Ritu Murli Manohar Goyal vs Svg Fashions Ltd. & Anr

(Arising out of Order dated 26th September, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad in C.P. No. (IB) 182/9/NCLT/AHM/2018)

IN THE MATTER OF: Ritu Murli Manohar Goyal ...Appellant Vs. SVG Fashions Ltd. & Anr. ...Respondents

Present: For Appellant: - Mr. Keith Varghese, Advocate. For Respondents: - Mr. Rakesh Kumar and Mr. Ankit Sharma, Advocates. Mr. Sumit Kansal, Advocate for Respondent No.2- 'Interim Resolution Professional'.

Bansi Lal Bhat, J.

Application of Respondent No.1- 'M/s. SVG Fashions Ltd.'

('Operational Creditor') under Section 9 of the Insolvency and

Bankruptcy Code, 2016 ("I&B Code" for short) came to be admitted at

the hands of the Adjudicating Authority (National Company Law

Tribunal), Ahmedabad Bench, Ahmedabad in terms of the order dated

26th September, 2019 impugned in the instant appeal preferred by 'Ritu 2

Murli Manohar Goyal', one of the Shareholders and Director of the

'Corporate Debtor'- 'M/s. Arpita Filaments Private Limited' primarily on

the ground that the claim was barred by limitation and initiation of the

'Corporate Insolvency Resolution Process' could not be sustained.

2. The broad features of the case may be briefly adverted to. 'M/s.

SVG Fashions Ltd.' ('Operational Creditor') asserted before the

Adjudicating Authority that it was engaged in the business of supply of

various fabrics and had been doing business with the 'Corporate

Debtor' since the year 2013 regularly supplying various fabrics in

respect whereof bills were raised from time to time which were cleared

by the 'Corporate Debtor' without raising any dispute in regard to the

quality of the products supplied by the 'Operational Creditor'. However,

since August, 2013, the 'Corporate Debtor' started making irregular

payments and the bills were not cleared in time. As the 'Operational

Creditor' raised issue regarding payments with the 'Corporate Debtor',

in the year 2015, the 'Corporate Debtor' issued signed cheques as

security, but since no payment was forthcoming, 'Operational Creditor'

was constrained to issue Demand Notice under Section 8 of the 'I&B

Code' calling upon the 'Corporate Debtor' to pay aggregate amount of

Rs. 43,96,593/- towards bills raised from 11th August, 2013 to 2nd

September, 2013 amounting to Rs. 21,08,821/- plus interest of Rs.

22,87,772/-. Demand Notice dated 19th March, 2018 was duly delivered

at the registered office of the 'Corporate Debtor' but the 'Corporate

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Debtor' chose not to reply the same, thereby prompting the 'Operational

Creditor' to approach the Adjudicating Authority for triggering of

'Corporate Insolvency Resolution Process'.

3. The 'Corporate Debtor', while denying its liability qua claim of

operational debt, raised the plea before the Adjudicating Authority that

six cheques had been found missing from its cheque book and it had

issued letters to 'Surat National Co.op. Bank Ltd.' requesting to stop

payment. The Adjudicating Authority directed the 'Corporate Debtor' to

place on record the original letters addressed to the Bank. It is noticed

in paragraph 18 of the impugned order that the original date of

issuance of a letter dated 1st January, 2008 has been struck off and

replaced by 4th March, 2017. The comparison made by the Adjudicating

Authority raised suspicion about genuineness of such letters. That

apart, 'Corporate Debtor' failed to produce credible proof in regard to

missing of cheques and subsequent issuance of letters of stoppage of

payments to the Bank. Thus, the Adjudicating Authority arrived at the

conclusion that the 'Corporate Debtor' had committed default in respect

of the operational debt arising out of supply of goods by the 'Operational

Creditor' and had fabricated the aforesaid plea raised to defeat

triggering of 'Corporate Insolvency Resolution Process' at the instance of

'Operational Creditor'.

4. Learned counsel for the Appellant submitted that the date of

default mentioned in the application is 7th October, 2013 while the

Company Appeal (AT) (Insolvency) No. 1340 of 2019 4

application was filed on 20th April, 2018 and in view of Article 137 of the

Limitation Act, the application filed by the 'Operational Creditor' was

time barred. Per contra, learned counsel for the 'Operational Creditor'

submitted that the cheques were issued in acknowledgment of the debt

within the period of limitation and the cheques having been

dishonoured, 'Corporate Insolvency Resolution Process' was initiated

after issuance of Demand Notice within the prescribed period of

limitation. It is further submitted on behalf of the 'Operational Creditor'

that the 'Corporate Debtor' had denied the very transaction of supply of

goods as also issuance of cheques by falsely claiming that the cheques

had been lost and the same plea was found to be without substance. It

is further submitted that the 'Corporate Debtor' had neither complied

with the Demand Notice nor raised any dispute in regard to supply or

quality of goods as the Demand Notice was not at all responded to by

the 'Corporate Debtor'.

