Subham Bhagat vs M/S Ankit Metal & Power Limited & Anr

[Arising out of order dated 20.12.2023 passed by the Adjudicating Authority, National Company Law Tribunal, Division Bench, Court No. II, Kolkata in Company Petition (IB) No. 236/KB/2022]

IN THE MATTER OF:

Subham Bhagat

R/o Ballughat, Marawari Patty,

Balurghat, Dakshin Dinajpur,

West Bengal 73310 ...Appellant

Versus

1. M/S Ankit Metal & Power Limited

Having its registered office at:

SKP House, 132-A,

Shyam Prasad Mukherjee Road,

Kolkata 700026.

2. UCO Bank

Office at:

Flagship Corporate Branch,

2, India Exchange Place,

Kolkata-700001 ...Respondents 2

Present:

Appellant: Mr. Kumar Anurag Singh, Mr. Zain A Khan, Advocates. For Respondents:

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated

20.12.2023 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Division Bench,

Court No. II, Kolkata) in Company Petition (IB) No. 236/KB/2022. By the

Impugned Order, the Adjudicating Authority admitted the Section 7 petition

filed by the UCO Bank - Respondent No. 2 admitting M/s Ankit Metals and

Power Ltd - Corporate Debtor into the rigours of Corporate Insolvency

Resolution Process ('CIRP' in short). Aggrieved by this impugned order, the

present appeal has been preferred by the suspended director.

2. The Learned Counsel for the Appellant putting forth his submissions

stated that the Corporate Debtor had availed credit facilities of Rs. 65 crore

from the Financial Creditor- Respondent No. 2 in 2010. Admittedly, the

Corporate Debtor committed a default on 31.05.2014 having failed to service

the interest following which their account was classified as Non-Performing

Asset (NPA) on 28.08.2014. Subsequent thereto, a Master Restructuring

Agreement ('MRA' in short) was executed between the Corporate Debtor and

a consortium of lenders including the Respondent No. 2-UCO Bank on

25.09.2014. Due to financial difficulties, the last payment was made to the

Company Appeal (AT) (Insolvency) No. 6-7 of 2024 3

Financial Creditor on 05.10.2015. However, the Financial Creditor-

Respondent No. 2 initiated proceeding under the SARFAESI Act on

07.04.2018 and later filed an application under Section 7 of the IBC on

08.08.2022 for outstanding dues amounting to a sum of Rs. 178 crores.

3. While admitting that the first date of default was 31.05.2014 following

which MRA was entered into on 25.09.2014, it was also submitted that the

Section 7 application filed by the Respondent No. 2 showed the date of default

as 31.05.2014 as may be seen at page 606 of the Appeal Paper Book ('APB' in

short). It was emphatically asserted that since the date of default was

31.05.2014 as per declaration made by the Financial Creditor in Part IV, the

default had become barred by limitation since it was more than three years if

counted from the date of default. It was vehemently denied that any written

or signed acknowledgement of the outstanding debt was given by the

Corporate Debtor to the Financial Creditor any time after 2015 and hence the

debt had become time-barred. However, by way of filing a supplementary

affidavit before the Adjudicating Authority, the Financial Creditor placed on

record certain unsigned balance sheets of the Corporate Debtor to overcome

the impediment of time barred debt. It was strenuously contended that these

unsigned financials were also wrongly relied upon by the Adjudicating

Authority to hold that outstanding debt stood acknowledged therein and

hence the debt was not time-barred.

4. Making rival contentions, the Learned Counsel for the Respondent No.2

submitted that it is an undisputed fact that it had sanctioned credit facilities

to the Corporate Debtor for which the Corporate Debtor executed security

Company Appeal (AT) (Insolvency) No. 6-7 of 2024 4

documents in their favour. Thereafter, as the Corporate Debtor was unable to

clear the outstanding interest, at their request, an MRA was executed between

them and lenders under a consortium arrangement. However, as the

Corporate Debtor failed to adhere to the terms and conditions of the said

restructuring, they were declared an NPA. Thus, it was submitted that debt

and default has not been disputed by the Corporate Debtor themselves.

Subsequently the Corporate Debtor executed a letter of revival letter dated

11.08.2017 and made payments from time to time and the last payment for

an amount of Rs 2,49,157/- only was made on 23.08.2018. Further the

Corporate Debtor had acknowledged their debt payable to the Financial

Creditor in their balance sheet as on 31.03.2022 and this was fact was

confirmed by the Chartered Accountant ('CA' in short) before the Adjudicating

Authority. Hence, the reliance placed by the Financial Creditor on these

entries for filing an application under Section 7 of the IBC to initiate the CIRP

process against the Corporate Debtor was justified and hence correctly

admitted by the Adjudicating Authority.

