Insolvency and Bankruptcy Code, 2016 – s.62 – The Assignor Bank, along with Corporation Bank sanctioned a term loan of Rs.40 lakhs to the corporate debtor – The corporate debtor failed to repay loan – The Assignor Bank declared the account of corporate debtor as an “Non-Performing Asset” (NPA) on 01.04.1993 – Assignor Bank filed application before the Debt Recovery Tribunal for recovery of dues – A settlement was reached between the Assignor Bank and the corporate debtor – Accordingly, DRT issued a Recovery Certificate on 27.03.2003 – