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SUPREME COURT OF INDIA
INDIRA BANERJEE, V. RAMASUBRAMANIAN, JJ.
Dena Bank (Now Bank of Baroda) – Appellant
Versus
C. Shivakumar Reddy and Anr. – Respondents
Civil Appeal No. 1650 of 2020
Decided On : 04-08-2021
(A) Insolvency and Bankruptcy Code, 2016 – Section 7 – Initiation of Corporate Insolvency Resolution Process – Under scheme of IBC, Insolvency Resolution Process begins, when a default takes place, in the sense that a debt becomes due and is not paid – Where any corporate debtor commits default, a financial creditor, an operational creditor or corporate debtor itself may initiate Corporate Insolvency Resolution Process in respect of such corporate debtor in the manner as provided in Chapter II of IBC – Provisions of IBC are designed to ensure that business and/or commercial activities of Corporate Debtor are continued by a Resolution Professional, post imposition of a moratorium, which would give Corporate Debtor some reprieve from coercive litigation, which could drain Corporate Debtor of its financial resources – This is to enable Corporate Debtor to improve its financial health and at the same time repay dues of its creditors – IBC is not just another statute for recovery of debts – Nor is it a statute which merely prescribes modalities of liquidation of a Corporate body, unable to pay its debts – It is essentially a statute which works towards revival of a Corporate body, unable to pay its debts, by appointment of a Resolution Professional. (Paras 68, 69, 70 and 79)
(B) Insolvency and Bankruptcy Code, 2016 – Section 238 – Corporate Insolvency Resolution Process – IBC has overriding effect over other laws – Unlike coercive recovery litigation, Corporate Insolvency Resolution Process under IBC is not adversarial to interests of Corporate Debtor – IBC is a beneficial legislation for equal treatment of all creditors of Corporate Debtor, as also protection of livelihoods of its employees/workers, by revival of Corporate Debtor through entrepreneurial skills of persons other than those in its management, who failed to clear dues of Corporate Debtor to its creditors – It only segregates interests of Corporate Debtor from those of its promoters/persons in management – Relegation of creditors to remedy of Coercive litigation against Corporate Debtors could be detrimental to interests of Corporate Debtor and its creditors alike – While multiple coercive proceedings against a Corporate Debtor in different Fora could impede its commercial/business activities, deplete its cash reserves, dissipate its assets, moveable and immoveable and precipitate its commercial death, such proceedings might not be economically viable for creditors as well, because of length of time consumed in litigations, expenses of litigation and uncertainties of realisation of claims even after ultimate success in litigation – It is imperative that provisions of IBC and Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further objects of enactment of statute and not be given a narrow, pedantic interpretation which defeats purposes of Act. (Paras 84, 85, 86, 87 and 88)
(C) Insolvency and Bankruptcy Code, 2016 – Section 7 – Limitation Act, 1963 – Section 18 – Initiation of Corporate Insolvency Resolution Process – Bar of limitation – Entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of Limitation Act – Final judgment and/or decree of any Court or Tribunal or any Arbitral Award for payment of money, if not satisfied, would fall within ambit of a financial debt, enabling creditor to initiate proceedings under Section 7 of IBC – Section 18 of Limitation Act cannot be construed with pedantic rigidity in relation to proceedings under IBC – A final judgment and order/decree is binding on judgment debtor – Once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of Recovery is also issued authorizing creditor to realize its decretal dues, a fresh right accrues to creditor to recover amount of final judgment and/or order/decree and/or amount specified in Recovery Certificate – Appellant Bank was entitled to initiate proceedings under Section 7 of IBC within three years from date of issuance of Recovery Certificate. (Paras 118, 132, 138, 139 and 141)
(D) Insolvency and Bankruptcy Code, 2016 – Section 7 – Limitation Act, 1963 – Section 18 – Initiation of Corporate Insolvency Resolution Process – Bar of limitation – Application under Section 7 of IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from date of declaration of loan account of Corporate Debtor as NPA, if there were an acknowledgement of debt by Corporate Debtor before expiry of period of limitation of three years, in which case period of limitation would get extended by a further period of three years – A judgment and/or decree for money in favour of Financial Creditor, passed by DRT, or any other Tribunal or Court, or issuance of a Certificate of Recovery in favour of Financial Creditor, would give rise to a fresh cause of action for Financial Creditor, to initiate proceedings under Section 7 of IBC for initiation of Corporate Insolvency Resolution Process, within three years from date of judgment and/or decree or within three years from date of issuance of Certificate of Recovery, if dues of Corporate Debtor to Financial Debtor, under judgment and/or decree and/or in terms of Certificate of Recovery, or any part thereof remained unpaid. (Paras 142 and 143)
