Dena Bank (Now Bank of Baroda) vs C. Shivakumar Reddy and Anr.

s. 7 – Initiation of corporate insolvency resolution process by financial creditor – Petition u/s. 7, if barred by limitation – On facts, appellant Bank sanctioned term loan and letter of credit cum buyer’s credit in favour of corporate debtor – However, in 2013 the corporate debtor defaulted in repayment of its dues to the bank and loan amount declared as non-performing asset-NPA –Issuance of notice to corporate debtor in 2014, to clear its dues – Pursuant thereto, in 2015 Bank filed application for recovery of the outstanding dues – In 2017, Debt Recovery tribunal passed a recovery order alongwith recovery certificate in favour of the Bank – Thereafter, in 2018, Bank filed petition u/s. 7 of the IBC – Within three months, Bank filed application to place on record additional documents, recovery order and recovery certificate which was allowed – Another application allowed to place on record letter of the corporate debtor proposing one time settlement, and financial statements of the corporate debtor – Thereafter, petition u/s. 7 admitted by the adjudicating authority-NCLT, however, the appellate authority-NCLAT set aside the said order, holding the application to be barred by limitation – On appeal, held: Application u/s. 7 not barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the corporate debtor as NPA – There was an acknowledgement of the debt by the corporate debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years –Recovery order by the DRT and the recovery certificate issued in favour of the Bank in 2017 gave a fresh cause of action to the Bank to initiate a petition u/s. 7 – Offer of one time settlement of a live claim made in 201, and the balance sheets and financial statements of the corporate debtor for 2016-2017, constitute acknowledgement of liability which extended the limitation by three years – These documents were brought on record before any final decision was taken in the petition u/s. 7, thus, NCLT rightly admitted the application. s. 7 – Application u/s. 7 for initiation of Corporate insolvency resolution process (CIRP) – Limitation period of three years for filing application – Final judgment and decree of the Debt Recovery tribunal in favour of the financial creditor, as also issuance of recovery certificate – Held: Would give rise to a fresh cause of action to the Financial Creditor to initiate proceedings u/s. 7 for initiation of CIRP, within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the recovery certificate.

s. 7 – Application under – Filing of additional documents – Permissibility of – Held: There is no bar in law to the amendment of pleadings, in a petition u/s. 7 or to the filing of additional documents, apart from those filed initially, along with the petition u/s. 7 of the IBC in Form-1 – In the absence of any express provision prohibiting or setting a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Bank to file additional documents – When there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order. s. 3(12)– ‘Default’ –Definition of – Held: Is “non-payment’ of a debt which has become due and payable whether in whole or any part and is not paid by the Corporate Debtor”. Object and scope of – Nature of construction – Held: IBC is a beneficial legislation for equal treatment of all creditors of the corporate debtor, as also the protection of the livelihoods of its employees/workers, by revival of the corporate debtor – It only segregates the interests of the corporate debtor from those of its promoters/persons in management – Relegation of creditors to the remedy of coercive litigation against the corporate debtors could be detrimental to the interests of the corporate debtor and its creditors alike – Thus, the provisions of the IBC and the Rules and Regulations framed thereunder to be construed liberally, in a purposive manner to further the objects of enactment of the statute, and not to be given a narrow, pedantic interpretation which defeats the purposes of the Act.

Limitation Act, 1963:

Art. 137 – Applicability of, to Insolvency and Bankruptcy Code – Held: There is no specific period of limitation prescribed in the Limitation Act, for an application under the IBC, before the Adjudicating Authority (NCLT), thus, is governed by Art. 137 of the Schedule wherein the period of limitation prescribed for such an application is three years from the date of accrual of the right to apply – Thus, the period of limitation for making an application u/s. 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default.

s. 18 – Acknowledgment in writing – Effect of – Held: As per s. 18, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed – However, the acknowledgement must be made before the relevant period of limitation has expired – An offer of One Time Settlement of a live claim, made within the period of limitation, can be construed as an acknowledgment to attract s. 18 of the Act.

