Stress Assets Stabalization Fund vs Skylead Chemicals Limited

1. Stressed Assets Stabilisations Funds (SASF) 3rd Floor, D-Wing, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400005 ...Appellant Versus

1. Sky Lead Chemicals Ltd, Reg Office: Mangalsinhji Mahal, Mangalsinhji Road, Dist. - Bhavnagar, Gujarat - 364001 ...Respondent

Present:

For Appellant: Mr. Siddhartha Barua, Mr. Praful Jindal, Advocates.

For Respondents: Mr. Aditya Pandya, Advocate

JUDGMENT

Dr. Ashok Kumar Mishra, Technical Member

This Company Appeal is filed against the order of the Adjudicating

Authority (National Company Law Tribunal, Ahmedabad Bench) dated

12.01.2021 passed in CP (IB) No. 113/7/NCLT/AHM/2019.

2. The Adjudicating Authority have observed the following in para-3

"The Application has been filed after 14 years from the date of default occurred and hence it is

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hopelessly time barred in view of the provisions of Limitation Act, 1963 & hence not maintainable".

3. As referred all related judgments of Hon'ble Apex Court some of the

observations made in the impugned order are depicted below:

4. Hon'ble Supreme Court, firstly, in the case of "B.K. Education Services Private Limited Vs. Parag Gupta and Associates - MANU/SC/1160/2018" has held that:

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

This view has been reiterated by the Hon'ble Supreme Court in all subsequent Rulings so as, in case of Jignesh Shah, in case of Gaurav Hargovindbhai Dave, in case of Sagar Sharma and in case of Vashdeo R. Bhojwani etc.

5. So, in view of facts on record and considering the principles of Law of Limitations as stated above, we are of the view that the instant application is barred by Law of Limitation and not maintainable.

6. The financial creditor has produced on record letter of acknowledgement by way of rejoinder. That acknowledgement was even beyond the period of three years from the date on which the default had occurred and, hence, the financial creditor does not get any benefit of provisions of section 18 of Law of Limitation. We pass following order.

ORDER The application is rejected. The proceedings stand disposed of".

4. The Ld. Counsel for the Appellant has provided the list of dates & events

depicted below:

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LIST OF DATES & EVENTS

DATES EVENTS

31.12.1997 IDBI Bank sanctions a foreign currency loan of USD 1.25 million

vide sanction letter dated 05.12.1997 and Foreign Currency Loan

Agreement dated 31.12.1997

29.03.2001 As the Respondent failed to pay the principal outstanding

aggregating to Rs 5 Crores 20 Lacs hence principal outstanding

loan amount was converted into subscription of NCD's vide a

subscription agreement dated 29.03.2001.

01.05.2002 Subsequently the Respondent converted the funded interest term

loan aggregating to 125.61 lacs into NCD's via letter of intent

dated May 01, 2002.

19.01.2004 IDBI Bank declares the account of the Corporate Debtor as a Non-

Performing Asset (NPA).

30.09.2004 IDBI Bank vide a Transfer Deed dated 30.09.2004, transfers the

loan account of the corporate debtor to the Appellant together

with all the underlying securities under the Financing

Documents.

31.10.2006 Because of non-payment by the Corporate Debtor, the Financial

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Creditor was constrained to recall the financing facilities vide a

recall letter dated 31.10.2006

23.11.2005 The Corporate Debtor had made a Reference under section 15(1)

of the Sick Industrial Companies (Special Provisions) Act, 1985

("SICA"), to the Board of Industrial & Financial Reconstruction

("BIFR") being Case No. 160/2005 and same was pending

adjudication.

19.09.2006 The Corporate Debtor was declared to be a sick industrial

company and IDBI was appointed as an opening agency under

section 17(3) of the Sick Industrial Companies (Special Provision

Act)

30.06.2008 The Corporate Debtor proposed a one-time settlement (OTS) to

which SASF, at its meeting held on September 08, 2008 approved

the settlement by way of re-payments of 270 Lakhs over a period

of 7 months

23.01.2009 The Corporate Debtor fails to honour the OTS scheme, hence

SASF vide letter dated January 23, 2009 revoked the said OTS.

01.12.2016 The Corporate Debtor continued to be under purview of BIFR and

same was pending until/BIFR dissolved on 01/12/2016 and the

SICA Repeal act came into force and on and from which any

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reference or inquiry pending shall stood abated.