(E) Insolvency and Bankruptcy Code, 2016 – Section 7 – Initiation of Corporate Insolvency Resolution Process – There is no bar in law to amendment of pleadings in an application under Section 7 of IBC, or to filing of additional documents, apart from those initially filed along with application under Section 7 of IBC in Form-1 – In absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that Adjudicating Authority committed any illegality or error in permitting Appellant Bank to file additional documents – Depending on facts and circumstances of case, when there is inordinate delay, Adjudicating Authority might, at its discretion, decline request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order – Decision of Adjudicating Authority to entertain and/or to allow request of Appellant Bank for filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal – Impugned judgment and order is unsustainable in law and facts – Impugned judgment and order of NCLAT set aside. (Paras 144 and 145)
(F) Appeal – Question of Law – To be a question of law involved in the case, there must be first a foundation laid in pleadings, and question should emerge from sustainable findings of fact, arrived at by Courts of facts. (Para 54)
(G) Interpretation of Statute – Rule of Legislative Intent – In construing and/or interpreting any statutory provision one must look into legislative intent of statute – Intention of statute has to be found in words used by legislature itself – In case of doubt it is always safe to look into object and purpose of statute or reason and spirit behind it – Each word, phrase or sentence has to be construed in light of general purpose of Act itself – When a question arises as to meaning of a certain provision in a statute provision has to be read in its context – Statute has to be read as a whole – Previous state of law, general scope and ambit of statute and mischief that it was intended to remedy are relevant factors. (Paras 89 and 90)
(H) Precedent – Riders – A Judgment is a precedent for issue of law that is raised and decided and not any observations made in facts of the case – Judicial utterances/pronouncements are in setting of the facts of a particular case – To interpret words and provisions of a statute it may become necessary for Judges to embark upon lengthy discussions, but such discussion is meant to explain not define – Judges interpret statutes, their words are not to be interpreted as statutes. (Para 109)
Facts of the case:
Main question involved in this appeal is, whether a Petition under Section 7 of the IBC would be barred by limitation, on the sole ground that it had been filed beyond a period of 3 years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the Appellant Bank, within a period of three years prior to the date of filing of the Petition under Section 7 of IBC, by making a proposal for a One Time Settlement, or by acknowledging the debt in its statutory Balance Sheets and Books of Accounts. Another question which arises for the consideration of this Court is, whether a final judgment and decree of the DRT in favour of Financial Creditor, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action to the Financial Creditor to initiate proceedings under Section 7 of the IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the Certificate of Recovery - A third issue which arises for adjudication of this Court is, whether there is any bar in law to the amendment of pleadings, in a Petition under Section 7 of the IBC, or to the filing of additional documents, apart from those filed initially, along with the Petition under Section 7 of IBC in Form-1.
Findings of Court:
Balance Sheets and Financial Statements of the Corporate Debtor for 2016-2017 constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certificate of Recovery was issued in favour of the Appellant Bank in May 2017. The NCLT rightly admitted the application by its order dated 21st March, 2019.
Result : Appeal allowed.
Certainly. Based on the provided legal document, the key points are as follows:
The Insolvency and Bankruptcy Code (IBC) is fundamentally aimed at the revival of a corporate debtor, not merely for debt recovery or liquidation modalities. Its primary purpose is to facilitate the continuation of business activities through the appointment of a Resolution Professional, thereby promoting entrepreneurship and protecting stakeholder interests (!) (!) (!) .
An application under Section 7 of the IBC is not barred by limitation if there is an acknowledgment of debt by the corporate debtor before the expiry of the limitation period. Such acknowledgment can extend the limitation period by a further three years, and subsequent final judgments or recovery certificates can also give rise to a fresh cause of action within the limitation window (!) (!) (!) (!) (!) .
There is no legal prohibition on amending pleadings or filing additional documents in an application under Section 7 of the IBC, provided such amendments or documents are filed within a reasonable time and do not cause undue delay. The authority has discretion to accept or reject such amendments based on the facts and circumstances of each case (!) (!) .
Statutes should be interpreted holistically, considering legislative intent, purpose, and the mischief the law aims to remedy. Words used in statutes are to be understood in context, and the entire legislation should be read as a whole to ascertain the true legislative intent (!) (!) .
The application of the Limitation Act, particularly Sections 18 and 19, is applicable to proceedings under the IBC. Acknowledgment of debt in writing, including entries in balance sheets, financial statements, or proposals for settlement, can constitute a valid acknowledgment that extends the limitation period (!) (!) (!) (!) (!) .
Final judgments, decrees, or recovery certificates issued by courts or tribunals create a fresh cause of action for creditors to initiate or continue proceedings under Section 7 of the IBC within the prescribed limitation period. This underscores the importance of finality and the effect of such judgments or certificates in establishing a new starting point for limitation (!) (!) (!) (!) .
