NCLAT allows the appeals filed by the Corporate Debtors and says that the application under Section 7 of the I&B Code suffers from bar by limitation owing to the absence of acknowledgement ; says Books of Account cannot be treated as acknowledgment in respect of debt payable by Corporate Debtor.
‘Asset Reconstruction Company (India) Limited’- (‘Financial Creditor’) filed application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code”) for initiation of the ‘Corporate Insolvency Resolution Process’ against ‘V. Hotels Limited’- (‘Corporate Debtor’). In the said petition, Corporate Debtor filed application raising question of maintainability of application under Section 7 preferred by the Financial Creditor intimating that the matter is pending before the Debt Recovery Appellate Tribunal against the order passed under the ‘Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002’ (“SARFAESI Act, 2002” for short) and in a Writ Petition Bombay High Court by an order dated 25th April, 2017 has restrained the ‘Financial Creditor’ from initiating any coercive steps subject to deposit of money by the Corporate Debtor. Financial took plea that relief granted by the Hon’ble High Court is confined to SARFAESI proceedings and there is no bar to initiate Insolvency proceedings. The Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai, admitted the application which has been challenged by Appellant-Tulip Star Hotels Limited. Appellants raised the question of maintainability of the application under Section 7 on the ground of limitation.
Financial Creditor submitted that in addition to rehabilitate and revive the ‘Corporate Debtor’, one of the purposes of filing the insolvency application was to enforce the payment of money secured by a mortgage of immovable property. Corporate Debtor submits that first it defaulted in the year 2008 when its account was declared as NPA and the present insolvency application was filed less than 10 years when the money became due. Therefore Corporate Debtor submits that the Adjudicating Authority has correctly held that the limitation period is twelve years. NCLAT rejects the submission of Corporate Debtor on account of the decision taken by the SC in “Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. and Another─ 2019 SCC OnLine SC 1239” wherein NCLT had had reached the conclusion that since the limitation period was 12 years from the date on which the money suit has become due, the aforesaid claim was filed within limitation. However, the Hon’ble Supreme Court taking into consideration the fact that the ‘Corporate Debtor’ was declared as NPA on 21st July, 2011 held that the application was not maintainable. NCLAT observes similarities between the present matter and the case in “Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. and Another” 2019 SCC OnLine SC 1239” and that the default in the present matter took place much earlier. NCLAT states that Financial Creditor cannot derive any benefit of the action taken under ‘SARFAESI Act, 2002’ which is guided by separate provisions of limitation. NCLAT observes that the Financial Creditor took action under the ‘SARFAESI Act, 2002’ in the year 2013 and therefore, the second time it become NPA in the year 2013 when action under Section 13(2) was taken.
NCLAT observes that,
“Section 18 of the Limitation Act, 1963 makes it clear that for the purpose of filing a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has to be made in writing duly signed by the party against whom such property or right is claimed. NCLAT further observes that the Financial Creditor has failed to bring on record any acknowledgment in writing by the ‘Corporate Debtor’ or its authorised person acknowledging the liability in respect of debt and that the Books of Account cannot be treated as an acknowledgment of liability in respect of debt payable to the ‘Financial Creditor’ signed by the ‘Corporate Debtor’ or its authorised signatory”.
NCLAT places reliance on “Sampuran Singh and Ors. v. Niranjan Kaur and Ors.─ (1999) 2 SCC 679” wherein the Hon’ble Supreme Court observed that the acknowledgment, if any, has to be prior to the expiration of the prescribed period for filing the suit. NCLAT observes that the account was declared NPA since 1st December, 2008 and therefore, the suit was filed. Thereafter, any document or acknowledgment, even after the completion of the period of limitation i.e. December, 2011 cannot be relied upon. NCLAT finds that in absence of any record of acknowledgment, the Appellant cannot derive any advantage of Section 18 of the Limitation Act and for the said reason holds that the application under Section 7 is barred by limitation, the accounts of the ‘Corporate Debtor’ having declared NPA on 1st December, 2008.
NCLAT states that the case of the Financial Creditor is covered by its decision in “Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. and Another”. NCLAT sets aside the order passed by the Adjudicating Authority and releases the Corporate Debtor from all the rigours of law and allows it to function independently through its Board of Directors. NCLAT thus allows the appeals.