Shiv Kumar Malani vs Jm Financial Asset Reconstruction Ltd. ...

In the matter of: Shiv Kumar Malani ....Appellant Vs. JM Financial Asset Reconstruction Ltd. & Ors. ....Respondents

Present For Appellant: Mr. Abhijeet Sinha, Mr. Kunal Chatterji, Ms. Maitrayee Banerjee, Mr. Rohit Bansal and Mr. Aditya Shukla, Advocates. For Respondents: Mr. Vivek Sibal, Sr. Advocate with Mr. Abhishek Anand and Mr. Karan Kohli, , Advocates for R1.

ORDER

(Virtual Mode)

20.04.2022: This Appeal has been filed against the Judgement and Order

dated 27th September, 2019 passed by the National Company Law Tribunal,

Cuttack Bench, Cuttack by which order the Application filed under Section 7 of

the Insolvency & Bankruptcy Code, 2016 for initiating the Corporate Insolvency

Resolution Process against the Corporate Debtor, M/s Salasar Steel and Power

Limited has been admitted. The Suspended Director of the Corporate Debtor,

aggrieved by the order dated 27.09.2019 has come up in this Appeal.

2. We have heard Shri Abhijeet Sinha, the learned Counsel for the Appellant

and Shri Vivek Sibal, Senior Advocate appearing for the Respondent.

3. The learned counsel for the Appellant submits that the date of default

being 27.09.2014. The Application under Section 7 of the I&B Code filed by the

Financial Creditor on 16.04.2018 was beyond the period of limitation of three

years. Hence the Adjudicating Authority ought not to have admitted the

application but ought to have rejected the Application under Section 7 as barred

by Limitation.

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4. Shri Vivek Sibal, Learned Senior Counsel refuting the submissions of the

Counsel for the Appellant, contends that the Application filed under Section 7 of

the I&B Code was not filed beyond the time. The Learned Counsel submitted

that it is not disputed that the Date of Default is 27.09.2014 and the Application

under Section 7 of the I&B Code was filed on 16.04.2018. There was an

'acknowledgement of debt' by the Corporate Debtor by which the limitation

period for filing the Application under Section 7 of the I&B Code stood extended

under Section 18 of the Limitation Act, 1963. Shri Sibal has referred to the

Balance Sheet for the period 2015-2016 signed on 31.08.2016 under which there

was clear acknowledgement of 'debt'. He submits that the limitation stood

extended till 31.08.2019 and the Application filed under Section 7 of I&B Code

on 16.04.2018 is within limitation period and maintainable. He further submits

that there was further OTS offer given by the Corporate Debtor on 09.03.2018

which also entitled the Appellant the benefit of Section 18 of the Limitation Act.

5. We have considered the submissions of the parties and have perused the

record.

6. The Application was filed under Section 7 of the I&B Code by the Financial

Creditor. The Corporate Debtor was extended working capital and term loan

facility by the Consortium of Banks on 26.06.2012. The account of the Corporate

Debtor was classified as NPA by the Consortium of Banks and the Application

under Section 7 of the I&B Code was filed by the Financial Creditor on

16.04.2018 for total debt of Rs.1,27,86,46, 912.95. Before the Adjudicating

Authority the Corporate Debtor did not file any reply which has been noticed in

Company Appeal (AT)(Insolvency) No.1286 of 2019 3

para 8 of the Impugned Order. The Adjudicating Authority admitted the

Application under Section 7 holding that the amount due and payable has been

proved by the Financial Creditor and Corporate Debtor has defaulted in the

repayment of the loan due to the Financial Creditor.

7. We now come to the submissions of the Learned Counsel for the Appellant

regarding limitation in filing the Application under Section 7 of the I&B Code.

The Date of Default being 27.09.2014 the three years of limitation under Article

137 of the Limitation Act, 1963 was to expire on 26.09.2017. The Balance Sheet

on which the reliance has been placed, which has been brought on record of

2015-2016 of the Corporate Debtor which was signed on 31.08.2016 under the

para (viii) at Page 2122 the following has been captured:

"viii. As per books and records maintained by the Company and according

to the information and explanation made available to us, the Company has

defaulted in repayment of Rs,37,35,54,069/- (Principal amount) and

Rs.75,83,92,558/- (Interest) in respect of loans availed from the following

lenders:

Lenders concerned Period of default Amount (Rs)

J M Financial Asset June, 2014 to March, 29,37,60,277/- Reconstruction Pvt Ltd 2016 (Assigned by State Bank of India)

J M Financial Asset May, 2014 to March, 23,73,42,368/- Reconstruction Pvt Ltd 2016 (Assigned by Union Bank of India)

Company Appeal (AT)(Insolvency) No.1286 of 2019 4

Bank of Baroda May, 2014 to March, 23,55,63,431/-

2016 Corporation Bank May, 2014 to March, 15,34,75,931/-

2016 Edelweiss Asset February, 2014 to 21,18,04,620/-

Reconstruction Co Ltd March, 2016 (Assigned by L&T Infrastructure Finance Ltd LtdBank of Baroda

8. The above Balance Sheet contains clear acknowledgement on behalf of the

Corporate Debtor of 'Debt'. We may notice submission of Mr. Sinha that

acknowledgement of liability is not acknowledgement of Default, but in para (viii),

as notice above there is clear statement that the Corporate Debtor has defaulted

in repayment of Rs.37,35,54,069/- the default is clearly reflected and there is a

specific mention of the Financial Creditor in the heading 'Lender concerned'. The

Balance Sheet thus extend the limitation under Section 18 of the Limitation Act.

