Rajendra Kumar Tekriwal vs Bank Of Baroda

(Arising out of Order dated 3rd January, 2020 passed by the Adjudicating Authority (National Company Law Tribunal), Indore Bench at Ahmedabad in C.P. (IB) No.421/7/NCLT/AHM/2018)

IN THE MATTER OF:

Rajendra Kumar Tekriwal (Ex- Director: Pithampur Poly Products Limited) 115, Sector III, Industrial Area, Pithampur, District- Dhar (M.P.) ....Appellant

Versus

Bank of Baroda (Before merger with Respondent Bank was known as "Dena Bank") Navlakha Chouraha A.B. Road Indore- 452001 .....Respondent

Present:

For Appellant: Mr. Manoj Munshi, Mr. Ajay K. Jain and Mr. Atanu Mukherjee, Advocates.

For Respondent: Mr. Amit Mahaliyan, Advocate.

BANSI LAL BHAT, J.

Through the medium of instant appeal filed under Section 61 of

the Insolvency and Bankruptcy Code, 2016 ("I&B Code" for short), Shri

Rajendra Kumar Tekriwal, Ex-Director of 'Pithampur Poly Products 2

Limited'- ('Corporate Debtor') assails the impugned order dated 3rd

January, 2020 passed by the Adjudicating Authority (National Company

Law Tribunal), Indore Bench at Ahmedabad in C.P. (IB) No.

421/7/NCLT/AHM/2018 by virtue whereof application filed by 'Dena

Bank' (before merger with 'Bank of Baroda')- ('Financial Creditor') under

Section 7 of the 'I&B Code' came to be admitted with consequential

orders in the nature of slapping of Moratorium on the assets of the

'Corporate Debtor' and appointment of 'Interim Resolution Professional'.

The challenge to impugned order is limited to issue of limitation, it

being raised as a ground in appeal that the financial debt in respect

whereof the 'Financial Creditor' sought triggering of 'Corporate

Insolvency Resolution Process' was not payable in law, same being

barred by limitation.

2. Learned counsel for the Appellant submitted that in the instant

case the admitted date of the default of the financial debt is 1st May,

2000 which is the date on which such debt was declared as NPA and in

view of the same, such debt could be claimed by the 'Financial Creditor'

within three years from such date. It is further submitted that any

subsequent acknowledgment would not change the date of default

which remains static. It is further submitted that the 'Corporate

Insolvency Resolution Process not being a recovery proceeding,

triggering thereof is permissible within the limitation commencing from

the date of default and not the date of acknowledgment of liability. The

Company Appeal (AT) (Insolvency) No. 225 of 2020 3

argument is further elaborated by canvassing that the 'Financial

Creditor' gets the right to file an application when a default has

occurred and such default surfaces when the 'Corporate Debtor' has

defaulted in repayment of liability and the 'Financial Creditor' has

classified the account as NPA. It is submitted that the acknowledgment

signed by the borrower may be considered for the purpose of admission

of liability but it cannot change the date of NPA based on date of default

which has already occurred upon happening of an event of non-

payment of liability. It is contended that even the acknowledgment

would not extend the date of default and the triggering of the 'Corporate

Insolvency Resolution Process' in the instant case being beyond three

years from the date of classification of debt as NPA, the impugned order

cannot sustain.

3. Per contra, it is submitted on behalf of the 'Financial Creditor'

that the 'Corporate Insolvency Resolution Process' can commence when

a default takes place which occurs when a debt becomes due and is not

paid. It is submitted that in the instant case the debt never got out of

limitation as there is no break in the continuation of the limitation

period. It is submitted that the Corporate Debtor's account was

classified as NPA on 1st May, 2000 as it failed to pay the principal

amount of loan together with the interest accrued thereon. However, the

'Corporate Debtor' regularly kept acknowledging its debt by executing

Letters of Acknowledgment dated 31st March, 1999, 31st March, 2001

Company Appeal (AT) (Insolvency) No. 225 of 2020 4

and 12th January, 2004 which was followed by filing of claim by 'Dena

Bank' before the Debts Recovery Tribunal, Jabalpur on 30th June, 2004

which was decreed on 27th July, 2011. It is further submitted that the

'Corporate Debtor' had filed a Writ Petition No. 5330/2013 before the

Hon'ble High Court of Madhya Pradesh wherein the Hon'ble High Court

had granted interim stay in favour of the 'Corporate Debtor' which came

to be vacated when the Writ was finally disposed off in 2018. It is only

thereafter the 'Financial Creditor' filed C.P. (IB) No.