Interpretation of statutes: Construction/interpretation of statutory provision – Held: Legislative intent of the statute is to be seen from the words used by the legislature itself – In case of doubt it is always safe to look into the object and purpose of the statute or the reason and spirit behind it – Each word, phrase or sentence has to be construed in the light of the general purpose of the Act itself.

Allowing the appeal, the Court

HELD: 1.1 Under Section 7(2) of the Insolvency and Bankruptcy Code, 2016 read with the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 made in exercise of powers conferred, inter alia, by clauses (c) (d) (e) and

(f) of sub-section (1) of Section 239 read with Sections 7, 8, 9 and

10 of the IBC, a financial creditor is required to apply in the prescribed Form 1 for initiation of the Corporate Insolvency Resolution Process, against a Corporate Debtor under Section

7 of the IBC, accompanied with documents and records required therein, and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. [Para 71][1112-B-D]

1.2 Since a Financial Creditor is required to apply under Section 7 of the IBC, in statutory Form 1, the Financial Creditor can only fill in particulars as specified in the various columns of the Form. There is no scope for elaborate pleadings. An application to the Adjudicating Authority (NCLT) under Section

7 of the IBC in the prescribed form, cannot therefore, be compared with the plaint in a suit. Such application cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law. [Para 73][1113-E-F]

1.3 The IBC is not just another statute for recovery of debts. Nor is it a statute which merely prescribes the modalities of liquidation of a Corporate body, unable to pay its debts. It is essentially a statute which works towards the revival of a Corporate body, unable to pay its debts, by appointment of a Resolution Professional. [Para 79][1115-A-B]

Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC

407 : [2017] 8 SCR 33; P. Mohanraj & Ors. v. Shah Brothers Ispat Private Limited (2021) SCC Online SC 152; Swiss Ribbons Private Limited & Anr. v. Union of India and Ors. (2019) 4 SCC 17 : [2019] 3 SCR 535 – referred to.

1.4 IBC has overriding effect over other laws. Section 238 of the IBC provides that the provisions of the IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law, for the time being in force, or any other instrument, having effect by virtue of such law. Unlike coercive recovery litigation, the Corporate Insolvency Resolution Process under the IBC is not adversarial to the interests of the Corporate Debtor. On the other hand, the IBC is a beneficial legislation for equal treatment of all creditors of the Corporate Debtor, as also the protection of the livelihoods of its employees/workers, by revival of the Corporate Debtor through the entrepreneurial skills of persons other than those in its management, who failed to clear the dues of the Corporate Debtor to its creditors. It only segregates the interests of the Corporate Debtor from those of its promoters/persons in management. [Para 84-86][1120-A-D]

1.5 Relegation of creditors to the remedy of Coercive litigation against the Corporate Debtors could be detrimental to the interests of the Corporate Debtor and its creditors alike. While multiple coercive proceedings against a Corporate Debtor in different forums 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 the creditors as well, because of the length of time consumed in the litigations, the expenses of litigation, and the uncertainties of realisation of claims even after ultimate success in the litigation.It is, therefore, imperative that the provisions of the IBC and the Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute, and not be given a narrow, pedantic interpretation which defeats the purposes of the Act. [Para 87, 88][1120-D-G]

1.6 In construing and/or interpreting any statutory provision one must look into the legislative intent of the statute. The intention of the statute has to be found in the words used by the legislature itself. In case of doubt it is always safe to look into the object and purpose of the statute or the reason and spirit behind it. Each word, phrase or sentence has to be construed in the light of the general purpose of the Act itself. The interpretative effort “must be illumined by the goal, though guided by the words”. When a question arises as to the meaning of a certain provision in a statute the provision has to be read in its context. The statute has to be read as a whole. The previous state of the law, the general scope and ambit of the statute and the mischief that it was intended to remedy are relevant factors. [Para 89, 90][1120-G-H; 1121-A-B]

Popatlal Shah v. State of Madras AIR 1953 SC 274 : [1953] SCR 677 – relied on.