11.08.2017 The Corporate debtor offers a onetime settlement to the financial

creditor.

07.10.2017 The Financial Creditor initiates insolvency proceedings under

section 7 of the Insolvency & Bankruptcy Code, 2016 against the

Corporate debtor before the NCLT, Ahmadabad Bench.

20.01.2022 The NCLT, Ahmadabad Bench dismisses the Section 7 Petition of

the Appellant stating that the application is after a period of

fifteen years from the period of when the right to sue accrue to the

Financial Creditor and the provisions of Article 137 of the Law of

Limitation applies to the proceedings.

5. It has been submitted by Ld. Counsel of the Appellant that it had availed

a foreign currency loan of USD 1.25 from IDBI Bank million vide sanction letter

dated 05.12.1997 and Foreign Currency Loan Agreement dated 31.12.1997.

However, the Respondent failed to pay the principal outstanding aggregating to

Rs 5 Crores 20 Lacs hence principal outstanding loan amount was converted

into subscription of NCD's vide subscription agreement dated 29.03.2001.

Subsequently, the Respondent also converted the funded interest term loan

aggregating to 125.61 lacs into NCD's via letter of intent dated May 01, 2002.

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6. As per the Appellant, IDBI Bank vide a Transfer Deed dated 30.09.2004,

transferred the loan account of the Corporate Debtor to the Appellant together

with all the underlying securities under the Financing Documents.

7. It was also stated by the Ld. Counsel for the Appellant that as the

Corporate Debtor had defaulted on its payment obligations under the NCD

facility, hence the Appellant was constrained to recall principal amount under

the NCD's and also the interest which was accruing under the NCD's and

hence the Appellant issued a recall notice dated 31.10.2006.

8. It was also pointed out by the Ld. Counsel for the Appellant that the

Corporate Debtor had made a Reference under section 15(1) of the Sick

Industrial Companies (Special Provisions) Act, 1985 ("SICA"), to the Board of

Industrial & Financial Reconstruction ("BIFR") and after enquiry and curing

some defects and same was registered with BIFR a Case No. 160/2005.

Subsequently, the Corporate Debtor was declared to be a sick industrial

company and IDBI was appointed as an operating agency under section 17(3)

of the Sick Industrial Companies (Special Provision Act) and the Corporate

Debtor continued to be under purview of BIFR and same was pending

until/BIFR dissolved on 01.12.2006 when SICA was repealed ("BIFR

Dissolution Date").

9. The Corporate Debtor proposed a one-time settlement (OTS) to which

SASF, at its meeting held on September 08, 2008 and the Appellant has

approved the settlement by way of re-payments of Rs. 270 Lakhs over a period

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of 7 months. However, as the Corporate Debtor had failed to honour the OTS,

hence the Appellant on January 23, 2009 revoked the said OTS.

10. In view of the ongoing default of the corporate debtor under the NCD

Facility and suspension of the legal proceedings under SICA and

acknowledgment made under the Balance Sheet, the Appellant initiated

corporate insolvency proceedings under the Code and preferred to file a Section

7 Petition before the Adjudicating Authority (National Company Law Tribunal,

Ahmedabad Bench.)

11. The grievance of the Appellant is that even though Section 7 Petition was

within limitation as prescribed under Article 137, yet the Ld. Adjudicating

Authority dismissed the Section 7 Petition filed by the Appellant on the

grounds that the application was filed after a period of fifteen years from the

date on which the right to sue accrued to the financial creditor. The date of

default as recorded by the Adjudicating Authority was 19.04.2004 i.e. the

Recall Letter. The Adjudicating Authority erroneously interpreted/relied upon

B.K. Education Services Limited v Parag Gupta & Associates ("BK Educational

Services Limited").

12. It was brought to our notice that the Adjudicating Authority relying on

BK Educational Services Limited dismissed the section 7 Petition of the

Appellant without appreciating the fact that the Corporate Debtor on

23.11.2005 ("BIFR Reference Date") was referred to BIFR under Section 15(1)

of the Sick Industrial companies (Special Provisions) Act, 1985 ("SICA"), to the

Board of Industrial & Financial Reconstruction ("BIFR") being case No.

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160/2005 and same was pending adjudication. The Corporate Debtor was

declared to be a sick industrial company and IDBI was appointed as an

operating agency under section 17(3) of the Sick Industrial Companies (Special

Provision Act) and the Corporate Debtor continued to be under purview of BIFR

and same was pending until BIFR dissolved on 01.12.2016 and ("BIFR

Dissolution Date"). Hence the period between BIFR Reference date and the

BIFR Dissolution Date amounting to 4026 days ("Excluded Limitation

Period") should be excluded for the purposes of calculating the period of

limitation.

