondent is dismissed. The Company

Petition CP(IB)No.144/BB/2017 is restored to the file of the

Adjudicating Authority. We hold that the Application is

Company Appeal (AT) (Ins) No.1337 of 2019 33

maintainable. The matter is remitted back to the Adjudicating

Authority with a direction to permit the Appellant - Financial

Creditor to rectify defect in the format and file documents with

regard to limitation as indicated above. The Adjudicating Authority

will then hear both the parties and if the Adjudicating Authority

finds the Application to be within limitation and if the Application is

otherwise complete, the same shall be admitted and further

necessary Orders should be passed.

The Appeal is disposed accordingly.

[Justice A.I.S. Cheema] Member (Judicial)

[Justice Anant Bijay Singh] Member (Judicial)

[Kanthi Narahari] Member (Technical) rs

Company Appeal (AT) (Ins) No.1337 of 2019