Sarang Kumar Wadhawan vs Unity Small Finance Bank Ltd & Anr

[Arising out of the Order dated 15.02.2023, passed by the 'Adjudicating Authority' (National Company Law Tribunal, Mumbai Bench) in C.P. 1358 of 2020]

IN THE MATTER OF: Sarang Kumar Wadhawan (Shareholder of Privilege Power and Infrastructure Private Limited) Presently in Judicial Custody At Mumbai Central Prison, Mumbai Mobile No. +91-9167688370 Email ID: dish@sdsadvocates.com ...Appellant

Versus

1. Unity Small Finance Bank Ltd. (Erstwhile Punjab and Maharashtra Co-Operative Bank Limited). A Small Finance Bank incorporated in India under the Companies Act, 2013 (18 of 2013), having its registered office at: 40, Basant Lok, Vasant Vihar, New Delhi-110 057, Corporate office at: 2nd Floor, Centrum House, C.S.T Road, Vidyanagari Marg Kalina, Santacruz East, Mumbai - 400098 ...Respondent No.1

2. Mr. Anurag Kumar Sinha Interim Resolution Professional of the Corporate Debtor (Privilege Power and Infrastructure Private Limited) IBBI/IPA-001/IP-P00427/2017-18/10750 75/76, Mittal Court, Wing-C, Nariman Point, Mumbai - 400 021 ...Respondent No.2

Present: For Appellant : Ms. Menaka Guruswamy, Sr. Advocate with Ms. Disha Shah, Ms. Bhumika Yadav, Mr. Rohan Talwar and Mr. Avinash Mathew, Advocates.

For Respondent : Mr. Gourav Mitra, Ms. Ranuka Iyer and Mr. Arpit Paul, Advocates for R-1.

Mr. Dhananjaya Sud, Advocate for R-2. JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)]

The present Appeal is being preferred by the Appellant, Mr. Sarang Kumar

Wadhawan, in the capacity of a shareholder of the Corporate Debtor, under

Section 61 (1) of the Insolvency & Bankruptcy Code, 2016 ("IB Code") against the

Impugned Order dated 15.02.2023, passed by the National Company Law

Tribunal, Mumbai (Bench - V) in Company Petition (IB) No. 1358 of 2020 filed by

the Respondent No.1 under Section 7 of the IB Code for initiation of Corporate

Insolvency Resolution Process against Privilege Power Infrastructure Limited

("PPIL")

Submissions of the Appellant

2. NCLT overlooked the fact that it was the Financial Creditor /Respondent

No. 1 who had made the averments in Form 1 (Application by Financial Creditor)

that credit facility of ₹81.50 Cr. was disbursed on 12.03.2007. But no such

amount was disbursed on 12.03.2007. Only the sum of ₹11,81,66,116.90 was

disbursed from 12.03.2007 - 31.03.2007 to the Corporate Debtor for which no

sanction letter was issued nor were the terms of disbursal with respect to time

value and money. Date of NPA pleaded by the Financial Creditor, Respondent

No.1 herein was 31.08.2012.

3. But the Financial Creditor issued sanction letter on 16.08.2018 for an

amount of ₹81.50 Crores to correct the fraud of Financial Creditor for not being

able to issue the same beforehand, which was never disbursed to the Corporate

Company Appeal (AT) (Insolvency) No. 260 of 2023 2 of 40 Debtor, yet the Financial Creditor pleaded before the NCLT that the loans were

disbursed pursuant to the sanction letter dated 16.08.2018.

4. Financial Creditor / Respondent No. 1 took a plea that the FIR discloses

that the officials of the Financial Creditor played an active fraud. These

illegalities were not considered by the NCLT.

5. Any Company Petition under IB Code must be filed within 3 years from

the date of default and the transactions that are 'Fraudulent' in nature do not

fall within the ambit of the definition of 'Financial Debt' as defined under Section

5(8) of the IB Code and hence, the same cannot be admitted to the Corporate

Insolvency Resolution Process ("CIRP'') under the provisions of IB Code. However,

in the instant case, the date of default is 31.08.2012 and the Company Petition

was filed before the NCLT in the year 2020, without any valid acknowledgment

of debt. In addition to the above, the Financial Creditor itself sets up the case of

Fraud and alleges that since the bank officials were involved in fraud, therefore

the said Company Petition could not be filed within time. The Financial Creditor

himself has submitted before the NCLT that, there was a fraud in the

bank/Financial Creditor because of which the account of the Financial Creditor

was recast and re-audited in the year 2019. As admitted by the Financial

Creditor, the account of Corporate Debtor was declared as Non-Performing Asset

("NPA") in the year 2019 w.e.f. 31.08.2012 and the Company Petition was filed

in the year 2020 with the Hon'ble NCLT.

Company Appeal (AT) (Insolvency) No. 260 of 2023 3 of 40

6. The Impugned Order is contrary to Section 17 of the Limitation Act, 1963

that deals with the 'effect of fraud or mistake'. Financial Creditor claims it came

to know about the fraud only in the year 2019. This fact is untenable as all the

Statement of Account were readily available with the Financial Creditor and the

Corporate Debtor never stopped the Financial Creditor from taking any legal

action. Therefore, reliance by the Financial Creditor that it only came to know

about the accounts of Corporate Debtor are NPA only on 27.12.2019 was and is

a moonshine defense. NCLT overlooked Section 17 (d) of the Limitation Act which

categorically states that Section 17 would only come into play and rescue the

limitation in the event the document required for taking appropriate legal action

against the Corporate Debtor is fraudulently concealed by the other party. In

this case, all the documents required for taking any legal action were readily

available with the Financial Creditor and the question that arose was - why the

bank/Financial Creditor did not take any action in F.Y. 2012 when the account

of the Corporate Debtor was NPA. These are the internal policy decisions of the

Financial Creditor and certainly the Corporate Debtor had no role to play.

7. Financial Creditor itself has filed an FIR before the EOW and has alleged

collusion / conspiracy between the Corporate Debtor and management of the

Financial Creditor. This certainly is not the object of the legislature which has

been relied by NCLT in the present case. Even the EOW in C.R. No. 86/2019

(Bhandup Police Station C.R. No. 375/2019) of the Chargesheet explicitly states

that the loan documents executed by the Financial Creditor are invalid and that

Company Appeal (AT) (Insolvency) No. 260 of 2023 4 of 40 the RBI norms and conditions were not followed by the Financial Creditor while

sanctioning and disbursing the loan to the Corporate Debtor.

8. Impugned Order suffers from non-application of mind and is in complete

contravention to the provisions of the IB Code. The Petition was barred by law of

limitation and according to the Financial Creditor itself the transaction was a

fraudulent transaction. Being aggrieved by the said Impugned Order, the

Appellant has preferred the present Appeal before this Hon'ble Tribunal.

And read with Section 18, 19 of the Contract Act, 1872.

Submissions of Respondent

9. Appellant is merely seeking to stall, delay and defeat the Corporate

Insolvency Resolution Process of PPIL, by inter alia raising bogus contentions

and allegations, which have no basis in fact or in law. Appellants are guilty of

suppresio veri and/or suggestion falsi. The fact is that Corporate debtor had

availed facility and there was default in payment.

10. In respect of the First Sanction Limit, the absence of a sanction letter

would not indicate that there is no 'financial debt'. A financial contract is not a

pre requisite for admitting an application under Section 7 of the IBC as long

as the Adjudicating Authority is subjectively satisfied that there were a debt and

default. The definition of "financial debt" as prescribed under Section 5(8) and (f)

of IBC means a debt along with interest, if any, which is disbursed against the

consideration for the time value of money and includes any amount raised under

any transaction having commercial effect of a borrowing. Further 'financial debt' Company Appeal (AT) (Insolvency) No. 260 of 2023 5 of 40 means outstanding principal due in respect of a loan and would also include

interest thereon, if any interest were payable thereon. If there is no interest

payable on the loan, only the outstanding principal would qualify as a financial

debt.

11. In the instant case, it is evident from the record that from FY 2006-07 till

FY 2012-13, the Corporate Debtor had raised funds from PMC Bank under a

transaction that has the 'commercial effect of borrowing'. The same is

undisputed by the Appellant. As the Corporate Debtor failed to repay the facility

availed till FY 2012-13, it is evident that there was a default. Thus, there being

a debt and default, the Appellant cannot contend that the Impugned Order ought

to be set aside and as such, the Appeal ought to be dismissed on these grounds

alone.

12. Respondent also claims that the company petition is not time barred under

the Limitation Act 1963. The period of limitation will not run against Financial

Creditor-USFBL, till the date USBFL discovered the default of PPIL, along with

the documents evidencing such default, which were fraudulently concealed by

erstwhile management of PMC Bank as well as the Appellant. In or around 23

September 2019, on account of the irregularities in conduct of business of PMC

Bank, RBI took over the charge of PMC Bank's management by way of

supersession of Board of Directors under Section 36AAA of the Banking

Regulation Act, 1949. An Administrator was appointed by the RBI in exercise of

the powers conferred on RBI India under Sub-sections 1 & 2 of Section 36AAA

Company Appeal (AT) (Insolvency) No. 260 of 2023 6 of 40 read with Section 56 of the Banking Regulation Act, 1949. Moreover, an Advisory

Committee comprising of senior bankers/ chartered accountant was also

appointed to assist the Administrator. Further, PMC Bank was placed under All-

Inclusive Directions (AID) under Sub-section (1) of Section 35-A read with

Section 56 of the Banking Regulation Act, 1949 with effect from on 23 September

2019 vide RBI's Directive DCBS.CO.BSD-I/D-1/12.22.183/2019-20 dated 23

September 2019 on account of fraud which led to steep deterioration in the net-

worth of the bank. Further, the Administrator appointed an auditor to re-audit

and re-cast the financial statements of PMC Bank for the financial year ending

on 31 March 2020. The notes from the re-casted financial statements

categorically record the following:

"(i) Note No.1,9 and 29 regarding Fraud of substantial amount detected at the Bank during the year whereby certain advance accounts relating to Housing Development Infrastructure limited (HDJL) Group having outstanding of Rs. 6212. 46 crores and other credit facilities aggregating to Rs.428.58 crores as on March 31, 2020 remained unreported and were not properly classified in accordance with the asset classification norms issued by RBI... "

"B. "(i) To the extent identified, the outstanding amount as on 31/03/2020 in credit facilities availed by M/s Housing Development & infrastructure Ltd. (HDJL) and its associates amounted to Rs.6212.46 crores which formed 73.28% of its credit portfolio of" 8477. 16 crores. The group also has non fund based facilities (Bank Guarantee) outstanding to aggregate balance outstanding of Rs. 428.58 crores (to the extent identified), that were also not classified as NPA on the date these facilities has turned NPA, and was in violation of provisions contained in Section 46(2) of Banking Regulation Act, 1949 (As Applicable to Cooperative Societies (AACS))."

"(iii) The then management of the bank did not disclose appropriately and completely the credit facilities granted to HDIL group and certain other accounts which had turned Non performing in earlier years. During the year all these accounts with aggregate outstanding Rs.6641.04 crores have been classified as Non-

performing from their respective back date of becoming NPA. There

Company Appeal (AT) (Insolvency) No. 260 of 2023 7 of 40 is no claim on the outstanding Bank Guarantees of Rs. 19.17 crores and hence no provision has been made for the same."

13. The above re-audit and re-casting of PMC Bank's balance sheets was

concluded on 27 December 2019, and as such prior to such date, the Financial

Creditor, the RBI or the Administrator did not have knowledge of the default and

NPA status of Corporate Debtor's accounts. Pursuant to the aforesaid, the

account of the Corporate Debtor was classified as a NPA account with effect from

31 August 2012. Subsequently, PMC Bank merged with USFBL by way of scheme

of amalgamation approved and notified by the Ministry of Finance, Department

of Financial Services, Government of India on 25 January 2022. By way of the

scheme of amalgamation, the Financial Creditor took over the assets and

liabilities of PMC. An Interim Application being 624 of 2022 was preferred before

this Hon'ble Tribunal to substitute the name of PMC with the Respondent herein

in the Company Petition vide order dated 11 March 2022.

14. Respondent also contends that there exists valid acknowledgements and

part payment of debt. The statement of accounts reveal that on or around 25

February 2013, the Corporate Debtor availed a facility of INR 6,79,00,000/-

(Rupees Six Crores Seventy Nine Lakhs). It is settled law that as per Article 21 of

the Limitation Act 1963, that in the case of a simple overdraft facility, the

limitation period of 3 years will run from the date on which the last overdraft

facility was availed. Therefore, the period of limitation would begin to run at least

from 25 February 2013.

15. Section 18 of the Limitation Act, 1963 prescribes that before the expiration

Company Appeal (AT) (Insolvency) No. 260 of 2023 8 of 40 of the prescribed period for a suit or application in respect of any property or right,

an acknowledgement of liability in respect of such property or right has been

made in writing signed by the party against whom such property or right is

claimed, a fresh period of limitation shall be computed from the time when the

acknowledgement was so signed. The Explanation to the Section provides that

an acknowledgement may be sufficient though it omits to specify the exact nature

of the right or avers that the time for payment has not yet come or is

accompanied by a refusal to pay, or is coupled with a claim to set off, or is

addressed to a person other than a person entitled to the right.

16. Further, Section 19 of the Limitation Act, 1963 deals with the effect of

payment on account of a debt or of interest on a legacy made before the expiry

of the period prescribed by a person liable to pay. It is only in such circumstances

that a fresh period of limitation shall be computed from the time when the

payment is made. Moreover, it is settled law that Sections 18 and 19 of the

Limitation Act, 1963 have to be construed liberally.

17. It is settled law that balance confirmations constitute as an unconditional

acknowledgement of its liability by the defendant under Section 18 of the

Limitation Act, 1963. It contains an implied promise that the amount stated to

be the closing balance would be paid by the defendant and as such is a promise

to pay. For the disbursals made by PMC Bank, balance confirmations letters

were sent to the Corporate Debtor, and were signed and acknowledged by the

Appellant. The balance confirmations are tabulated herein below for ease of

Company Appeal (AT) (Insolvency) No. 260 of 2023 9 of 40 reference for this Hon'ble Tribunal:

Sr. No. Date Outstanding Amount 1. 31 March 2011 INR 30,36,82,307.41

2. 26 June 2011 INR 29,99,61,736.20

3. 30 June 2018 INR. 101,69,36,070.27 4. 31 March 2019 INR 115,25,89,280.27

5. 30 June 2019 INR 120,07,71,521.27

18. Moreover, part payments continued to be received by PMC Bank in the

Overdraft Account as demonstrated hereinbelow:

Sr. No. Date Payment received by 1. 22 October 2013 Credit transaction by Bharti Airtel (INR 22,428) 2. 10 July 2014 RTGS Shop No 6 of Ground Floor (INR 2,07,000)

3. 28 August 2014 Credit transaction by Bharti Airtel (INR 22,428)

4. 17 February 2016 Credit transaction by Bharti Airtel (INR 2,61,000)

19. The aforesaid balance confirmations provided by the Corporate Debtor and

part payments made by vendors, were in respect of the Overdraft Account and

no other account is maintained with the PMC Bank. The part payments received

from vendors were also towards discharge of the debt availed by the Corporate

Debtor, and were on behalf of the Corporate Debtor, who used to periodically

authorize third party vendors to transfer monies to the Overdraft Account. The

same is evident from a bare perusal of the statement of accounts of the Overdraft

Account. Moreover, the Corporate Debtor knowing that it had not availed further

facility from PMC Bank after 2013, continued to provide balance confirmations

Company Appeal (AT) (Insolvency) No. 260 of 2023 10 of 40 even in 2018 and 2019. This shows unequivocal intent of the Corporate Debtor

to acknowledge an existing debt and liability, prior to expiration of the limitation

period to file a suit. As such, the Corporate Debtor provided valid

acknowledgement of debt till 2019, and given that the Company Petition was filed

in 2020 itself, it cannot be said that the Company Petition was barred by

limitation.