5. Contesting the averments made by the Appellant that the debt was

time-barred, it was submitted by the Learned Counsel for the Respondent

No.2 that the question as to whether the Section 7 application is time-barred

or not is to be decided based on the facts and circumstances of the case. In

the present case, the Corporate Debtor having acknowledged their debt

payable to the Financial Creditor in their balance sheet as on 31.03.2022, the

Section 7 application was rightly admitted by the Adjudicating Authority. The

Financial Statements of the Financial Creditor clearly disclosed the debt

Company Appeal (AT) (Insolvency) No. 6-7 of 2024 5

payable to Respondent No.2/UCO Bank both under the heads of long-term

borrowings as well as short-term borrowings in the Notes to Accounts of the

financial statements for the year ending 31-03-2022. It was further pointed

out that the Adjudicating Authority had correctly applied the well settled

proposition of law that the benefit of Section 18 of the Limitation Act is

available to proceedings filed under Section 7 of the IBC. Since Section 18 of

the Limitation Act, provides that a fresh period of limitation is to be computed

from the time when the acknowledgment of liability is signed, the signed

financial statements of the Corporate Debtor for the year 2021-22 brings the

outstanding dues within limitation.

6. We have duly considered the arguments advanced by the Learned

Counsel for the Appellant and perused the records carefully.

7. It is the contention of the Appellant that the financial documents of the

Corporate Debtor which were placed on record by the Respondent No.2 were

unsigned and therefore could not have been relied upon by the Adjudicating

Authority to give fresh lease of life to time barred debts. Submission was also

pressed that the Hon'ble Supreme Court in Asset Reconstruction Company

(India) Ltd. Vs. Bishal Jaiswal & Ors. (2021) 6 SCC 366 has held that for

any entry made in the balance sheet to be considered as an admission of

liability, the same should have been filed by appropriate authorities of the

Corporate Debtor and should bear the signature of authorised signatories so

that their intent for admission of entries thereof is established.

8. Advancing their arguments further, it was submitted that since the

signature of authorised signatories on the financials was amiss in the present

Company Appeal (AT) (Insolvency) No. 6-7 of 2024 6

case, this was brought to the notice of the Adjudicating Authority and urged

that the unsigned financials should be ignored. However, the Adjudicating

Authority instead of ignoring the unsigned financials proceeded to summon

the CA from whom the Adjudicating Authority unilaterally confirmed from him

that the financial statements have been signed and that the Corporate Debtor

had filed its annual returns in the MCA for year ending 31.03.2022. It was

contended that the Appellant has reasons to feel aggrieved with the

Adjudicating Authority for resorting to such a fishing and roving inquiry while

denying opportunity to the Corporate Debtor to put forth its views on the

financial statements filed by the said CA. It was also submitted that the

Adjudicating Authority also lost sight of the fact that the said CA had no locus

to admit and/or acknowledge the debt on behalf of the Corporate Debtor.

9. At this stage it may be useful to examine how the Adjudicating

Authority had chosen to proceed in the matter. We notice that the

Adjudicating Authority took notice of the fact that the Financial Creditor had

relied on unsigned copies of the financial statements and decided to direct the

CA who is supposed to have signed the financials to be personally present

before them and issued an order on 22.11.2023 which is as reproduced below:

"Corporate Debtor is directed to issue notice to the Statutory Auditor Mr. Gouranga Paul, of J.B.S. & Company, Chartered Accountants to present personally before this Bench for answering certain queries in connection with the matter on Friday i.e., on 24.11.2023."

10. It is the contention of the Appellant that the CA was heard on

11.12.2023 and an order was passed by the Adjudicating Authority permitting

Company Appeal (AT) (Insolvency) No. 6-7 of 2024 7

the CA to send original signed copy of the books and accounts by 12.12.2023.

By the same order, the Section 7 application was also was reserved for orders

thus not giving any chance to the Appellant to put forth their views on the

financial statements filed by the said CA.

11. This brings us to the impugned order which was pronounced on

20.12.2023, which in all fairness, records the entire sequence of events, which

we would like to reproduce for better appreciation of the case at hand. The

relevant excerpts are as follows:

"32...... However we find that the Corporate Debtor has acknowledged the debt payable to the Financial Creditor in its balance sheet as on 31.03.2022.

34. Since, the statements relied on by the Ld. Counsel for the applicant are unsigned, we vide an Order dated November 22, 2023, directed Mr. Gouranga Paul, of J.B.S. & Company, Chartered Accountants who is supposed to have signed the financials of the Corporate Debtor as on 31.03.2022 to be present personally before this Bench to after clarification.

