Insolvency and Bankruptcy Code, 2016 – ss. 7, 8, 9, 14, 238A – The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 – s. 13 (2) – Limitation Act 1963 – Schedule – Art.137 and ss. 5, 18 – Appellant sanctioned loan/credit facilities to Respondent and necessary documents were executed between them on 29.11.2012 – Between 23.11.2012 and 31.12.2013, loan amounts were disbursed – Respondent mortgaged its assets in favour of the Appellant by memorandum dated 13.12.2013 – Respondent defaulted in repaying the dues, hence declared NPA by the Appellant on 30.09.2015 – On 19.11.2017, Appellant issued statutory notice u/s. 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 – Respondent admitted its liability to the Appellant and offered a one-time settlement at two instances – On 20.12.2018 settlement was signed and executed – Respondent defaulted in repayment of settled amount – On 2.01.2019, Appellant filed an application u/s. 7 of the IBC for initiating Corporate Insolvency Resolution Process (CIRP) before NCLT – Admitting the application, NCLT imposed a moratorium in terms of s. 14 of the Insolvency and Bankruptcy Code (IBC) – The suspended Directors of the Respondent filed an appeal before NCLAT contending that the petition filed by the Appellant was patently barred by limitation – NCLAT allowing the appeal held that the time when debt of nonpayment of due took place and that of the date of filing application u/ s. 7 is beyond limitation – Aggrieved, the appellant filed appeal u/s. 62 of IBC, 2016 — Held: NCLAT did not consider the question of applicability of Section 5 of the Limitation Act for condonation of delay, to proceedings under Section 7 of the IBC – If no limitation period is provided anywhere else in the Schedule to the Limitation Act, Article 137 of the Schedule of the Act would be attracted which provides that the period of limitation prescribed for such an application is three years from the date of accrual of the right to apply – CIRP proceedings were closed without giving the Appellant the opportunity to explain if there was sufficient cause for the delay in approaching the NCLT – An appeal being the continuation of original proceedings, the provision of Section 7(5)(b) of the IBC of notifying the Financial Creditor before rejection of a claim, would be attracted and the Appellant might have got the opportunity to rectify the defects in its application under Section 7 by filing additional pleadings and/or documents – Hence, the impugned judgment and order of the NCLAT is set aside to the extent that the CIRP proceedings have been closed.
Allowing the appeal, the Court
HELD:
1.1 It is the case of the Appellant Financial Creditor that on 12th December 2018 the Corporate Debtor made an offer of one- time settlement at Rs.15 Crores. This offer was not accepted. On 19th December 2018, the Corporate Debtor revised its offer to Rs.20 Crores for one time settlement. This offer was also not accepted. On 20th December 2018, the Corporate Debtor again revised its offer for one time settlement. This time the Corporate Debtor offered to settle the outstanding dues of the Financial Creditor upon payment of Rs. 24,55,00,000/- to be paid within 31st December 2018. This offer was accepted, and terms of settlement were signed. [Para 27][226-D-F]
1.2 From Section 25 of the Indian Contract Act, it is clear that any agreement to pay a time barred debt, would be enforceable in law, within three years from the due date of payment, in terms of such agreement. It appears that Section 25(3) of the Indian Contract Act was not brought to the notice of the NCLAT. The NCLAT also did not consider the aforesaid Section. [Para 29][228-B]
1.3 Section 25(3) applies only where the debt is one which would be enforceable against the Defendants, but for the law of limitation. Where a debt is not binding on the Defendant for other reasons, and consequentially not enforceable against him, there is no question of applicability of Section 25(3). [Para 32][228-FG]
1.4 There is a distinction between acknowledgment under Section 18 of the Limitation Act, 1963 and a promise within the meaning of Section 25 of the Contract Act. Both promise and acknowledgment in writing, signed by a party or its agent authorised in that behalf, have the effect of creating a fresh starting of limitation. The difference is that an acknowledgment under Section 18 of the Limitation Act has to be made within the period of limitation and need not be accompanied by any promise to pay. If an acknowledgment shows existence of jural relationship, it may extend limitation even though there may be a denial to pay. On the other hand, Section 25(3) is only attracted when there is an express promise to pay a debt that is time barred or any part thereof. Promise to pay can be inferred on scrutinising the document. Only the promise should be clear and unconditional. [Para 33][228-G-H; 229-A-B]