20. Respondents also contends that Overdraft Account was a mutual and a

current account. The balance in the Overdraft Account was a constantly moving

one and the balances reflected in the said account were momentary in nature

and subject to frequent changes, thus the Overdraft Account were in the nature

of a mutual and current account. Overdraft Account was in the nature of a

current account as mutually acknowledged by the parties in the balance

confirmation letter dated 27 June 2011 in which it was categorically stated that

"balance in your current account No. 1407/1790 as on 26 June 2011 is INR

29,99,61,736.20 Debit." It is settled law that a current account of the bank in

which overdraft limit is granted, is an open mutual and current account in terms

of Article 1 of the Limitation Act,1963 and limitation for filing of the suit is three

years from the end of the financial year in which the last entry is admitted or

proved. The last proved entry in the account is dated 10 October 2019 when the

debit entries were put in the account for interest payable by the Corporate Debtor.

The end of the financial year with respect to the entry dated 10 October 2019

will be 31 March 2020 and thus in terms of Article 1 of the Limitation Act, 1963

the Company Petition could have been filed till 31 March 2023 whereas the suit Company Appeal (AT) (Insolvency) No. 260 of 2023 11 of 40 has been filed in 2020 itself. As such, for these reasons also the Company

Petition can be said to have been filed within limitation. Even assuming that the

last proved entry in the account is dated 17 February 2016 when the credit

entries were put in the account for amounts paid by Bharti Airtel, the end of

financial year with respect to such entry will be FY 2015-16. Thereafter, the

Corporate Debtor has provided valid acknowledgements of debt in the year 2018

and 2019 as seen above. Therefore, it cannot be said the Company Petition is

barred by limitation and has been filed well within the limitation period. In light

of the aforesaid, it is opposed that the Company Petition was barred by

limitation. A bare perusal of the averments made by the Appellant indicate that

the even though he has admitted the disbursal of facility from FY 2007 till at least

FY 2013, the Appellant is only opposing the Company Petition on the grounds

that it is barred by limitation. The Appellant has failed to consider the various

acknowledgement of debt and part payments made in respect of the Overdraft

Account which have revived the limitation period in respect of the facility availed

by the Corporate Debtor.

21. Appellant is also seeking to take advantage of its own wrong by concealing

the default from the Financial Creditor and thereafter, contending that the

Company Petition is barred as the Financial Creditor failed to initiate action in

relation to the default on a prior date. It is well known that the erstwhile

management of PMC Bank acted collusively with the Appellant to not even

identify and report the default of the Corporate Debtor, let alone file proceedings

for the same. The Financial Creditor herein is merely attempting to safeguard Company Appeal (AT) (Insolvency) No. 260 of 2023 12 of 40 the interests of depositors of PMC Bank who have been greatly prejudiced by

siphoning of the funds by the erstwhile management of PMC to the Corporate

Debtor and its group companies.

22. Immediately after supersession of the management of PMC Bank, attempts

were made by Financial Creditor to recover their dues from the Appellant:

i. a notice dated 7 October 2019 registered under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI); and ii. a recall letter issued to the Appellant dated 12 June 2020; and

iii. a record of default was registered on 1 July 2020 with National E- Governance Services Limited (NESL).

23. Appellant's have wrongly contended that the 'Charge Sheet' as annexed by

the Appellants clearly suggests the loan documents executed between the

Appellant and PMC are invalid as the 'Charge Sheet' clearly takes into account

the fact that money was disbursed by PMC towards the Appellant which was not

repaid.

Appraisal

24. Heard counsels of both sides and also perused material on record.

25. Before proceeding further, we note that the Appellant is a shareholder of

the corporate debtor. We note that only the sum of ₹11,81,66,116.90 was

disbursed from 12.03.2007 - 31.03.2007 to the Corporate Debtor. No sanction

letter was issued nor were the terms of disbursal with respect to time value and

money. The date of NPA as pleaded by the Financial Creditor, FC-Respondent

No.1 herein is 31.08.2012. The Financial Creditor issued sanction letter dated Company Appeal (AT) (Insolvency) No. 260 of 2023 13 of 40 16.08.2018 for an amount of ₹81.50 Crores and Appellant claims that it was to

correct the fraud of Financial Creditor for not issuing the same beforehand.

Financial Creditor pleads before the NCLT that the loans were disbursed

pursuant to the sanction letter dated 16.08.2018. Appellant also contends that

Financial Creditor / Respondent No. 1 took a specific plea that the FIR discloses

that officials of the Financial Creditor played an active fraud. Further Appellant

contends that the petition was barred by limitation as it must be filed within 3

years from the date of default. Appellant also contends that the transactions that

are fraudulent in nature do not fall within the definition of Financial Debt under

Section 5(8) of the IB Code and hence cannot be admitted to CIRP. In this case,

the date of default was 31.08.2012, and the Company Petition was filed in 2020,

without any valid acknowledgment of debt. Appellant also contends that

Financial Creditor itself alleges fraud by its officials as a reason for delay and as

there was fraud in the bank because of which the account was recast and re-

audited in 2019 and therefore, the account of Corporate Debtor was declared

NPA in 2019 w.e.f. 31.08.2012 and the Company Petition was filed in 2020.

Appellant claims that the Impugned Order is contrary to Section 17 of the

Limitation Act, 1963 that deals with 'effect of fraud or mistake'. Appellant also

contends that the plea of Financial Creditor that it came to know about the fraud

only in 2019 is untenable because all Statements of Account were readily

available with the Financial Creditor. Appellant-Corporate Debtor never stopped

the Financial Creditor from taking legal action. The plea that Financial Creditor

came to know only on 27.12.2019 is a moonshine defense, especially since it

Company Appeal (AT) (Insolvency) No. 260 of 2023 14 of 40 itself pleaded that its own management was involved in fraud. Section 17 applies

only if documents required for taking legal action are fraudulently concealed by

the other party. In this case, all documents were readily available with the

Financial Creditor. The question arises why the Financial Creditor did not take

action in F.Y. 2012 when the account was NPA as per its own case. These were

internal policy decisions of the Financial Creditor, in which the Corporate Debtor

had no role. Appellant also contends that the Financial Creditor filed an FIR

before EOW alleging collusion/conspiracy between Corporate Debtor and its own

management. This is not the object of the legislature relied upon by NCLT. Even

the EOW in C.R. No. 86/2019 (Bhandup Police Station C.R. No. 375/2019) in

the Chargesheet explicitly states the loan documents executed by the Financial

Creditor are invalid and RBI norms and conditions were not followed by the

Financial Creditor while sanctioning and disbursing the loan to the Corporate

Debtor.

26. Looking into the sequence of events as brought out by the Respondent-FC

we note that in 2007, PMC Bank advanced financial assistance to PPIL by way

of an overdraft facility (Account No. 002140700001790). Statement of accounts

shows:

o Sanction limit: ₹40 crores, o Secured by mortgage, o Interest rate: 16%, o Effective sanction date: 22 February 2013.

27. Corporate Debtor began withdrawing from 12 March 2007, and by 31

March 2007, overdraft utilized was ₹11.81 crores. Board resolutions dated 6

Company Appeal (AT) (Insolvency) No. 260 of 2023 15 of 40 December 2008 increased the overdraft limit from ₹15 crores to ₹20 crores,

authorised Appellant to execute loan documents, and mortgaged Property 1 (Plot

No. 1, Juhu Tara Road, Juhu). Interest unpaid for over six months by 31 August

2012. The account should have been classified as NPA, but irregularities at PMC

Bank prevented reporting. By 25 February 2013, outstanding dues was ₹39.99

crores and total amount disbursed till 31 March 2013 was ₹80.99 crores.

28. FC-Respondent argues that in 2017, Corporate Debtor-Appellant applied

to renew sanction limit to ₹81.50 crores. PMC Bank sanctioned as below:

 3 April 2017 - ₹10 crores secured by Property 2 (Shirgaon, Thane, 50,575 sq. m.)

 5 April 2017 - Enhanced to ₹81.50 crores against Property

2.

Mortgage deeds (13 April 2017) were executed over Property 2 by the Appellant

as below:

 executed Mortgage Deed 1 (₹10 crores)  Mortgage Deed 2 (₹81.50 crores)

29. Further Sanction letter dated 6 January 2018 required mortgage of

Property 3 (Ranolli & Padmala, Vadodara) and on 2 May 2018 - Mortgage over

Property 4 (Village Doliv, Vasai, Palghar) was done. Further Sanction dated 16

August 2018 reaffirmed ₹81.50 crores against Properties 2 & 4. And on 16

August 2018 - Demand Promissory Note -DPN and undertaking were executed

by the Appellant. These documents reaffirm Corporate Debtor's acknowledgment

of indebtedness and subsisting debtor-creditor relationship.

Company Appeal (AT) (Insolvency) No. 260 of 2023 16 of 40

30. Respondent also claims financial debt under Section 5(8)(f) of the IBC as

from FY 2006-07 to FY 2012-13, Corporate Debtor borrowed funds, which is

admitted by Appellant. Corporate Debtor defaulted in repayment; hence

existence of debt and default is established. Respondent also contends that

Company Petition is within limitation as knowledge of default was concealed by

PMC management and Appellant. Fraud was exposed after RBI superseded PMC

Board on 23 September 2019 under Section 36AAA, Banking Regulation Act. Re-

audit was concluded on 27 December 2019 revealed defaults and NPAs. Later

PMC Bank merged with USFBL on 25 January 2022; Respondent substituted (IA

624/2022). As per Section 17, Limitation Act 1963: limitation begins from

discovery of fraud or concealed documents. Hence limitation runs only from 27

December 2019.

31. Respondent also contends that the last overdraft facility was availed on 25

February 2013 (₹6.79 crores). Limitation under Article 21 runs from that date.

Section 18 & 19 Limitation Act, 1963 provide that acknowledgements and part

payments revive limitation. Here in this case balance confirmation letters were

signed by Appellant on various dates which are noted as below:

"31 March 2011 - ₹30.36 crores, 26 June 2011 - ₹29.99 crores, 30 June 2018 - ₹101.69 crores, 31 March 2019 - ₹115.25 crores, 30 June 2019 - ₹120.07 crores"

32. Further part payments received in the OD account, showing

acknowledgements, are noted as below:

Company Appeal (AT) (Insolvency) No. 260 of 2023 17 of 40 "22 Oct 2013 - ₹22,428 (Bharti Airtel), 10 Jul 2014 - ₹2,07,000 (RTGS), 28 Aug 2014 - ₹22,428 (Bharti Airtel), 17 Feb 2016 - ₹2,61,000 (Bharti Airtel)"

Thus, acknowledgments are valid till 2019; and therefore, petition in 2020 is

within limitation.

33. Respondent further argues that Overdraft Account is in the nature of

current account. Balance confirmations (27 June 2011) describe it as a "current

account." Further Article 1, Limitation Act provides that limitation runs three

years from end of FY in which last entry is admitted/proved. Last debit entry

was on 10 October 2019 (interest). Therefore, Limitation exists till 31 March

2023. Even if last credit entry (17 Feb 2016) is considered, acknowledgements

in 2018-2019 revive limitation.

34. FC-Respondent also claims that Appellant cannot rely on Charge Sheet

since it acknowledges disbursal of money by PMC which was not repaid.

Furthermore, it is the contention of the FC-Respondent that Appellant colluded

with PMC Bank's management to conceal default and Appellant cannot take

advantage of own fraud and Financial Creditor had acted to protect PMC Bank

depositors' interests.

35. Furthermore, Financial Creditor claims to have issued SARFAESI notice

(7 Oct 2019), Recall letter (12 Jun 2020), Record of default with NESL (1 Jul

2020).

Company Appeal (AT) (Insolvency) No. 260 of 2023 18 of 40 Issues before us:

36. The Appellant has sought to argue that the Section 7 petition filed in 2020

is belated and is barred by limitation, given the date of disbursement being

12.03.2007 and the date of NPA being 31.08.2012 and that is the main issue

before us.

37. We first delve into the conspectus of the case in hand to find out the

validity of the arguments and whether Adjudicating Authority was correct in

establishing debt and default. In CP IB No. 1358 of 2020 Unity Small Finance

Bank- USBFL (Formerly PMC Bank)-FC, filed for a debt of ₹138,48,08,867/-

under Section 7 of the Code, thereby initiating Corporate Insolvency Resolution

Process against the CD-Privilege Power Infrastructure Limited-PPIL.

Whether the OD facility 0f 2007 is different than 2017-2018?

38. First we look into the issue whether the OD facility of 2007 is different

than 2017-2018? Appellant a shareholder of Privilege Power Infrastructure

Limited ("PPIL") contends that the overdraft facility availed in 2007 is separate

and distinct from the purported overdraft facility sanctioned in 2017-2018. The

latter is fictitious, devoid of any 'disbursal' and has been artificially created by

the Financial Creditor in an attempt to circumvent the statutory bar of limitation

applicable to a Section 7 Application, IBC. Further Appellant contends that

Overdraft Account No. 02140700001790 was opened by Punjab and

Maharashtra Co-operative Bank Ltd. (now Unity Small Finance Bank Ltd.)/

Financial Creditor, and a sum of ₹11.81 Crores was disbursed to Privilege Power

and Infrastructure Pvt. Ltd./ Corporate Debtor between 12.03.2007 and Company Appeal (AT) (Insolvency) No. 260 of 2023 19 of 40 31.03.2007. Appellant contends that this disbursal was not supported by any

sanction letter, loan agreement, or security documentation and in the absence

of the said documentation, the 'disbursal' pursuant to the 2007 facility was not

made in consideration for the time value of money and therefore did not fall

within the definition of 'financial debt' under Section 5 (8) of the Insolvency and

Bankruptcy Code, 2016. Further the account of the CD was classified as a "non-

performing asset" in the 3rd quarter of the financial year 2019-2020, with effect

from 31.08.2012. The same was done in pursuance of a re-audit instructed on

behalf of the RBI. Appellant contends that the FC was aware about the NPA

status of the account of the CD from 2012 but never classified it as such in a

timely manner. Appellant also contends that the Hon'ble Supreme Court has

unequivocally held that Article 1371 is applicable to proceedings under Section

7 of the IBC and that a period of 3 years for calculating the limitation would

begin from the 'date of default'. In the present case, the 3-year period to file the

present Section 7, IBC application commenced on 31.08.2012 (date of default)

and expired in August 2015 and is thus barred as per Article 137. To circumvent

the bar of limitation, the FC sought to artificially create a purported overdraft

facility in 2017-2018 and to conflate the same with facility availed in 2007,

thereby seeking to depict both as a single, continuous transaction for the

purpose of limitation.

1 Under the Limitation Act, 1963 Company Appeal (AT) (Insolvency) No. 260 of 2023 20 of 40

39. FC-Respondent has controverted the above arguments by providing the

backdrop of the case which is noted hereinafter. In the year 2007, Punjab and

Maharashtra Co-operative Bank had advanced financial assistance to PPIL in

the nature of an overdraft facility. Due to irregularities in the business of PMC,

no sanction letters are available with the Financial Creditor i.e., Unity Small

Finance Bank Limited ("Financial Creditor" / "USFBL Bank"). However, perusal

of the statement of accounts for the Overdraft Account reveals that (a) the

overdraft facility was for INR 40,00,00,000/- (Rupees Forty Crores), (b) the

overdraft facility was being availed against mortgage security, and (c) the rate of

interest was 16%. Moreover, the effective date of the sanction limit, as seen in

the statement of accounts, was 22 February 2013. Pursuant to the opening of

the Overdraft Account, starting from 12 March 2007, the Corporate Debtor

withdrew substantial amounts and availed overdraft facility from PMC Bank. By

the end of the financial year ending on 31 March 2007, the outstanding debit

amount indicated the extent of overdraft facility availed by the Corporate Debtor

to the tune of INR 11,81,66,116. Respondent contends that while the sanction

letters are not available with the Financial Creditor, but the board of directors of

the Corporate Debtor, including the Appellant herein, passed necessary board

resolutions dated 6 December 2008 to increase the limit for the overdraft facility

from INR 15,00,00,000 to INR 20,00,00,000 in relation to the Overdraft Account.

The aforesaid resolution also shows that the Corporate Debtor had authorized

the Appellant to make the necessary loan applications and executed the sanction

letters for the overdraft facility from PMC Bank, and such facility was being

Company Appeal (AT) (Insolvency) No. 260 of 2023 21 of 40 availed against mortgage of Plot No 1 Juhu Tara Road, Juhu village Juhu, Taluka

Andheri, bearing CTS No 956, 956/1 to 956/83, village Juhu admeasuring 550

sq. yards ("Mortgaged Property 1"). Moreover, in around 31 March 2012, interest

was being levied for the facility availed by the Corporate Debtor. However, the

Corporate Debtor failed to make payments towards interest for a period of over 6

months, and at-least till 31 August 2012, and as such the Overdraft Account of

PPIL ought to have been classified and reported as a Non-Performing Asset (NPA)

to Reserve Bank of India ("RBI"). However, owing to the irregularities in the

conduct of business of PMC Bank, the Overdraft Account of PPIL was not

reported to the RBI. Despite the same, the Corporate Debtor continued to avail

financial assistance from PMC Bank at least till 25 February 2013 (which was

beyond the effective date for sanction limit). The outstanding amount payable by

the Corporate Debtor as on 25 February 2013 was INR 39,99,22,689. Since then,

the Overdraft Account remained active, and certain minor amounts were being

credited to the Overdraft Account by third parties and under their respective

agreements with the Corporate Debtor. As seen in the statement of accounts, at-

least till FY 2012-2013, the total amounts disbursed to the Corporate Debtor were

to the extent of INR 80,99,73,539.27 as on 31 March 2013.

40. Thereafter, in 2017, the Corporate Debtor, through the Appellant, had

sought for renewal of the First Sanction Limit to INR 81.50 crores, vide a loan

application. The renewal of sanction limit was approved by PMC Bank and

various documents were executed pursuant to the same:

 Vide sanction letter dated 3 April 2017, the mortgage overdraft Company Appeal (AT) (Insolvency) No. 260 of 2023 22 of 40 limit of INR 10,00,00,000 (Rupees Ten Crores) was sanctioned by PMC Bank for the Overdraft Account, in favour of the Corporate Debtor for which security by way of mortgage was provided over the property situated Village Shirgaon, Taluka Vasai, District Thane, admeasuring 50,575 sq. mts. ("Mortgaged Property 2").

 Vide sanction letter dated 5 April 2017, the sanction limit for the Overdraft Account was enhanced to INR 81,50,00,000 (Rupees Eighty One Crores and Fifty Lakhs). For this sanction, security by way of mortgage over Mortgaged Property 2 was provided to PMC Bank. Notably these enhancements to the sanction limit were being provided, despite the outstanding amounts due and payable under the Overdraft Account.

 Pursuant to this, deed of mortgage dated 13 April 2017 ("Mortgage Deed 1") was inter alia executed by the Corporate Debtor and the Appellant, in favour of PMC Bank, to create security by way of mortgage over the Mortgaged Property 2 for sanction limit of INR 10,00,00,000. Further, subsequently, deed of mortgage dated 13 April 2017 ("Mortgage Deed 2") was inter alia executed by the Corporate Debtor and the Appellant, in favour of PMC Bank, to create security by way of mortgage over the Mortgaged Property 2 (for sanction limit of INR 81,50,00,000. Both Mortgage Deed 1 and Mortgage Deed 2 provide that the security under the said agreements is in the nature of a continuing security, for the "existence of credit balance or NIL balance in the loan accounts at any time or any partial payment or inflection of accounts".

 Subsequently, vide the sanction letter dated 6 January 2018, the Corporate Debtor agreed to furnish additional security for the sanction of INR 81.50 crores, by way of mortgage over the Company Appeal (AT) (Insolvency) No. 260 of 2023 23 of 40 property at village Ranolli and Padmala at Sub-District Baroda admeasuring 45 Hectors, 92 Acres, 21 Pratlares standing in the name of Housing Development and Infrastructure Limited ("Mortgaged Property 3").

 Pursuant to above, further security was provided by Corporate Debtor and vide the sanction letter dated 2 May 2018, PMC Bank accepted additional security over the land at Village Doliv, Dahisar, Kasrali, Khardi, Taluka Vasai, District Palgar ("Mortgaged Property 4"). By way of deed of mortgage dated 24 May 2018, the Corporate Debtor created mortgage over the Mortgaged Property 4 in favour of PMC Bank for sanction of INR 81.50 crores. Thereafter, the sanction letter dated 16 August 2018 was issued by PMC Bank inter alia approving the sanction limit of INR 81,50,00,000 crores against the security over Mortgage Property 2 and Mortgaged Property 4.

 The Corporate Debtor also executed Demand Promissory Note ("DPN") and Undertaking dated 16 August 2018 inter alia for the sanction of INR 81.50 crores.

41. FC-Respondent contends that the aforesaid sanction documents were

executed in lieu of the amounts already disbursed to the Corporate Debtor till 31

March 2013 which were to the tune of INR 80,99,73,539.27, and in light of the

fact that the Corporate Debtor had failed to clear the entire outstanding dues

and/or make payment towards the interest and the overdraft facility in respect

of the Overdraft Account.

42. In the above background wherein the aforesaid documents indicate that

the Corporate Debtor had acknowledged the subsisting relationship between the Company Appeal (AT) (Insolvency) No. 260 of 2023 24 of 40 Corporate Debtor and PMC Bank of that being a debtor and creditor, and

continued to maintain an overdraft account with PMC Bank under which it had

continued to avail facility from PMC Bank, we cannot agree with the arguments

of the Appellant that the OD facility of 2007 is different than 2017-2018 OD

facility.

Extension of limitation period by S.18 of the Limitation Act, 1963

43. Now we delve into the argument canvassed as to whether limitation can

be extended under Section 18 of the Limitation Act 1963. For better appreciation

Section 18 is reproduced as below:

"Section 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 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,

(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."

44. Appellant contends that the limitation period in the present case cannot

be revived or extended by the operation of Section 18 of the Limitation Act, 1963.

