1. Financial creditor seeking initiation of corporate insolvency resolution process under Section 7, IBC, based on assigned debt where default occurred decades prior to the application. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 12 , 15 , 16 , 17 )
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2021 Supreme(SC) 721
SUPREME COURT OF INDIA
Indira Banerjee, Sanjiv Khanna JJ.
M/s. Reliance Asset Reconstruction Company Ltd. - Appellant
Versus
M/s Hotel Poonja International Pvt. Ltd. - Respondents
Civil Appeal No.4221 of 2020
Decided On : 21-01-2021
Important Points
Applications under Section 7 of the IBC are governed by Article 137 of the Limitation Act. The right to sue accrues upon default, and applications filed more than three years after such default are time-barred. Furthermore, the IBC is not intended to be a substitute for a recovery forum.
Subject
Limitation - Application of Limitation Act to IBC Proceedings
Act Referred
Headnote
Insolvency and Bankruptcy Code, 2016 - Sections 62, 9 and 7 - Limitation Act - Article 137 and Sections 18 and 23 Reconstruction of Financial Assets - Credit/loan facilities interalia - Agreement executed between Assignor Bank and Appellant - Assigned its dues from Corporate Debtor - Appellant is a company incorporated under Companies Act, 1956 and registered as a Securitisation and Asset Reconstruction Company, pursuant to Section 3 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Respondent International to as “Corporate Debtor”, was granted credit/loan facilities “Assignor Bank”. Pursuant to an agreement executed between Assignor Bank and Appellant Assignor Bank has assigned its dues from Corporate Debtor to the Appellant - Sanctioned a term loan of Corporate Debtor - Loan documents were duly executed by Corporate Debtor through its authorized directors and guarantors, in favour of Assignor Bank and Corporation Bank - Agreement executed by and between Assignor Bank – Held, Reiterated that in its application under Section 7 of the IBC - Appellant declared date of default as 1st April, 1993 - At the highest, limitation started running Recovery Certificate was issued by DRT in favour of Assignor - NCLAT has rightly held that application of Appellant under Section 7 of IBC barred by limitation - Appellant has been substituted in place of Assignor Bank in execution proceedings in DRT - There is an amended Certificate issued by the DRT Orders have, from time to time, been passed in Execution Proceedings - Appellant is not without remedy against Corporate Debtor - Court has categorically laid down that IBC is not intended to be substitute to a recovery forum - It is also laid down that whenever there is existence of real dispute - appeal is dismissed.
Legal Category Hierarchy
- insolvency and bankruptcy law
- practice and procedure
- banking and finance law
Table of Contents
2. Whether balance sheets and settlement offers constitute acknowledgement of liability under Section 18, Limitation Act, to extend the limitation period for filing an application under Section 7, IBC. (Para 29 )
3. The application was barred by limitation as the default occurred over fifteen years prior to filing, and the submitted documents did not constitute valid acknowledgments of liability. (Para 11 , 14 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 )
4. Applications under Section 7, IBC are governed by Article 137 of the Limitation Act, requiring filing within three years from the date the right to sue accrues. (Para 19 , 20 , 21 )
5. Appeal dismissed; the order of the NCLAT upholding the dismissal of the Section 7 application due to limitation was affirmed. (Para 39 )
6. What is the limitation period for filing an application to initiate the corporate insolvency resolution process under Section 7 of the IBC?
Applications under Section 7 of the IBC are governed by Article 137 of the Limitation Act, 1963. The right to sue accrues when a default occurs, and the application must be filed within three years from that date. (Para 19 , 20 , 21 )
7. When does a document constitute an acknowledgement of liability under Section 18 of the Limitation Act to renew a debt?
An acknowledgement must be a written admission of a present subsisting liability, signed by the party against whom the right is claimed, and made before the relevant limitation period expires. It must indicate the existence of a jural relationship between debtor and creditor. (Para 24 , 30 , 31 )
8. Can a balance sheet be treated as an acknowledgement of liability for the purpose of extending limitation?
A balance sheet cannot be treated as an acknowledgement if it does not admit the debt or if it explicitly disputes the liability, treating the claim as a contingent liability not provided for in the books. (Para 32 , 33 )
9. Can the IBC be used as a substitute for a recovery forum to recover outstanding dues?
No, the IBC is not intended to be a substitute for a recovery forum. It is used to initiate the corporate insolvency resolution process for just reasons, not merely for the recovery of debts. (Para 11 , 38 )
10. Does the concept of a continuing wrong under Section 23 of the Limitation Act apply to defaults in loan repayment?
No, a default in repayment is not a continuing wrong. Section 23 applies only to acts that create a continuing source of injury, not to cases where the wrongful act causes a complete injury despite continuing damages. (Para 26 , 27 , 28 )
JUDGMENT :
Indira Banerjee, J.
This appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 hereinafter referred to as “IBC”, is against a judgment and order dated 5th February 2020 passed by the National Company Law Appellate Tribunal, New Delhi, hereinafter referred to as the “NCLAT”, dismissing the Company Appeal (AT) (Insolvency) No. 1011 of 2019 filed by the Appellant, whereby the Appellant had challenged an order dated 20th August 2019 passed by the Adjudicating Authority, i.e. the National Company Law Tribunal, Bengaluru Bench, hereinafter referred to as the “NCLT” rejecting an application being CP (IB) No.170/BB/2018 filed by the Appellant under Section 7 of the IBC.
2. The Appellant is a company incorporated under the Companies Act, 1956 and registered as a Securitisation and Asset Reconstruction Company, pursuant to Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).
3. The Respondent M/s Hotel Poonja International Pvt. Ltd., hereinafter referred to as the “Corporate Debtor”, was granted credit/loan facilities interalia by Vijaya Bank, hereinafter referred to as the “Assignor Bank”. Pursuant to an agreement executed between the Assignor Bank and the Appellant on or about 3rd May 2011, the Assignor Bank has assigned its dues from the Corporate Debtor to the Appellant.
4. By a letter dated 20th May 1986, the Assignor Bank, along with Corporation Bank, sanctioned a term loan of Rs.40 Lakhs to the Corporate Debtor. Loan documents were duly executed by the Corporate Debtor through its authorized directors and guarantors, in favour of the Assignor Bank and Corporation Bank, for securing the loan as aforesaid, availed by the Corporate Debtor.
5. By a paripasu agreement executed by and between the Assignor Bank, Corporation Bank, and the Corporate Debtor on 23rd November 1987, a paripasucharge was created on the movable and immovable properties of the Corporate Debtor, in favour of the two banks.
6. The Corporate Debtor failed to repay the loan obtained from the Assignor Bank. The Assignor Bank, therefore, declared the account of the Corporate Debtor as a “Non Performing Asset” (NPA) on 1st April 1993.
7. On or about 18th May 1998, the Assignor Bank filed an Original Application No. 547 of 1998 under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 before the Debt Recovery Tribunal (DRT), Andhra Pradesh and Karnataka at Bangalore for recovery of its dues aggregating Rs.2,61,88,403.05/-odd from the Corporate Debtor.
8. It is the case of the Appellant that during the pendency of the said original application, the Corporate Debtor acknowledged and admitted its debt to the Assignor Bank and approached the Assignor Bank for a settlement, subject to payment of a consolidated amount of Rupees 1 Crore, less Rs.25 Lakhs that had already been paid. The Corporate Debtor agreed to pay the balance Rs.75 Lakhs in instalments, along with interest. Accordingly, a settlement was executed between the Assignor Bank and the Corporate Debtor on 30th June 2001, on the basis of which the DRT issued a Recovery Certificate on 27th March 2003.
9. The Appellant contends that since the Corporate Debtor failed to pay the settlement amount, the Assignor Bank became entitled to recover the decretal amount from the Corporate Debtor. The Assignor Bank, therefore, filed an application for execution in the DRT, for recovery of the decretal amount of Rs.2,61,88,403.05, after deducting Rs.25 lakhs already paid by the Corporate Debtor. After the execution of the agreement dated 03rd May 2011, between the Assignor Bank and the Appellant, the Appellant was substituted as applicant in place of the Assignor Bank, in the proceedings before the DRT, and an amended Recovery Certificate was issued on 13th December, 2012.
10. On or about 27th July 2018, the Appellant filed a petition before the NCLT, Bengaluru bearing No.CP(IB) No.170/BB/2018 under Section 7 of the IBC a