13. It is submitted by the Ld. Counsel for the Appellant that on 19.04.2004,

when the Appellant recalled the NCD Facility admittedly, the BIFR Reference

Case of the Corporate Debtor under the provisions of Sick Industrial

Companies Act (SICA), 1985, was pending for adjudication before the learned

Board for Industrial & Financial Reconstruction (BIFR). Accordingly, the

Section 22 of SICA was applicable and hence the period under which the

Corporate Debtor was under the purview of BIFR. Hence the Ld. Adjudicating

Authority should have appreciated that the Excluded Limitation Period should

have been excluded for the purposes of calculating limitation and if the said

Excluded Limitation Period is excluded then the Section 7 Petition is within the

prescribed limitation period.

14. Further, it is pertinent to mention that the Respondent continuously in

all its Balance Sheets from the year ending 2004-05 till 2016-17 has disclosed

and acknowledged the outstanding liability owed by the Respondent to the

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Appellant. Hence the admission and disclosure of liability in the Balance Sheet

of the Corporate Debtor is to be treated as an acknowledgement under Section

18 of the Limitation Act, 1963 which further enlarges and extends the period of

limitation and hence the order of Adjudicating Authority is grossly erroneous in

this aspect that the Section 7 Petition of the Appellant is barred by limitation

especially when the Corporate Debtor voluntarily disclosed and acknowledged

the liability towards the appellant. As the Hon'ble Apex court in the case of A V

Murthy v. B S Nagabasavanna has held that entry in sheet entry may qualify

as acknowledgement for the purposes of Section 18 of the Limitation Act, 1963.

In this case, which pertained to a cheque dishonour case, the Apex Court had

observed as follows:

"...Moreover, in the instant, the appellant has submitted before us that the respondent, in his balance sheet prepared for every year subsequent to the loan advanced by the appellant, had shown the amount as deposits from friends. A copy of the balance sheet as on 31st March 1997 is also produced before us. If the amount borrowed by the respondent is shown in the balance sheet, it may amount to acknowledgement and the creditor might have a fresh period of limitation from the date on which the acknowledgement was made. However, we do not express any final opinion on all these aspects, as these are matters to be agitated before the Magistrate by way of defence of the respondent."

(emphasis supplied).

It is pertinent to note that the acknowledgment made in the balance sheet is

prior to the expiry of the limitation period that is 19.04.2007(even assuming for

the sake of argument that the limitation period expired on 19.04.2007 if one

does not consider the Excluded Limitation Period under BIFR reference) and

hence this constitutes an acknowledgment under Section 18 of the Limitation

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Act, 1963. Copies of the Balance Sheet of the Corporate Debtor from the year

ending 2004-05 till 2016-17 is annexed with this Appeal and marked as

Annexure A/7(Colly).

15. The Ld. Adjudicating Authority also failed to consider that Respondent is

in continuous default of its payment obligations under the Recall Notice as the

Appellant is entitled to recover compound interest on the outstanding amounts

from the date of the recall and demand till the actual realization of the

amounts due. The non-payment of interest for the year 2017-2018 is

Rs.5,21,60,402/- which is over a lac, which itself on a standalone basis has

entitled the Appellant to file an application under Section 7 of the Code, 2016.

16. In view of the above the Appellant has sought the relief as follows:

a. Allow this appeal and set-aside the Impugned order of the Hon'ble

National Company Law Tribunal, Ahmedabad Bench, delivered on

12.01.2021 in CP (IB) No. 113/7/NCLT/AHM/2019; etc.

17. The Ld. Counsel for the Respondent has submitted as follows:

(i) The order impugned is legal, correct and sustainable in the eyes of law

and the Ld. NCLT, Ahmedabad has rightly held that the application of

appellant under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("I

& B Code") is barred by law of limitation.

(ii) The date of default as per FORM-1 is 19.01.2004 while the date of filing

section -7 application is 25.01.2019. Further, even if reference before BIFR

is excluded, then also the petition is time barred. The date of default is

19.01.2004 while reference was registered on 21.11.2005 i.e. after 1 year

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and 10 months. The BIFR was dissolved on 30.11.2016. From this date, the

remaining period of 1 year and 2 months expires on 30.01.2018 while

application under Section -7 was filed on 25.01.2019. Thus, the same is

time barred.