Company Appeal (AT) (Insolvency) No. 260 of 2023 25 of 40 We note that Section 18, Limitation Act, 1963, brings out that if the debtor

makes an acknowledgment of their liability towards the creditor, during the

period of limitation, it gives rise to a fresh limitation to the creditor from the date

of such acknowledgment. Subsection one of section 18 prescribes that such an

acknowledgment has to be "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 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". Thus, as per Section

18, Limitation Act, 1963, if the debtor makes an acknowledgment of their liability

towards the creditor, during the period of limitation, it gives rise to a fresh

limitation to the creditor from the date of such acknowledgment. The Financial

Creditor relied on sanction letters, balance confirmations, and other documents

related to the purported overdraft facility of 2017-2018, to advance the

contention that these materials constitute acknowledgments of debt under

Section 18 of the Limitation Act, 1963 and thereby initiate a fresh period of

limitation. Appellant claims that an acknowledgment under Section 18 must be

made before the expiry of the original limitation period. But the aforesaid

documents were executed only after the expiration of the prescribed three-year

limitation period commencing from the date of the account being declared NPA

(31.08.2012), and as such, cannot be regarded as valid acknowledgments for the

purpose of extending limitation under Section 18 of the Limitation Act, 1963.

Company Appeal (AT) (Insolvency) No. 260 of 2023 26 of 40 Had we applied the provisions of Section 18 alone in this particular case, we

could have arrived at final conclusion that three years of limitation was over and

therefore, the respondent was barred under the Limitation Act to proceed against

the Appellant. But conspectus of this case does not allow us to conclude relying

solely on Section 18 of the Limitation Act, 1963, which is being dealt in

hereinafter.

45. Another argument which has been canvassed by the Financial Creditor is

with respect to part payments, which have extended the limitation under Section

18 and 19. Respondent had given the date of default to be 31.08.2012 i.e., the

date of classification of CD as a Non-performing Asset ("NPA"), which has not

been disputed by the Appellant. After such declaration, the CD has given various

part- payments and acknowledged the debt, thus, extending the period of

limitation from time to time. The following events are relied upon by the

Respondent to canvass that the petition is within the date of limitation:

Date Event Expiry of Limitation

31.08.2012 Date of default/ date of declaration of NPA 30.08.2015 17.07.2013 Part Payment under Section 19: Part 21.10.2017 and payment was made in the CD's account by 22.10.2013 its vendor namely, Bharti Airtel, as seen by the transaction of Bharti Airtel, - "NEFT Bharti Airtel Ltd 000" (INR 2,07,000) and "NEFT Bharti Airtel Ltd 000" (INR 28,428). 28.08.2014 Part Payment under Section 19: Part 27.08.2017 payment was made by Bharti Airtel for ₹28,428/-.

Company Appeal (AT) (Insolvency) No. 260 of 2023 27 of 40 17.02.2016 Part Payment under Section 19: Part 16.02.2019 payment was made by Bharti Airtel for ₹2,61,000/- 03.04.2017 Acknowledgment under Section 18: PMC 02.04.2020 Bank issued a formal sanction letter for additional overdraft facility of ₹10 crores under overdraft account no 1407/1790, in favour of CD. 06.04.2017 Acknowledgment under Section 18: In 05.04.2020 clear acknowledgment of its debt, Letter of Continuing Security were issued by CD (signed by Rakesh Wadhawan & Sarang Wadhawan) in favor of PMC Bank for amounts of INR 10 crore and INR 71.50 crore (total INR 81.50 crore) 11.07.2018 Acknowledgment under Section 18: 10.07.2021 Balance confirmation provided by CD for an amount of INR 101,69,36,070.27. 07.08.2019 Acknowledgment under Section 18: 06.08.2022 Balance confirmation provided by CD for an amount of INR 115,25,89,280.27. 08.08.2019 Acknowledgment under Section 18: 07.08.2022 Balance confirmation provided by CD for an amount of INR 120,07,71,521.

46. The CD has given various part- payments and acknowledged the debt,

thus, extending the period of limitation from time to time. Even though small

payments and from various vendors, the arguments canvassed by the

financial creditor gain lot of credibility, particularly in the overall context

which is noted herein after.

Can the financial creditor invoke Section 17 of the Limitation Act?

47. Now we look into the issue of extension of limitation under Section 17 of

the Limitation Act. Appellant contends that the financial creditor cannot invoke

Section 17 of the Limitation Act, 1963 to extend limitation as it was fully aware

of the purported 'fraud' as early as 2012. Further, the 'fraud' was not perpetrated

Company Appeal (AT) (Insolvency) No. 260 of 2023 28 of 40 upon the Financial Creditor, but rather by the financial creditor itself. Appellant

contends that Section 17, Limitation Act gives rise to fresh limitation when a

party has been prevented from initiating proceedings due to 'fraud' or

concealment of facts by the opposite party. But herein the material on record

demonstrates that the FC was fully aware that the CD had turned NPA

(purported 'fraud') as early as 2012, and any claim of discovery in 2019 is an

afterthought to extend limitation. These documents unambiguously establish

that no 'fraud' was committed by the CD. Rather, it was the FC who engaged in

the 'fraud' and concealed information. Appellant has also placed its reliance on:

o Pallav Sheth v. Custodian, (2001) 7 SCC 549 o P. Radha Bai v. P. Ashok Kumar (2019) 13 SCC 445 o Santosh Devi V. Sunder 2025 (SC) 534 and o Gopi Vs. H. David and another reported in 2011-1-L.W.806

48. The appellant also presents an argument that the transactions between

parties were fraudulent transactions and hence could not be classified as

'financial debt' under Section 5 (8), IBC. Section 5(8), IBC defines "financial debt"

as a debt disbursed against the consideration for the time value of money. It is

a well-established principle of law that a collusive, sham, or fraudulent

transaction does not fall within the ambit of "financial debt" under Section 5(8).

The Hon'ble Supreme Court held that a fraudulent or collusive transaction does

not qualify as financial debt, and that the adjudicating authority must look

beyond form and into the substance of the transaction. The FC admits that, due

to fraud committed by it, no sanction letter or security documents were issued

prior to the loan disbursement. The Charge Sheet in C.R. No. 86/2019 reveals Company Appeal (AT) (Insolvency) No. 260 of 2023 29 of 40 that the Managing Director of the FC deliberately suppressed the NPA

classification, and RBI guidelines were flagrantly violated at the time of sanction

and disbursal. These factors cumulatively render the transactions fraudulent in

nature, and incapable of forming the basis for any claim under Section 7 of the

IBC. Since IBC proceedings are not a substitute for debt recovery but are

intended for the resolution of genuine defaults, the nature and origin of the

alleged debt are crucial. In the present case, the transactions are cumulatively

tainted by fraud and illegality, rendering them incapable of constituting a valid

'financial debt' under Section 7 of the Code. The remedy, if any, lies in a civil

court and not through the IBC mechanism, which cannot be invoked to enforce

disputed or fraudulent claims.