35. Mr. Gouranga Paul, Chartered Accountant appeared before us on 11/12/2023 and confirmed that the Financial Statements have been signed and the Company has filed its annual returns in the MCA for the said financial year. Further the Chartered Accountant undertook to file signed copies of Financial Statements for the years 2020-21 and 2021-2022 and accordingly the same was filed on 12.12.2022 with the Registry of this Adjudicating Authority.

36. We have perused the signed financial statements of the company filed by the Chartered Accountant for the years 2020

- 21 and 2021 - 2022. While in the Balance Sheets, the borrowing from Secured and Unsecured creditors have been mentioned and all the amounts due to several Financial Creditors have been clubbed together, the notes to Accounts which are the Part of financial statements for the year March 31, 2022, disclosed the debt owed to the Financial Creditor

Company Appeal (AT) (Insolvency) No. 6-7 of 2024 8

(UCO Bank) amount of Rs. 4082.22 Lakh and period and amount of continuing default as Rs. 4719.30 Lakh."

12. It is therefore unambiguously clear on perusal of the impugned order

that after summoning the CA on 11.12.2023 and directing him to send

original signed copy of the books and accounts by 12.12.2023, on the very

same day i.e. 11.12.2023 the order impugned admitting Corporate Debtor into

CIRP was reserved by the Adjudicating Authority. While we appreciate the

bonafide and genuine efforts made the Adjudicating Authority to satisfy itself

of the validity and veracity of the admittedly unsigned financial statements by

summoning the CA to place on record the signed financials, we cannot be

unmindful of the fact that no notice was given to the Appellant to submit their

pleadings and arguments on the financial statements and notes to accounts

as furnished by the CA. There is force in the contention of the Appellant that

it was neither aware regarding what was filed before the Adjudicating

Authority by the CA nor was provided an opportunity to rebut and/or place

reliance on the said balance sheets. The Appellant clearly did not get the

chance to explain the notes of the said balance sheets which allegedly

expressed caveats regarding the debt.

13. It is well settled that adherence to principles of natural justice is the

essence of fair adjudication and cannot be given a go-by by the Adjudicating

Authority or this Tribunal in the discharge of their adjudicatory and appellate

responsibilities. Opportunity to hear is a critical limb of this principle of

natural justice. The Tribunal must appraise the party of the case he has to

meet so as to enable him to make his representation. This opportunity must

Company Appeal (AT) (Insolvency) No. 6-7 of 2024 9

be real and effective. The right to make representation requires that the

person/entity proceeded against must have opportunity to peruse all material

relied upon against him. Thus, it is imperative that all contesting parties

should be put on notice in respect of such documents before any order is

passed basis these documents. So also in the present matter, to meet the ends

of justice, it was the duty of the Adjudicating Authority to have ensured that

the balance sheets produced by the CA was shared with the Appellant party

since these documents were to constitute the basis on which the impugned

order was premised.

14. The purpose of following the principles of natural justice is the

prevention of miscarriage of justice. This inter-alia entails providing for a fair

hearing as evinced in the audi alteram partem rule and its corollary, namely,

qui aliquid statuerit parte inaudita altera aequum licet dixerit haud acquum

facerit that is, he who decides anything without the other side having been

heard, though he may decide rightly, by no means has acted justly. In other

words, as is commonly expressed, justice should not only be done but should

manifestly be seen to be done. In the absence of notice and such reasonable

opportunity having been given to the Appellant, the impugned order passed

has become vitiated. To meet the ends of justice we are of the considered

opinion that the Appellant deserves to be given appropriate and adequate

opportunity to represent itself in respect of the financial statements which

were placed by the CA before the Adjudicating Authority.

15. In such circumstances, the present appeal is hereby allowed. The

impugned order is set aside. The orders passed by the Adjudicating Authority

Company Appeal (AT) (Insolvency) No. 6-7 of 2024 10

initiating CIRP against the Corporate Debtor and appointing Interim

Resolution Professional and all other orders pursuant to the impugned order

are set aside. The Interim Resolution Professional shall be paid the actual

expenses incurred and fees by the Financial Creditor on production of

invoices. CP (IB) No. 1420/MB-IV/2020 is restored and the matter is

remanded back to the Adjudicating Authority to decide again in accordance

with law after hearing all the parties with respect to financial statements

which have been submitted by the CA. The parties are directed to appear

before the Tribunal within ten days from the date of the order. We however

add that we are not expressing our views on the merits of the matter and it

will remain open to the parties to raise all contentions. We expect the

Adjudicating Authority to make all endeavours to complete the hearing within

a period of two months from the date of appearance of the parties before the

Tribunal. No costs.

[Justice Ashok Bhushan] Chairperson

[Justice Yogesh Khanna] Member (Judicial)

[Barun Mitra] Member (Technical)

Place: New Delhi

Date: 12.03.2024

Ram N.

Company Appeal (AT) (Insolvency) No. 6-7 of 2024