The limitation period for initiating proceedings under Section 7 of the IBC is generally three years from the date of default or from the date of acknowledgment of debt, but this can be extended if there is an acknowledgment or decree within that period. The limitation is a mixed question of law and fact, requiring relevant facts to be pleaded and proved (!) (!) (!) (!) .
Amendments and additional documents filed at a later stage, before a final order is passed, are permissible and do not necessarily prejudice the proceedings, provided they are relevant and filed within a reasonable timeframe. The authority's discretion in allowing such amendments is recognized, and undue delay can be a ground for rejection (!) (!) .
The overarching principle is that the provisions of the IBC and related regulations should be interpreted in a manner that furthers the purpose of the legislation—namely, timely resolution and revival of distressed corporate entities—by adopting a broad and purposive approach rather than a narrow or pedantic one (!) (!) (!) .
The legal framework emphasizes the importance of balancing procedural timelines with substantive justice, ensuring that delays do not result in the unwarranted liquidation of viable entities, while also maintaining the integrity of limitation periods and procedural formalities (!) (!) .
These points collectively highlight the importance of legislative intent, the role of acknowledgments and final judgments in extending limitation, and the flexibility granted to authorities in managing pleadings and documents within the framework of the IBC.
JUDGMENT :
Indira Banerjee, J.
This Appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) is against a judgment and final order dated 18th December 2019 passed by the National Company Law Appellate Tribunal (NCLAT), allowing Company Appeal (AT) (Insolvency) No.407 of 2019, filed by the Respondents and setting aside an order dated 21st March 2019 passed by the Adjudicating Authority/National Company Law Tribunal (NCLT), Bengaluru, whereby the Adjudicating Authority had admitted the Petition being CP(IB) No.244/BB/2018 filed by the Appellant Bank against the Respondent No.2 (Corporate Debtor) under Section 7 of the IBC. The NCLAT held that the said Petition of the Appellant Bank under Section 7 of the IBC, was barred by limitation. The Respondent No.1 is a Director of the Corporate Debtor.
2. By a letter dated 23rd December, 2011 the Appellant Bank had sanctioned Term Loan and Letter of Credit Cum Buyers' Credit in favour of the Corporate Debtor, with an upper limit of Rs. 45.00 Crores.
3. The said Term Loan was to be repaid in 24 quarterly instalments of Rs. 187.50 lakhs, which were to commence two years after the date of disbursement, and the entire Term Loan was to be repaid in eight years, inclusive of the implementation period of one year and the moratorium period.
4. The Corporate Debtor executed various documents including Demand Promissory Notes, Letters of General Lien, etc. in favour of the Appellant Bank and also mortgaged its lease hold rights in its immovable property specified in the petition of appeal, by depositing the Title of Deeds of the said immovable property with the Appellant Bank.
5. On 20th September, 2013 the Corporate Debtor defaulted in repayment of its dues to the Appellant Bank. The Loan Account of the Corporate was therefore declared Non Performing Asset (NPA) on 31st December 2013.
6. The Corporate Debtor addressed a letter dated 24th March 2014 to the Appellant Bank, making a request for restructuring the Term Loan. The Appellant Bank did not accede to the request.
7. On 22nd December 2014, the Appellant Bank issued legal notice to the Corporate Debtor as well as the Respondent No.2, calling upon them to make payment of Rs. 52.12 crores, claimed to be due from the Corporate Debtor as on 22nd December 2014. The Corporate Debtor did not make the payment.
8. On or about 1st January 2015, the Appellant Bank filed an application being O.A. No.16/2015 under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, now known as the Recovery of Debts and Bankruptcy Act, 1993 and hereinafter referred to as 'the Debt Recovery Act' before the Debt Recovery Tribunal (in short, DRT) Bangalore for recovery of its outstanding dues of Rs. 52,12,49,438.60 as on 22nd December 2014.
9. By a letter dated 5th January 2015, the Corporate Debtor replied to the said notice dated 22nd December 2014, inter alia, requesting once again, that the loan be restructured. Mr. Dhruv Mehta, Senior Advocate, appearing on behalf of the Appellant Bank submitted that the Corporate Debtor had accepted its liability to the Appellant Bank, by its aforesaid letter dated 5th January 2015.
10. On or about 3rd March 2017, while proceedings were pending in the DRT, the Corporate Debtor gave a proposal for one time settlement of the Term Loan Account, upon payment of Rs. 5.50 crores. The proposal was, however, not accepted by the Appellant Bank.
11. On 27th March 2017, the Debt Recovery Tribunal, Bengaluru passed a final judgment and order/decree against the Corporate Debtor in the said O.A. No.16/2015, for recovery of Rs. 52,12,49,438.60 with future interest at the rate of 16.55% per annum, from the date of filing the application till the date of realization.
12. On 25th May 2017, the Debt Recovery Tribunal issued a Recovery Certificate No. 2060/2017, in favour of the Appellant Bank for recovery of Rs.
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