NCLAT: Applicability of Limitation Act in the resolution process

NCLAT: Applicability of Limitation Act in the resolution process

Brief Introduction of the Appeal:

This appeal is made by one of the Directors of the Corporate Debtor, Mrs. Manasi Indrajit Wadkar (appellant herein), who is the suspended director of Krishna Knitwear Technology Limited, which is the Corporate Debtor, against the order of National Company Law Tribunal (NCLT), Ahmedabad Bench, issued in C.P.(IB) No. 279/7/NCLT/AHM/2018. The respondent are (a) Union Bank of India which was formerly Andhra Bank and (b) the Corporate Debtor represented by it Interim Resolution Professional (IRP).

Union Bank of India(the 1st respondent herein), formerly Andhra Bank, had filed application for recovery of debt under Section 7 of IBC claiming that the Corporate Debtor had availed working capital (WC) loan, term loan and cash credit facility from several banks and financial institutions, including itself. Appropriate securities and bank guarantees were provided by the Corporate Debtor and the working capital (WC) consortium was headed by Andhra Bank. As early as 2012, the Corporate Debtor approached the CDR cell i.e Corporate Debt Restructuring cell to restructure its WC and term-loan facilities and it was restructured and sanctioned as early as 29-Dec-2012. The Open Cash Credit or OCC limit was also restructured. The account was declared NPA on 29.Jun.2012 as the Corporate Debtors could not regularize the account. Further, the bank issued demand notice 13(2) for recovery of debt under SARFAESI Act on 31.Jan.2015. Union Bank of India along with other consortium banks filed recovery petition with Debts Recovery Tribunal (DRT) in March 2016 which is still pending. The bank relied on evidence taken for sanction of loan to Corporate Debtor to a tune of INR. 123.30 crores which were filed as a O.A, to the Tribunals. Now, under the application filed under IBC, the NCLT authorities found the application to be within limitation period and admitted the same through the impugned order.

Contention of the Appellant:

The Appellant is of the view that the application under Section 7 of IBC is time barred and does not hold merit. The Appellant agrees that the Corporate Debtor account became NPA on 29.Jun.2012 and claims that the respondent 1 took exit from the CDR and that the Corporate Debtor had no knowledge of the same and also that the Corporate Debtor had not acknowledged the debt of the Respondent 1 bank. As required under Section 18 of the Limitation Act, the Corporate Debtor did not acknowledge the debt of the Respondent 1 bank for three consecutive years and the balance sheet presented was that of 2016-2017 (where the debt is acknowledged) and hence the debt was time-barred. Also the appellant claimed that the one-time settlement (OTS) presented was not accepted and cannot be construed as acknowledgement of debt. Further the appellant stated that only when default occurs, the right to sue would accrue and hence the application under Section 7 of IBC should have been rejected.

Contention of Respondent 1:

The respondent 1 bank is of the view that the Corporate Debtor owes it INR. 245,31,64,521.85/- and hence the application under IBC had to be filed with NCLT. Further, after the restructuring, respondent 1 contended that there were two Amendatory agreements which were signed by Corporate Debtor and even after that, the Corporate Debtor continued to default on the loan taken and account was finally declared as NPA on 29.Jun.2012. The Counsel for the respondent is of the view that Section 19 of the Limitation Act would take effect even when payments towards debts are made and a fresh period of limitation shall be computed from the date when the payment towards the debt is made. Hence the Counsel is of the view that the application under Section 7 of the IBC for recovery of debts is applicable. The Counsel for respondent 1 also made reference to the documents on record and reiterated that the suit is within limitation period and that the NCLT suit was rightly admitted. The Counsel also made reference to the balance sheet of 2016-2017 and stated that the foundation of the original suit was not based on the balance sheet.

Analysis and final judgement:

The application under Section 7 under IBC was filed on 21.May.2018. The Corporate Debtors account was declared as NPA on 29.Jun.2012 and Tribunal acknowledges the fact that even after the account was declared NPA, a second amendatory agreement has been entered into by the Corporate Debtor with the consortium of banks as on 13.Mar.2014. Further, the SARFAESI notice dated 31.Jan.2015 and 19.Jun.2016, were also highlighted and the suit filed in DRT in 2016 was also acknowledged. The Corporate Debtor had replied to the SARFAESI notice dated 31.Jan.2015 and in the letter it had acknowledged the debt to the Consortium banks to an extent of INR. 807.43 crores and stated it has provided securities worth INR. 872.08 crores, to be shared amongst the consortium of banks on ‘pari passu’ basis. Further it had requested the banks to consider the revival plan submitted by it, dated 24.Dec.2014. It is clearly stated that this communication was within 3 years from NPA date and therefore within limitation period.

Further reference was made to letter written by Corporate Debtor to Respondent 1, dated 05.Apr.2016 where an OTS was proposed. It was therefore contended to consider the two letters as acknowledgement of debt by Corporate Debtor as covered under Section 18 of the Limitation Act and that the Section 7 application made under IBC as on 21.May.2018 was within limitation period. The Counsel for Respondent 1 acknowledged that the two letters were not presented before NCLT but are also not disputed by the Appellant and hence is valid acknowledgement of debt and considered for period of limitation.

Reference to part payment made by Corporate Debtor as on 19.Jul.2017 and 25.Sep.2017 were made, by the Learned Counsel.

The Corporate Debtor in their representation to NCLT has clearly stated that the CDR was given time up to financial year 2019 and hence the application to NCLT under Section 7 of IBC was premature and is not maintainable. Further the Corporate Debtors have also made payments to the tune of INR. 53,86,04,308.47/- till 28.Jul.2014 for which they had produced evidence to NCLT. Reference was also made to the balance sheets of the Corporate Debtor for the years 2017-2018 and 2016-2017 which acknowledged the debts to the banks.

Further, reference to a Supreme Court judgement was made namely, ‘Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli Co-operative Bank Ltd and Anr.’ in Civil Appeal No. 9198 of 2019, dated 22.Mar.2021. The following points were noted out of the judgement:

• The SARFAESI proceedings and subsequent correspondences are to be considered for the period of limitation and when fresh application under IBC is instituted, such timelines and correspondences have to be taken into account for computing the three years period of limitation for institution of suit under IBC.
• Even when proceedings are filed in High Court in the matter of recovery of debts, an application under Section 7 and Section 9 of IBC are to be considered and also that Section 14 or 18 would also be applicable for computation of fresh period of limitation.

Thus on the above grounds, the appeal to NCLAT was dismissed as it had no substance.

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