421/7/NCLT/AHM/2018 under Section 7 of the 'I&B Code' seeking

'Corporate Insolvency Resolution Process' against the 'Corporate

Debtor'. Thus, it is submitted that the claim fell within limitation when

initiation of 'Corporate Insolvency Resolution Process' was sought by

the 'Financial Creditor'.

4. Heard learned counsel for the parties and perused the record.

5. The factual matrix of the case has not been adumbrated in detail

as the only issue arising for consideration revolves around the point of

limitation. It is well settled by now that the provisions of the Limitation

Act, 1963 are applicable to applications relating to triggering of

'Corporate Insolvency Resolution Process' under 'I&B Code' and Article

137 of the Limitation Act, 1963 prescribing a period of three years

applies to such applications. In "Vashdeo R. Bhojwani vs. Abhyudaya

Co-operative Bank Limited and another - (2019) 9 SCC 158", the

Company Appeal (AT) (Insolvency) No. 225 of 2020 5

Hon'ble Apex Court referring to its Judgment rendered in "B.K.

Educational Services Private Limited vs. Parag Gupta and

Associates - (2018) SCC Online SC 1921" held:

"3. Having heard the learned counsel for both parties, we are of the view that this is a case covered by our recent judgment in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, para 42 of which reads as follows:

"42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. "The right to sue", therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application."

6. From the aforesaid Judgment, it is manifestly clear that the right

to sue accrues when a default occurs and if such default has occurred

over three years prior to the date of filing of application, the application

would be barred by limitation except in cases where on the facts of the

case such delay is condoned.

Company Appeal (AT) (Insolvency) No. 225 of 2020 6

7. In "Gaurav Hargovindbhai Dave vs. Asset Reconstructions

Company (India) Limited and another - (2019) 10 SCC 572", the

Hon'ble Apex Court noticed that the 'Corporate Debtor' had been

declared NPA on 21st July, 2011. The 'Financial Creditor' had filed two

OAs before the Debts Recovery Tribunal in 2012 to recover the debt.

The Hon'ble Apex Court held that the default having taken place on 21st

July, 2011 when the account was declared NPA, application under

Section 7 was barred by limitation. It is apposite to reproduce the

relevant portion of the Judgment herein below:

"In the present case, Respondent 2 was declared NPA on 21-7-2011. At that point of time, State Bank of India filed two OAs in the Debts Recovery Tribunal in 2012 in order to recover a total debt of 50 crores of rupees. In the meanwhile, by an assignment dated 28-3-2014, State Bank of India assigned the aforesaid debt to Respondent 1. The Debts Recovery Tribunal proceedings reached judgment on 10-6-2016, the Tribunal holding that the OAs filed before it were not maintainable for the reasons given therein.

2. As against the aforesaid judgment, Special Civil Application Nos. 10621-622 were filed before the Gujarat High Court which resulted in the High Court remanding the aforesaid matter. From this order, a special leave petition was dismissed on 27-3-2017.

3. An independent proceeding was then begun by Respondent 1 on 3-10-2017 being in the form of a

Company Appeal (AT) (Insolvency) No. 225 of 2020 7 Section 7 application filed under the Insolvency and Bankruptcy Code in order to recover the original debt together with interest which now amounted to about 124 crores of rupees. In Form-I that has statutorily to be annexed to the Section 7 application in Column II which was the date on which default occurred, the date of the NPA i.e. 21-7-2011 was filled up. The NCLT applied Article 62 of the Limitation Act which reads as follows:

"Description of Period of Time from which suit limitation period begins to run 62. To enforce Twelve When the money payment of years sued for becomes money secured due." by a mortgage or otherwise charged upon immovable property

Applying the aforesaid Article, the NCLT reached the conclusion that since the limitation period was 12 years from the date on which the money suit has become due, the aforesaid claim was filed within limitation and hence admitted the Section 7 application. The NCLAT vide the impugned judgment held, following its earlier judgments, that the time of limitation would begin running for the purposes of limitation only on and from 1-12-2016 which is the date on which the Insolvency and Bankruptcy Code was brought into force. Consequently, it dismissed the appeal.