49. Refuting these contentions of the Appellant, the Respondent contends that

Section 17 of the Limitation Act, 1963 inter alia, provides that where, in the case

of any suit or application for which a period of limitation is prescribed by the

Limitation Act 1963, the knowledge of the right or title on which a suit or application

is founded is concealed by the fraud of the defendant or his agent [section 17(1)(b)]

or where any document necessary to establish the right of the plaintiff or applicant

has been fraudulently concealed from him [Section 17(1)(d)], the period of

limitation shall not begin to run until the plaintiff or applicant has discovered the

fraud or the mistake could, with reasonable diligence, have discovered it; or in

the case of a concealed document, until the plaintiff or the applicant first had the

means of producing the concealed document or compelling its production. It

contends that the aforesaid provision of Section 17 of the Limitation Act 1963, Company Appeal (AT) (Insolvency) No. 260 of 2023 30 of 40 embodies the fundamental principles of justice and equity, viz., that a party

should not be penalized for failing to adopt legal proceedings when the facts or

material necessary for him to do so have been willfully concealed from him and

also that a party who has acted fraudulently should not gain the benefit of

limitation running in his favour by virtue of such fraud. Respondent further

contends that on account of the active concealment and fraud by the erstwhile

management of PMC Bank and the Appellants, of the default of the Corporate

Debtor, the document establishing the right or claim of the Financial Creditor

could only be discovered with reasonable diligence in or around 27 December

2019. The press release by RBI as well as the re-audited financial statements of

PMC Bank clearly state that fraud was conducted by the erstwhile management

of PMC Bank. Moreover, the same has also been confessed and acknowledged

publicly by the erstwhile management of PMC Bank. As such, the right and claim

of Financial Creditor and the documents establishing so, were concealed from it,

and could only be discovered by the Financial Creditor, after the re-casting and

re-auditing of the financial statements on 27 December 2019. Therefore, the

period of limitation of 3 years, in respect of the Company Petition could not run

against the Financial Creditor on or prior to 27 December 2019. Given that the

Company Petition was filed in 2020, it is clear that the Company Petition was

not barred by limitation and was filed at the earliest instance. Appellant being

an active participant in the concealment of fraud and default of the Corporate

Debtor, cannot be permitted to take advantage of its' own wrong and has

approached this Hon'ble Tribunal with unclean hands. The Appellant along with

Company Appeal (AT) (Insolvency) No. 260 of 2023 31 of 40 the Corporate Debtor, has acted collusively to conceal default, and as such, only

after obtaining the knowledge of the default and its right to sue, the Financial

Creditor could have initiated the proceedings under Section 7 of the IBC.

Therefore, any contention that the suit is barred by limitation is merely a ploy

by the Appellant to take advantage of its own fraud on the Financial Creditor

and ought not to be permitted.

50. For better appreciation Section 17 is reproduced as below:

"Section 17. Effect of fraud or mistake.

(1) Where, in the case of any suit or application for which a period of limitation is prescribed by this Act,--

(a) the suit or application is based upon the fraud of the defendant or respondent or his agent; or

(b) the knowledge of the right or title on which a suit or application is founded is concealed by the fraud of any such person as aforesaid; or

(c) the suit or application is for relief from the consequences of a mistake; or

(d) where any document necessary to establish the right of the plaintiff or applicant has been fraudulently concealed from him, the period of limitation shall not begin to run until the plaintiff or applicant has discovered the fraud or the mistake or could, with reasonable diligence, have discovered it; or in the case of a concealed document, until the plaintiff or the applicant first had the means of producing the concealed document or compelling its production:

Provided that nothing in this section shall enable any suit to be instituted or application to be made to recover or enforce any charge against, or set aside any transaction affecting, any property which--

(i) in the case of fraud, has been purchased for valuable consideration by a person who was not a party to the fraud and did not at the time of the purchase know, or have reason to believe, that any fraud had been committed, or

(ii) in the case of mistake, has been purchased for valuable consideration subsequently to the transaction in which the mistake was made, by a person who did not know, or have reason to believe, that the mistake had been made, or

(iii) in the case of a concealed document, has been purchased for valuable consideration by a person who was not a party to the concealment and,

Company Appeal (AT) (Insolvency) No. 260 of 2023 32 of 40 did not at the time of purchase know, or have reason to believe, that the document had been concealed.

(2) Where a judgment-debtor has, by fraud or force, prevented the execution of a decree or order within the period of limitation, the court may, on the application of the judgment-creditor made after the expiry of the said period extend the period for execution of the decree or order:

Provided that such application is made within one year from the date of the discovery of the fraud or the cessation of force, as the case may be."

51. Basis the materials placed on record we find that in the present case, RBI

completed an inspection of the credit exposure of PMC Bank to HDIL Group on

02.11.2019, and found that PMC Bank officials committed fraud in collusion

with Appellant/CD. It was found that sanction letters were not executed by

CD, borrowings were not reported in the financial statements by CD, and default

was concealed by CD. The management of PMC Bank i.e., Waryam Singh,

acted in collusion with management of CD i.e. Rakesh Wadhawan and his son

Sarang Wadhawan. Accordingly, on 27.12.2019, a charge sheet was prepared by

the EOW against inter-alia the Appellant, and RBI directed PMC to recast its

books to reflect the true picture of the CD. Finally, when the re-audit and

recasting of erstwhile PMC Bank's books of accounts as on 31.03.2019 was

concluded by the auditor appointed by RBI, date of default/NPA of the CD

was identified as 31.08.2012. Thus, we are inclined to agree with the

arguments of the Financial Creditor that in view of Section 17 of the

Limitation Act 1963, period of limitation ought not to run till the discovery of

date of default when the Administrator appointed an auditor to conduct re-

audit and recasting of PMC Bank's books of accounts which concluded on

27.12.2019. And thereafter, the Petition was filed within the one year of finding

Company Appeal (AT) (Insolvency) No. 260 of 2023 33 of 40 of fraud and therefore, not barred under Section 17 of the Limitation Act, 1963

and is permissible to be filed.

Can Section 25(3) of Contract Act be invoked to link or revive the original 2007 disbursement?

52. Appellant also contends that the security documents executed in 2017-

2018 pertain to a separate and distinct contract under which no disbursement

was made; hence, Section 25(3) cannot be invoked to link or revive the original

2007 disbursement, for which no sanction or security documents exist.

Appellant claims that the FC seeks to conflate two distinct transactions in an

attempt to mislead the issue of limitation before this Hon'ble Tribunal. In the

facts of the present case, the security documents executed were towards new

sanction letters dated 05.08.2017 and 16.08.2018, admittedly against which

there has been no disbursement whatsoever. The appellant also claims that FC's

reliance on the Edelweiss Assets Reconstruction Company Limited vs.

Nishiland Park Limited [Company Appeal (AT) (Insolvency) No. 528 of 2021]

is entirely misplaced as that case involved a full debt assignment with the

Corporate Debtor as a confirming party, along with part-payments on

12.06.2015 and 24.06.2018, and an acknowledgment dated 05.12.2016 each

extending limitation. Appellant also contends that even if the alleged

acknowledgment or artificially created documents are considered, there exists

no written promise to pay a time-barred debt. The appellant also claims that

that mere silence, non-dispute, or willingness to settle does not satisfy the

threshold under Section 25(3) of the Contract Act. The present case involves no

disbursal and no part-payments, thereby failing to meet the fundamental Company Appeal (AT) (Insolvency) No. 260 of 2023 34 of 40 requirement of a 'Financial Debt' under Section 5(8) of the Code. The 2017-2018

security documents pertain to an enhanced facility that was never disbursed and

cannot give rise to any enforceable debt. While Section 25(3) of the Indian

Contract Act permits a written promise to pay a time-barred debt, such a promise

must relate to an existing and enforceable liability, which is absent here.

53. Refuting these claims, the Respondent contends that under Section 25(3)

of the Indian Contract Act, 1872, any "promise" in writing to pay a debt which

is otherwise barred by time can be enforced as a fresh cause of action. This is

because a "promise to pay" causes novation, thereby granting a fresh period of

limitation of 3 years in terms of Article 137 of the Limitation Act, 1963.

54. For better appreciation of this provision it is being reproduced herein:

Section 25. Agreement without consideration, void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.

An agreement made without consideration is void, unless

(1) it is expressed in writing and registered under the law for the time being in force for the registration of 1[documents], and is made on account of natural love and affection between parties standing in a near relation to each other; or unless (2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless; (3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

In any of these cases, such an agreement is a contract.

Explanation 1. Nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made.

Explanation 2. An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the Company Appeal (AT) (Insolvency) No. 260 of 2023 35 of 40 inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.

Illustrations

(a) A promises, for no consideration, to give to B Rs. 1,000. This is a void agreement.