1.7 On a careful reading of the provisions of the IBC and in particular the provisions of Section 7(2) to (5) of the IBC read with the 2016 Adjudicating Authority Rules there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed. The time stipulation of fourteen days in Section 7(4) to ascertain the existence of a default is apparently directory not mandatory. The proviso inserted by amendment with effect from 28th December, 2019 provides that if the Adjudicating Authority has not ascertained the default and passed an order under sub-section

(5) of Section 7 of the IBC within the aforesaid time, it shall record its reasons in writing for the same. No other penalty is stipulated. Furthermore, the proviso to Section 7(5)(b) of the IBC obliges the Adjudicating Authority to give notice to an applicant, to rectify the defect in its application within seven days of receipt of such notice from the Adjudicating Authority, before rejecting its application under Clause (b) of sub-section (5) of Section 7 of the IBC. When the Adjudicating Authority calls upon the applicant to cure some defects that defect has to be rectified within seven days. There is no penalty prescribed for inability to cure the defects in an application within seven days from the date of receipt of notice, and in an appropriate case, the Adjudicating Authority may accept the cured application, even after expiry of seven days, for the ends of justice. Section 12 of the IBC imposes a time limit for completion of the Corporate Insolvency Resolution Process. This time limit starts running from the date of admission of an application to initiate the Corporate Insolvency Resolution Process. [Para 91-94][1121-C-H; 1122-A]

Arcelormittal (India) Pvt. Ltd. v. Satish Kumar Gupta and Anr. (2019) 2 SCC 1 : [2018] 12 SCR 362 – referred to.

1.8 The insolvency Committee of the Ministry of Corporate Affairs, Government of India, in a report published in March 2018, stated that the intent of the IBC could not have been to give a new lease of life to debts which were already time barred. Thereafter, Section 238A was incorporated in the IBC by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Act 26 of 2018), with effect from 6th June 2018. [Para 97][1123G-H; 1124-A]

1.9 There is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the Adjudicating Authority (NCLT). An application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the Schedule to the said Act. Under Article 137 of the Schedule to the Limitation Act, the period of limitation prescribed for such an application is three years from the date of accrual of the right to apply. The period of limitation for making an application under Section 7 or

9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default. [Para 100, 101][1125-A-D] Sesh Nath Singh and Anr. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. and Anr. (2021) SCC Online SC 244; Gaurav Hargovindbhai Dave v. Asset

Reconstruction Company (India) Ltd. and Anr. (2019) SCC Online SC 1239 : (2019) 10 SCC 572 : [2019] 13 SCR 224; B. K. Educational Services Private Limited v. Parag Gupta and Associates (2019) 11 SCC 633 : [2018] 12 SCR 794; Jignesh Shah and Anr. v. Union of India and Anr. (2019) SCC online SC 1254 : (2019)

10 SCC 750 : [2019] 12 SCR 678; Vashdeo R.

Bhojwani v. Abhyudaya Co-operative Bank Ltd. & Ors. (2019) 9 SCC 158 : [2019] 12 SCR 75; Balkrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan [1959] 2 Suppl. SCR 476 – referred to.

1.10 Limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. [Para 106][1126-E-F] Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited (2020) 15 SCC 1 – relied on.