The Application filed by the Financial Creditor on 16.04.2018 was within the

period of limitation.

9. The Learned Counsel for the Respondent, Mr. Vivek Sibal has referred to

the Judgement of Hon'ble Supreme Court in the matter of Laxmi Pat Surana Vs

Union of India and others (Civil Appeal No.2734 of 2020 as well as in the matter

of Asset Reconstruction Company (India) Ltd Vs Bishal Jaiswal and Anr (Civil

Appeal No. 323 of 2021). The Hon'ble Supreme has referred to Section 18 of the

Limitation and held that there is no reason to exclude the effect of Section 18 of

Company Appeal (AT)(Insolvency) No.1286 of 2019 5

the Limitation Act, to the proceedings initiated under the Code. Para 36 and 37

of the said Judgement is as under:-

"36. Notably, the provisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable. For, Section 238A predicates that the provisions of Limitation Act shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the NCLAT, the DRT or the Debt Recovery Appellate Tribunal, as the case may be. After enactment of Section 238A of the Code on 06.06.2018, validity whereof has been upheld by this Court, it is not open to contend that the limitation for filing application under Section 7 of the Code would be limited to Article 137 of the Limitation Act and extension of prescribed period in certain cases could be only under Section 5 of the Limitation Act. There is no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the Code. Section 18 of the Limitation Act reads thus:

"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;

Company Appeal (AT)(Insolvency) No.1286 of 2019 6

(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."

37. Ordinarily, upon declaration of the loan account/debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 of the Code. However, Section 7 comes into play when the corporate debtor commits "default". Section 7, consciously uses the expression "default" -- not the date of notifying the loan account of the corporate person as NPA. Further, the expression "default" has been defined in Section 3(12) to mean non­payment of "debt" when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. In cases where the corporate person had offered guarantee in respect of loan transaction, the right of the financial creditor to initiate action against such entity being a corporate debtor (corporate guarantor), would get triggered the moment the principal borrower commits default due to non-payment of debt. Thus, when the principal borrower and/or the (corporate) guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of three years therefrom including the fresh period of limitation due to (successive) acknowledgments, it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act. Section 18 of the Limitation Act gets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate resolution process under Section 7 of the Code enures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgment, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgment of the debt, from time to time, for institution of the proceedings under Section 7 of the Code. Further, the acknowledgment must be of a liability in respect of which the financial creditor can initiate action under Section 7 of the Code."

Company Appeal (AT)(Insolvency) No.1286 of 2019 7

10. Similar preposition has been again reiterated by the Hon'ble Supreme

Court in the matter of Asset Reconstruction Company (India) Ltd Vs Bishal

Jaiswal and Anr in para 33 and 35 the following has been laid down:

"33. It is, therefore, clear that the majority decision of the Full

Bench in V. Padmakumar (supra) is contrary to the aforesaid

catena of judgments. The minority judgment of Justice (Retd.)

A.I.S. Cheema, Member (Judicial), after considering most of

these judgments, has reached the correct conclusion. We,

therefore, set aside the majority judgment of the Full 53 Bench

of the NCLAT dated 12.03.2020.

34. xxxx

35. On the facts of this case, the NCLT, by its judgment dated

19.02.2020, recorded that the default in this case had been

admitted by the corporate debtor, and that the signed balance

sheet of the corporate debtor for the year 2016-2017 was not

disputed by the corporate debtor. As a result, the NCLT held

that the Section 7 application was not barred by limitation, and

therefore, admitted the same. We have already set aside the

majority judgment of the Full Bench of the NCLAT dated

12.03.2020, and the impugned judgment of the NCLAT dated

22.12.2020 in paragraphs 33 and 34. This appeal is, therefore,

allowed, and the matter is remanded to the NCLAT to be

decided in accordance with the law laid down in our judgment.

Company Appeal (AT)(Insolvency) No.1286 of 2019 8

11. Bishal Jaiswal was a specific case of acknowledgement of debt in the

Balance Sheet within meaning of Section 18 of the Limitation Act.

12. In view of the law laid down by the Hon'ble Supreme Court as noted above,

we are of the view that acknowledgement in the present case in the balance sheet

of 2015-16 as noted above fully extends the limitation for the Financial Creditor

to file an Application within three years and the Application cannot be said to be

barred by time. We do not find any error in the order admitting the Application.

There is no merit in the Appeal. The Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

brijmohan/nn

Company Appeal (AT)(Insolvency) No.1286 of 2019