(b) A, for natural love and affection, promises to give his son, B, Rs. 1,000. A puts his promise to B into writing and registers it. This is a contract.

(c) A finds Bs purse and gives it to him. B promises to give A Rs. 50. This is a contract.

(d) A supports Bs infant son. B promises to pay As expenses in so doing. This is a contract.

(e) A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs a written promise to pay B Rs. 500 on account of the debt. This is a contract.

(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. As consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies that his consent to the agreement was freely given.

The inadequacy of the consideration is a fact which the Court should take into account in considering whether or not as consent was freely given."

55. The respondent has placed its reliance on Kotak Mahindra Bank v. Kew

Precision Parts Pvt. Ltd., (2022) 9 SCC 364, wherein the Hon'ble Apex Court

has held that unlike "acknowledgment" under Section 18 of the Limitation

Act, 1963 a "promise to pay" under Section 25(3) need not be given before

expiry of limitation, provided that it satisfies these 3 conditions:

a. It must refer to a debt, which the creditor, but for the period of limitation, might have enforced b. There must be a distinct promise to pay such debt, fully or in part;

c. The promise must be in writing, and signed by the debtor or his duly appointed agent

We note that the above judgment supports the case of the Respondent and

Section 25(3) o0f the Contract Act can very well be invoked to link or revive the

Company Appeal (AT) (Insolvency) No. 260 of 2023 36 of 40 original 2007 disbursement.

56. We find that the Demand Promissory Notes, Mortgage Deeds, Security

Documents, and Balance Confirmations were issued by the Corporate Debtor

in 2017, 2018, and 2019, which makes the Petition filed on 01.07.2020 well

within the period of limitation. There are many documents which constitute a

valid "Promise to Pay", and are listed hereunder:

Date Document 16.08.2018 Demand Promissory Note given by CD (signed by Rakesh & Sarang Wadhawan), in favour of PMC Bank for an amount of INR 81.50 crores.

02.05.2018 Mortgage Deeds and Other documents for creation of security for the said Loans Letter issued by PMC Bank, bearing signature and clear acknowledgement of both Rakesh & Sarang Wadhawan acting on behalf of CD, confirming & accepting the additional security provided by CD over land at Village Dolv, Dahisar, Taluka Vasai, for the overdraft facility of INR 81.50 crore availed by CD under overdraft account no.

1407/1790.

16.08.2018 Letter issued by PMC Bank inter alia approving the renewal of mortgage overdraft limit to INR 81.50 crores. The letter was duly signed and accepted by Sarang Wadhawan on behalf of CD.

24.05.2018 Deed of Mortgage for additional security for the land at Village Doliv, Dahisar, Kasrali, Khardi, Taluka Vasai, District Palghar, for the overdraft facility of INR 81.50 crores. The said agreement is signed by Sarang Wadhawan, acting on behalf of CD.

11.07.2018 Balance confirmation provided by CD for an amount of INR 101,69,36,070.27. The said balance confirmation has the express signature & acknowledgement of Rakesh Wadhawan on behalf of CD.

07.08.2019 Balance confirmations provided by CD for an amount of INR 115,25,89,280.27. The said

Company Appeal (AT) (Insolvency) No. 260 of 2023 37 of 40 balance confirmation has the express signature & acknowledgement of Sarang Wadhawan on behalf of CD.

08.08.2019 Balance confirmations provided by CD for an amount of INR 120,07,71,521.27. The said balance confirmation has the express signature & acknowledgement of Sarang Wadhawan on behalf of CD.

57. From the materials placed on record we find that Petition filed on

01.07.2020 was well within the period of 3 years from the aforesaid "Promise to

Pay".

58. Further we note that while deciding on the issue the Adjudicating

Authority has given the following findings:

"26. Therefore, in view of the above judgements cited by the Petitioner and perusal of Section 17 of the Limitation Act, 1963, coupled with the fact that the transaction documents executed between the parties and the fraud came to be discovered by the Petitioner in the year 2019. Along with this the execution of the transaction documents also obligates the Respondent to pay a time-barred debt as per provisions of Section 25(3).

27. In this regard it is noteworthy that, the Balance Confirmation is a promise to pay the debt and therefore it is within the period of limitation. The Petition further reveals that there is unconditional acknowledgment to make payment of the debt by virtue of executing the mortgage deeds as well as promissory notes and acknowledgment letters thereafter. of the Indian Contracts Act, 1872.

28. In any event the abovementioned documents are not taken as acknowledgment of debt or it is presumed that there is no acknowledgment of debt between 2013 and 2016, in that event also the transaction documents are in nature of contract between the parties to pay a time barred debt as per Section 25(3) of Indian Contract Act, 1872. It is thus submitted that the unconditional acknowledgment by the Respondent to repay the debt to the Petitioner is an express promise to pay. Therefore, even if Section 18 is not applicable, independently, the failure to make payment under subsequent

Company Appeal (AT) (Insolvency) No. 260 of 2023 38 of 40 documents entitles · the Petitioner to maintain this Petition irrespective of the date of default. In support thereof, reliance is placed on the judgment of the Hon'ble NCLAT in the matter of Edelweiss Assets Reconstruction Company Limited Versus Nishiland Park Limited, Company Appeal (AT) (Insolvency) No. 528 of 2021, whereby the Petition was held to be within limitation · on the ground that the assignment agreement executed even fifteen years after the date of default amounts to an express promise to pay a time barred debt under Section 25(3) of Contract Act and it was therefore held that limitation period would begin to run afresh from the date of assignment agreement.

"14. There are two issues in this appeal. The first issue is as to what is the import of Section 25(3) of the Indian Contract Act,1872 and the second issue is as to whether the period of limitation has been extended in view of Section 18 of the Limitation Act, 1961 with the time-to- time partial payment and admission of debt by the Corporate Debtor?

15. It is an admitted fact that the period of three years had expired from the alleged date of default occurred in the year 1998 but there is no denial to the fact also that the Assignment Agreement was executed on 27.09.2013 between TFCI and the Appellant, assigning their entire debt of the Corporate Debtor and in the said agreement the Corporate Debtor and one Mr. Paresh Shah (as mortgagor) were confirming parties to the Assignment Agreement. As a matter fact, with the execution of the Assignment Agreement dated 27.09.2013, a fesh agreement for the payment of dues came into being and a period of three years began from the said date."

Therefore, in view of the law laid down in the matter of Nishliand Park Ltd. (Supra), this Petition is well within the limitation. There is even otherwise no explanation that if the claim was barred and not payable, what was the reason for signing balance confirmation and executing mortgage deed as late as in 2018. It is pertinent to note that the Petitioner has also annexed a NeSL Certificate which is not disputed by the Respondent. In view of the above, the Ld. Counsel for the Petitioner has satisfied this Bench that the present Petition is not hit by the bar of limitation."

59. Adjudicating Authority has held that Balance confirmation is a promise

to pay and unconditional acknowledgment is given by mortgage deeds,

promissory note and acknowledgment letters. AA held that these documents Company Appeal (AT) (Insolvency) No. 260 of 2023 39 of 40 would give rise to an independent cause of action under Section 25(3) of the

Contract Act.

Conclusions

60. Thus, we find that the Application under Section 7 was filed within

limitation having been filed within 3 years of "Promise to pay" under Section

25(3) of the Indian Contract Act, 1872. We also find that the petition is filed

within time contemplating the extension of limitation under Section 18 and 19

of the Limitation Act, 1963. We also find that the Petition is within the 1 (one)

year of finding of fraud and therefore, permissible under Section 17 of the

Limitation Act, 1963.

Orders

61. In the above noted background we don't find any infirmity in the

findings of the Adjudicating Authority. Accordingly, the appeal is dismissed.

No orders as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical) New Delhi.

October 17, 2025.

Pawan

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