1.5 The scheme of the IBC is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the Corporate Insolvency Resolution Process begins. Where any corporate debtor commits default, a financial creditor, an operational creditor or the corporate debtor itself may initiate Corporate Insolvency Resolution Process in respect of such corporate debtor in the manner as provided in Chapter II of the IBC. 35. [Para 34][229-C]
1.6 The provisions of the IBC are designed to ensure that the business and/or commercial activities of the Corporate Debtor are continued by a Resolution Professional, post imposition of a moratorium, which would give the Corporate Debtor some reprieve from coercive litigation, which could drain the Corporate Debtor of its financial resources. This is to enable the Corporate Debtor to improve its financial health and at the same time repay the dues of its creditors [Para 35][229-D-E]
1.7 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 any such law. [Para 44][232G-H; 233-A]
1.8 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 46][233-B-C]
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. [Para 55][236-B-C]
1.10 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 62][238-B-C]
1.11 An acknowledgement made in writing within the period of limitation extends the period of limitation. In this case, there was no acknowledgement of debt within three years from the period on which the account of the Corporate Debtor was declared NPA or within three years from the date on which the loan facilities were recalled. [Para 66][240-B]
1.12 The Appellate Tribunal (NCLAT) found that there was no acknowledgement of debt within the period of limitation of three years. Holding the application of the Appellant Financial Creditor, under Section 7 of the IBC, to be barred by limitation, the Appellate Authority (NCLAT) allowed the appeal. [Para 68][240-E-F]
1.13 The Appellate Tribunal (NCLAT) also did not notice the terms of settlement stated to have been executed on 20th December 2018, possibly because the attention of the NCLAT was not drawn to any terms of the settlement. The Appellate Tribunal (NCLAT) did not, therefore, have the occasion to consider whether Section 25(3) of the Contract Act would be attracted. The Appellate Tribunal (NCLAT), as observed above, proceeded on the basis that the CIRP proceedings were barred by limitation in the absence of any acknowledgement of debt within the period of limitation, and closed the CIRP proceedings in the NCLT, without considering the question of applicability of Section
5 of the Limitation Act for condonation of delay, to proceedings under Section 7 of the IBC. [Para 69][240-F-H]
1.14 The appeal is, therefore, allowed. The impugned judgment and order of the NCLAT is set aside to the extent that the CIRP proceedings have been closed. The Adjudicating Authority shall consider the application for CIRP afresh, in accordance with law, in the light of the observations made above, after giving the Appellant and the Respondent opportunity to file additional affidavits disclosing documents/additional affidavit in response. [Para 71][241-C-D]
Bombay Dyeing and Manufacturing Company Limited vs. State of Bombay AIR 1958 SC 328 : [1958] SCR 1122; Swiss Ribbons Private Limited & Anr. v. Union of India and Ors (2019) 4 SCC 17 : [2019] 3 SCR 535; Popatlal Shah v. State of Madras AIR 1953 SC 274 : [1953] SCR 677; Dena Bank (Now Bank of Baroda) v. C. Shivakumar Reddy and Another (2021) 10 SCC 330; B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates (2019) 11 SCC 633 : [2018] 12 SCR 794; Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli Cooperative Bank Ltd (2021) 7 SCC 313; Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd (2019) 10 SCC 572 : [2019] 13 SCR 224; Jignesh Shah v. Union of India (2019) 10 SCC 750 : [2019] 12 SCR 678; Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan AIR 1959 SC 798 : [1959] Suppl. SCR 476; Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd (2020) 15 SCC 1; Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad Chamaria and Others AIR 1961 SC 1236 : [1962] SCR 140; Asset
Reconstruction Company (India) Limited v.
BishalJaiswal and Anr AIR 2021 SC 5249; Bengal Silk Mills Co. v. Ismail Golam Hossain Arif AIR 1962 Cal 115; Re Pandem Tea Co AIR 1974 Cal 170; South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana ILR (1972) 2 Del 712; Hegde Golay Ltd. v. State Bank of India ILR 1987 Kar 2673 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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