1.11 In the instant case, admittedly there were fresh documents before the Adjudicating Authority (NCLT), including a letter of offer dated 3.03.2017 for one time settlement of the dues of the Corporate Debtor to the Financial Creditor, upon payment of Rs.5.5 crores. The Appellant Bank has also relied upon financial statements up to 31st March, 2018 apart from the final judgment and order dated 27th March, 2017 in O.A. 16/2015 and the subsequent Recovery Certificate No. 2060/2017 dated 25th May, 2017 which constituted cause of action for initiation of proceedings under Section 7 of the IBC. [Para 110][1127-D-E]

1.12 It is not necessary for this Court to examine the relevance of all the documents filed by the Appellant Bank pursuant to its interim applications being I.A. No. 27 of 2019 and I.A. No. 131 of 2019. Suffice it to mention that the documents enclosed with the applications being I.A. No. 27 of 2019 and I.A. No. 131 of 2019 and the pleadings in the supporting affidavits, made out a case for computation of limitation afresh from the dates of the relevant documents. It would also be pertinent to note that the reasons for the execution of the documents are irrelevant. It is not the case of the respondents, that any of those documents were extracted through coercion. [Para 112][1127-FH]

1.13 As per Section 18 of Limitation Act, an

acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgement must be made before the relevant period of limitation has expired. [Para 113][1128-AB]

1.14 IBC does not exclude the application of Section 14 or

18 or any other provision of the Limitation Act. There is therefore no reason to suppose that Sections 14 or 18 of the Limitation Act do not apply to proceedings under Section 7 or Section 9 of the IBC. [Para 114][1128-C-D]

Sesh Nath Singh and Anr. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. and Anr. (2021) SCC Online SC 244; Laxmi Pat Surana v. Union Bank of India and Ors. (2021) SCC Online SC 267; Asset Reconstruction Company (India) Limited. v. Bishal Jaiswal and Ors. (2021) SCC Online SC 321; Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad Chamaria and Others AIR 1961 SC 1236 : [1962] SCR 140 – referred to.

1.15 Entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act. [Para 118][1129-E-F] Asset Reconstruction Company (India) Limited. v. Bishal Jaiswal and Ors. (2021) SCC Online SC 321; Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff AIR 1962 Cal 115; Re Pandem Tea Co. Ltd. AIR 1974 Cal 170; South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana ILR (1972) 2 Del 712; Hegde & Golay Limited v. State Bank of India ILR 1987 Kar 2673; Reliance Asset Reconstruction Co. Ltd. v. Hotel Poonja International Pvt. Ltd. (2021) 7 SCC

352 – referred to.

1.16 The finding of the NCLAT that there was nothing on record to suggest that the ‘Corporate Debtor’ acknowledged the debt within three years and agreed to pay debt is not sustainable in law, in view of the Statement of Accounts/Balance sheets/Financial Statements for the years 2016-2017 and 2017-2018 and the offer of One Time Settlement referred to above including in particular, the offer of One Time Settlement made on 3rd March, 2017. [Para 126][1134-F-G]

1.17 Section 18 of the Limitation Act speaks of an acknowledgment in writing of liability, signed by the party against whom such property or right is claimed. Even if the writing containing the acknowledgment is undated, evidence might be given of the time when it was signed. The explanation clarifies that an acknowledgment may be sufficient even though it is accompanied by refusal to pay, deliver, perform or permit to enjoy or is coupled with claim to set off, or is addressed to a person other than a person entitled to the property or right. ‘Signed’ is to be construed to mean signed personally or by an authorised agent. [Para 127][1134-G-H; 1135-A]

1.18 In the instant case, Rs.111 lakhs had been paid towards outstanding interest on 28th March, 2014 and the offer of One Time Settlement was within three years thereafter. In any case, NCLAT overlooked the fact that a Certificate of Recovery has been issued in favour of Appellant Bank on 25th May 2017. The Corporate Debtor did not pay dues in terms of the Certificate of Recovery. The Certificate of Recovery in itself gives a fresh cause of action to the Appellant Bank to institute a petition under Section 7 of IBC. The petition under Section 7 IBC was well within three years from 28th March 2014. [Para 128][1135-B-C]

Jignesh Shah and Anr. v. Union of India and Anr. (2019) SCC online SC 1254 : (2019) 10 SCC 750 : [2019] 12 SCR 678; Ferro Alloys Corporation Limited v. Rajhans Steel Limited (1999) SCC Online Pat 1196 – referred to.