4. Mr Aditya Parolia, learned counsel appearing on behalf of the appellant has argued that Article 137

Company Appeal (AT) (Insolvency) No. 225 of 2020 8

being a residuary article would apply on the facts of this case, and as right to sue accrued only on and from 21-7-2011, three years having elapsed since then in 2014, the Section 7 application filed in 2017 is clearly out of time. He has also referred to our judgment in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates [B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633] in order to buttress his argument that it is Article 137 of the Limitation Act which will apply to the facts of this case.

5. Mr Debal Banerjee, learned Senior Counsel, appearing on behalf of the respondents, countered this by stressing, in particular, para 11 of B.K. Educational Services (P) Ltd. and reiterated the finding of the NCLT that it would be Article 62 of the Limitation Act that would be attracted to the facts of this case. He further argued that, being a commercial Code, a commercial interpretation has to be given so as to make the Code workable.

6. Having heard the learned counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being "an application" which is filed under Section 7, would fall only within the residuary Article 137. As rightly pointed out by the learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21-7- 2011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr Banerjee's reliance on para 11 of B.K.

Company Appeal (AT) (Insolvency) No. 225 of 2020 9

Educational Services (P) Ltd., suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred.

7. This being the case, we fail to see how this para could possibly help the case of the respondents. Further, it is not for us to interpret, commercially or otherwise, articles of the Limitation Act when it is clear that a particular article gets attracted. It is well settled that there is no equity about limitation - judgments have stated that often time periods provided by the Limitation Act can be arbitrary in nature.

8. This being the case, the appeal is allowed and the judgments of the NCLT and NCLAT are set aside."

8. On consideration of the aforesaid Judgments of the Hon'ble Apex

Court, a five-member Bench of this Appellate Tribunal held in para 11

of Company Appeal (AT) (Insolvency) No. 1121 of 2019 titled as "Ishrat

Ali vs. Cosmos Cooperative Bank Ltd. & Anr.":-

"11. The aforesaid decisions of the Hon'ble

Supreme Court and this Appellate Tribunal make

it clear that for the purpose of computing the

period of limitation of application under Section 7,

Company Appeal (AT) (Insolvency) No. 225 of 2020 10

the date of default is 'NPA' and hence a crucial

date."

9. In the aforesaid Judgment rendered by this Appellate Tribunal, it

has been laid down in unambiguous terms that mere filing of a suit for

recovery or a decree passed by a Court cannot be held to be deferment

of default. In this regard, it would be appropriate to extract paras 15

and 16 of the aforesaid Judgment as under:

"15. A suit for recovery of money can be filed

only when there is a default of dues. Even if the

decree is passed, the date of default does not

shift forward to the date of decree or date of

payment for execution. Decree can be executed

within specified period i.e. 12 years. If it is

executable within the period of limitation, one

cannot allege that there is a default of decree or

payment of dues.

16. Therefore, we hold that a Judgment or a

decree passed by a Court for recovery of money

by Civil Court/ Debt Recovery Tribunal cannot

shift forward the date of default for the purpose

of computing the period for filing an application

under Section 7 of the 'I&B Code'."

Company Appeal (AT) (Insolvency) No. 225 of 2020 11

10. As regards computation of a fresh period of limitation from the

date of acknowledgment of liability, be it noticed that such

acknowledgment in respect of any right has to be in writing and signed

by the borrower against whom such debt is claimed well before the

expiration of the prescribed period for a suit or application in respect of

such right. Any acknowledgment made after the period for enforcement

of such right, recovery of such property or debt would not fall within the

purview of Section 18 of the Limitation Act, 1963 for the purpose of

commencement of fresh period of limitation. In the instant case, the

account of the 'Corporate Debtor' was classified as NPA on 1st May,

2000 which is admitted as the date of default. This being an admitted

fact and clearly discernible from Form-1 (application by Financial

Creditor to initiate Insolvency Resolution Process under Section 7 of the

'I&B Code') Column 2 of Part-IV at page 65 of the appeal paper book

which clearly specifies the date of default as 1st May, 2000 when the

account of 'Corporate Debtor' was classified as NPA as stated earlier.