5. Having heard learned counsel for the parties and fathomed

through the records, we find that the appeal bears merit for the reasons

we would be adverting to.

6. It is the settled proposition of law that an application under

Section 9 of the 'I&B Code' is governed by Article 137 of the Limitation

Act, 1963, which is reproduced hereunder:

Company Appeal (AT) (Insolvency) No. 1340 of 2019 5

Part II-OTHER APPLICATION Description of application Period of Limitation Time from which period begins to run

137. Any other application for which Three years When the right to no period of limitation is provided apply accrues elsewhere in this division.

The period prescribed under this Article being three years, the

'Operational Creditor' is required to satisfy the Adjudicating Authority

that the 'Corporate Insolvency Resolution Process' is sought to be

initiated by filing application within the prescribed period of three years.

7. Form 3 is the Demand Notice issued by the 'Operational Creditor'

which is at Page 119 of the Appeal paper book. Its perusal brings to fore

that the total amount of debt on account of goods supplied by the

'Operational Creditor' to the 'Corporate Debtor' under various invoices

has been calculated at Rs. 42,67,640/- in respect whereof the

'Corporate Debtor' is stated to have issued six cheques dated 5th

December, 2017 for an aggregate amount of Rs. 5,37,206/- towards

part payment which were dishonoured when presented by the

'Operational Creditor' for encashment before the Bank.

8. It is manifestly clear that the six cheques claimed to have been

issued by the 'Corporate Debtor' towards part payment of the liability

arising out of outstanding operational debt were issued on 5th

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December, 2017 as per admission of the 'Operational Creditor', this fact

having been incorporated in Form 3 i.e., the Demand Notice dated 22nd

December, 2017. In so far as liability arising out of operational debt is

concerned, the invoices raised in regard to the outstanding operational

debt covers the period from 11th August, 2013 to 2nd September, 2013.

This fact is clearly emerging from paragraph 3 of Form 5 i.e., the

application filed by the 'Operational Creditor' before the Adjudicating

Authority for triggering of 'Corporate Insolvency Resolution Process' (at

Page 39 of the Appeal paper book).

9. The 'Operational Creditor' while placing these facts before the

Adjudicating Authority has clearly described the date of default as 7th

October, 2013 (Page 46 of the Appeal paper book). The 'Operational

Creditor' cannot escape from the factual assertion incorporated in

Demand Notice and the application filed before the Adjudicating

Authority. A combined reading of the Demand Notice and the

application filed for triggering of 'Corporate Insolvency Resolution

Process' at the instance of 'Operational Creditor' clearly establishes that

the default had occurred on 7th October, 2013 and the application for

triggering of 'Corporate Insolvency Resolution Process' under Section 9

of the 'I&B Code' was filed before the Adjudicating Authority on 20th

April, 2018 i.e. well after the prescribed period of three years in terms of

provisions of residuary clause engrafted under Article 137 of the

Limitation Act, 1963. Viewed thus, there can be no hesitation in

Company Appeal (AT) (Insolvency) No. 1340 of 2019 7

holding that the application filed by the 'Operational Creditor' under

Section 9 of the 'I&B Code' was barred by limitation.

10. The next question arising for attention is whether issuance of six

cheques by the 'Corporate Debtor' towards the part payments of the

outstanding operational debt would amount to an acknowledgment of

debt thereby giving fresh lease of life to the claim of 'Operational

Creditor' qua such operational debt. On this issue, it would be

appropriate to notice that the general principle embodied in Section 3 of

the Limitation Act, 1963 providing that every suit, appeal or application

filed after the prescribed period of limitation shall be dismissed

irrespective of the fact that limitation has not been set up as a defence

is subject to the provisions contained in Sections 4 to 24 (inclusive) of

the Limitation Act, 1963. These Sections carve out exceptions by

providing exclusion and extension on various grounds enumerated

therein.

11. Section 18 of the Limitation Act, 1963 deals with "effect of

acknowledgment in writing". It is reproduced as under:

"18. Effect of acknowledgment in writing.--(1)

Where, before the expiration of the prescribed period

for a suit or application in respect of any property or

right, an acknowledgment of liability in respect of

such property or right has been made in writing

Company Appeal (AT) (Insolvency) No. 1340 of 2019 8

signed by the party against whom such property or

right is claimed, or by any person through whom he

derives his title or liability, a fresh period of

limitation shall be computed from the time when the

acknowledgment was so signed.