1.19 ‘Default’ is defined in Section 3(12) to mean “nonpayment’ of a debt which has become due and payable whether in whole or any part and is not paid by the Corporate Debtor”. [Para 133][1136-F]

1.20 It is true that, when the petition under Section 7 of IBC was filed, the date of default was mentioned as 30.09.2013 and 31.12.2013 was stated to be the date of declaration of the Account of the Corporate Debtor as NPA. However, it is not correct to say that there was no averment in the petition of any acknowledgment of debt. Such averments were duly incorporated by way of amendment, and the Adjudicating Authority rightly looked into the amended pleadings. [Para 134][1136-G-H]

1.21 The Appellant Bank filed the Petition under Section 7 of the IBC on 12th October 2018. Within three months, the Appellant Bank filed an application in the NCLT, for permission to place additional documents on record including the final judgment and order/decree dated 27.3.2017 and the Recovery Certificate dated 25.5.2017, enabling the Appellant Bank to recover Rs.52 crores odd. The judgment and order/decree of the DRT and the Recovery Certificate gave a fresh cause of action to the Appellant Bank to initiate a petition under Section 7 of the IBC. [Para 135][1137-A-B]

1.22 On or about 5th March 2019, the Appellant Bank filed another application for permission to place on record additional documents including inter alia financial statements, Annual Report etc. of the period from 1st April 2016 to 31st March 2017, and again, from 1st April 2017 to 31st March 2018 and a letter dated 3rd March 2017 proposing a One Time Settlement. This application was also allowed on 6th March 2021. The Adjudicating Authority, took into consideration the new documents and admitted the petition under Section 7 of the IBC.Even assuming that documents were brought on record at a later stage, the Adjudicating Authority was not precluded from considering the same. The documents were brought on record before any final decision was taken in the Petition under Section 7 of IBC. [Para 136, 137][1137-C-E]

1.23 A final judgment and order/decree is binding on the judgment debtor. Once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of Recovery is also issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the Recovery Certificate.The Appellant Bank was thus entitled to initiate proceedings u/s. 7 within three years from the date of issuance of the Recovery Certificate. The Petition of the Appellant Bank, would not be barred by limitation at least till 24th May, 2020. [Para 138, 139][1137-E-G]

1.24 While it is true that default in payment of a debt triggers the right to initiate the Corporate Resolution Process, and a Petition under Section 7 or 9 of the IBC is required to be filed within the period of limitation prescribed by law, which in this case would be three years from the date of default by virtue of Section 238A of the IBC read with Article 137 of the Schedule to the Limitation Act, the delay in filing a Petition in the NCLT is condonable under Section 5 of the Limitation Act unlike delay in filing a suit. Furthermore, Section 14 and 18 of the Limitation Act are also applicable to proceedings under the IBC. [Para 140][1137-G-H; 1138-A-B]

1.25 Section 18 of the Limitation Act cannot also be construed with pedantic rigidity in relation to proceedings under the IBC. This Court sees no reason why an offer of One Time Settlement of a live claim, made within the period of limitation, should not also be construed as an acknowledgment to attract Section 18 of the Limitation Act. Be that as it may, the Balance Sheets and Financial Statements of the Corporate Debtor for 20162017, 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. [Para 141][1138-B-D]

1.26 An application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid. [Para 142, 143][1138-D-H]

1.27 There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC in Form-1. In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents. Needless however, to mention that depending on the facts and circumstances of the case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order. The decision of the Adjudicating Authority to entertain and/or to allow the request of the Appellant Bank for the filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal.The impugned judgment and order is unsustainable in law and facts. [Para 144, 145][1138-H; 1139A-D] Nazir Mohamed v. J. Kamala & Ors. (2020) SCC

OnLine SC 676 – referred to.