The filing of recovery proceeding before the Debts Recovery Tribunal

and the claim being subsequently decreed would not shift the date of

default. It is settled position of law that in application under Section 7

of the 'I&B Code' relief is sought for Resolution of Insolvency of the

'Corporate Debtor'. It is not a recovery claim or suit. Any

acknowledgment of liability made subsequent to occurrence of default

and beyond the period of limitation reckoned from such date of default

Company Appeal (AT) (Insolvency) No. 225 of 2020 12

leading to classification of the account of the 'Corporate Debtor' as NPA

in any form including floating of an OTS proposal by the 'Corporate

Debtor' in recognition of liability would not in any manner affect the

occurrence of default for purposes of triggering of 'Corporate Insolvency

Resolution Process'. Respondent's plea that the Corporate Debtor had in

terms of letters of acknowledgment dated 31st March, 1999, 31st March,

2001 and 12th April, 2004 acknowledged its liability qua the financial

debt owed to Respondent, apart from not being entertainable for the

forgoing reason, would still not render the financial debt payable in law

even if the period of computation is reckoned from the date of last

acknowledgment dated 12th April, 2004. It is apt to notice that Section 7

of the 'I&B Code' has been brought into force on 1st December, 2016

vide S.O. 3594(E) dated 30th November, 2016. Therefore, triggering of

Corporate Insolvency Resolution Process in respect of defaults occurring

prior to 1st December, 2013 would be impermissible in view of

application of Article 137 of the Limitation Act, 1963. This view is

fortified by the Judgments referred to hereinabove.

11. In view of the foregoing discussion, we find that the arguments

canvassed on behalf of the Appellant that initiation of 'Corporate

Insolvency Resolution Process' at the instance of the 'Financial Creditor'

was unsustainable as the same had been filed well beyond the period of

three years from the date the account of 'Corporate Debtor' was

classified as NPA. In these circumstances, we uphold the argument

Company Appeal (AT) (Insolvency) No. 225 of 2020 13

advanced on behalf of the Appellant that the subsequent developments

in the form of recovery proceedings before the Debts Recovery Tribunal

culminating in passing of recovery order/ decree would not shift the

date of default leading to classification of Corporate Debtor's account as

NPA. We find that on the date of triggering of 'Corporate Insolvency

Resolution Process' at the instance of the 'Financial Creditor', the claim

was clearly barred by limitation in terms of Article 137 of the Limitation

Act, 1963.

12. We, accordingly, allow the Appeal and set aside the impugned

order dated 3rd January, 2020 passed by the Adjudicating Authority

(National Company Law Tribunal), Indore Bench at Ahmedabad.

13. In effect, order(s), passed by the Adjudicating Authority

appointing 'Interim Resolution Professional', declaring moratorium,

freezing of account, and all other order (s) passed by the Adjudicating

Authority pursuant to impugned order and action, if any, taken by the

'Interim Resolution Professional', including the advertisement, if any,

published in the newspaper calling for applications, all such orders

and actions are declared illegal and are set aside. The application

preferred by Respondent under Section 7 of the 'I&B Code' is

dismissed. Learned Adjudicating Authority will now close the

proceeding. The 'Corporate Debtor' (company) is released from all the

Company Appeal (AT) (Insolvency) No. 225 of 2020 14

rigour of law and is allowed to function independently through its

Board of Directors from immediate effect.

14. The Adjudicating Authority will fix the fee of 'Interim Resolution

Professional' and 'Pithampur Poly Products Pvt. Ltd.' will pay the fees of

the 'Interim Resolution Professional', for the period he has functioned.

[Justice Bansi Lal Bhat] Acting Chairperson

[Justice Anant Bijay Singh] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

NEW DELHI 13th August, 2020

AR

Company Appeal (AT) (Insolvency) No. 225 of 2020