(2) Where the writing containing the

acknowledgment is undated, oral evidence may be

given of the time when it was signed; but subject to

the provisions of the Indian Evidence Act, 1872 (1 of

1872), oral evidence of its contents shall not be

received.

Explanation.--For the purposes of this

section,--

(a) an acknowledgment may be sufficient

though it omits to specify the exact nature of

the property or right, or avers that the time

for payment, delivery, performance or

enjoyment has not yet come or is

accompanied by a refusal to pay, deliver,

perform or permit to enjoy, or is coupled with

a claim to set off, or is addressed to a person

other than a person entitled to the property

or right,

Company Appeal (AT) (Insolvency) No. 1340 of 2019 9

(b) the word "signed" means signed either

personally or by an agent duly authorised in

this behalf, and

(c) an application for the execution of a

decree or order shall not be deemed to be an

application in respect of any property or

right."

12. A bare look at the provision engrafted in this Section brings it to

fore that an acknowledgment of liability in respect of a right made in

writing by a person against whom such right is claimed shall have the

effect of computation of fresh period of limitation from the time of

signing of such acknowledgment provided such acknowledgment of

liability has been made before the expiration of the prescribed period of

limitation for a suit or application in respect of such right. The provision

is in the nature of extension of period of limitation having the effect of

the period of limitation being reckoned afresh from the date of such

acknowledgment in writing being signed by the person of incidence.

However, such acknowledgment will take effect only if the liability in

respect of such right is acknowledged in writing and signed by the

person of incidence before the expiration of the prescribed period of

limitation for such suit or application in respect of such right. Applying

the dictum of this provision in the facts and circumstances of instant

case, it is manifestly clear that in respect of the invoices raised in the

Company Appeal (AT) (Insolvency) No. 1340 of 2019 10

year 2013 the prescribed period of limitation being three years in terms

of Article 137 of the Limitation Act, 1963 expired in the year 2016 and

the issuance of cheques by the 'Corporate Debtor' in the year 2017

being well beyond the prescribed period of three years would not be

construed as an acknowledgment in writing within the prescribed

period of limitation in terms of Section 18 of the Limitation Act, 1963.

The situation would have been different if such cheques issued by the

'Corporate Debtor' towards the part payment of the operational debt

had been issued prior to 7th October, 2016 as the date of default

occurred on 7th October, 2013 which fact is admitted by the

'Operational Creditor' in Form 5 (Page 46 of the Appeal paper book).

13. In this factual background and on the very basis of what was

placed by the 'Operational Creditor' before the Adjudicating Authority,

issuance of six cheques dated 5th December, 2017 by the 'Corporate

Debtor' towards part payment of the operational debt in respect of

invoices with last one raised on 2nd September, 2013 cannot be termed

as an acknowledgment of debt within the ambit of Section 18 of the

Limitation Act, 1963. The inescapable conclusion is that the operational

debt in respect whereof the 'Operational Creditor' sought triggering of

'Corporate Insolvency Resolution Process', was neither due nor payable

in law on the date when such 'Corporate Insolvency Resolution Process'

was sought to be initiated by the 'Operational Creditor'.

Company Appeal (AT) (Insolvency) No. 1340 of 2019 11

14. We accordingly, uphold the contention raised in this Appeal that

application under Section 9 was hit by limitation. That being so, the

impugned order admitting the petition under Section 9 of the 'I&B Code'

at the instance of the 'Operational Creditor' cannot be sustained. The

appeal is allowed and the impugned order is set aside.

15. 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

under Section 9 of the 'I&B Code' is dismissed. Learned Adjudicating

Authority will now close the proceeding. The 'Corporate Debtor'

(company) is released from all the rigours of law and is allowed to

function independently through its Board of Directors from immediate

effect.

16. The Adjudicating Authority will fix the fee of the 'Interim

Resolution Professional', and the 'Corporate Debtor' will pay the fees of

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

Company Appeal (AT) (Insolvency) No. 1340 of 2019 12

The appeal is allowed with aforesaid observations. However, in

the facts and circumstances of the case, there shall be no order as to

cost.

[Justice Bansi Lal Bhat] Member (Judicial)

[ V.P. Singh] Member (Technical)

[ Shreesha Merla ] Member (Technical)

NEW DELHI

22nd May, 2020

AR

Company Appeal (AT) (Insolvency) No. 1340 of 2019