(iii)The appellant is relying upon entries made in the Balance Sheet as

acknowledgment of debt. However, such entries on balance sheet cannot

amount to acknowledgment of deb under section 18 of the Limitation Act,

1963.

18. We have gone through the submissions made by the Ld. Counsels for the

parties, documents available on record and related law on the subject including

citations available and are having following observations:

(i) It is not in dispute that IDBI Bank transferred the loan account of

the corporate debtor to the Appellant together with all under lying

securities under the financing documents vide a transfer deed dated

30.09.2004.

(ii) It is also not in dispute that the matter was referred under BIFR on

19.04.2004 under the provisions of SICA, Sick Industrial Companies Act,

1986 and the same was pending with under BIFR till 01.12.2016.

(iii) It is also not in dispute that the Financial Creditor initiated CIRP

under Section 7 of the Code against the Corporate Debtor on 07.01.2019.

(iv) It is also not in dispute that the Balance Sheet from the year 2004-

2005 till 2016-2017 has disclosed and acknowledged the outstanding

liability owed by the Respondent to the Appellant/Financial Creditor.

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(v) Even a look at form1 filed by the Financial Creditor reveals that the

Financial Creditor is a Special Purpose Vehicle in the form of a trust

recognised as Financial Institution under Section 2 (h) (ii) of the RDDBFI

Act, 1993 by way of Gazette Notification, for acquiring by transfer, the

stressed assets of IDBI Bank with a view to recovering the amounts due

thereunder. In the application itself the amount claimed to be in default

is Rs. 90,60,22,736/- and NPA date is 19.01.2004. However, in Part V

particulars of financial debt. Financial Creditors disclosed all the security

created for this loan/ charge including the action taken under the

SARFAESI and invocation of guarantee dated 20.02.2017 claims under

Bankers Book Evidence Act dated 04.10.2018, copy of audited balance

sheet of the CD for the year ended 31.03.2017 etc. All these reveals that

the Financial Creditor has elaborately provided in the application form all

related requirement for constituting an acknowledgment under the

provisions of Limitation Act, 1963.

19. A reference is made to Section 238 (A) of the Code which reads as follows:

"238-A. Limitation- The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be".

Company Appeal (AT) (Ins) No. 248 of 2021 13

20. We have also gone through the Balance Sheet as at 31.03.2017 of the CD

wherein it is reflected in Annexure A-7 appearing from pg-201 to 237

(Reference page -225) where borrowings are reflected under the heading "Long-

term borrowings" "Note no. 4" "item no. 2". Even the Balance Sheet reflects the

security created on the assets of the CD. Balance Sheets are signed by the

Directors of the Corporate Debtor on 01.09.2017.

21. Now it is a settled law that all related provisions of the Limitation Act is

applicable to the provisions of the Code. Hon'ble Apex Court vide its various

Judgments has held accordingly.

(i) B.K. Educational Services Pvt. Ltd. v. Parag Gupta (2019, 11 SCC 633)

para-42.

(ii) Babulal Vardharaji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd.

& Anr. Civil Appeal No. 6347/2019, para-37.3, 38.

(iii) Dena Bank (Now, Bank of Baroda) v. C. Shivakumar Reddy & Anr. Civil

Appeal No. 1650 of 2020, para- 141,144.

22. All the above cases reflect that the Hon'ble Apex Court has already

settled the law that Balance Sheet dues so reflected appropriately in the

Balance Sheet and that too a duly audited Balance Sheet will act as an

acknowledgment of debt under Section 18 of the Limitation Act, 1963 & hence

initiation of CIRP is permissible under Section 7 of the "Code".

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23. Keeping in mind the provisions of the Code & law laid down on the

subject, it is not in dispute that the dues of the CD are falling within the

provisions of Section 18 of the Limitation Act and since debt and default is not

in dispute & dues are payable in fact & law & is in accordance with the

provisions of the Code, so Section 7 of the Code is attracted.

24. Hence, we are unable to sustain the views of Adjudicating Authority

which is not in consonance with the provisions of the code. We are constrained

to allow the Appeal. The Appeal is accordingly allowed and impugned order is

hereby set aside. No order as to costs.

[Justice Rakesh Kumar] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

New Delhi 04.08. 2022 sr

Company Appeal (AT) (Ins) No. 248 of 2021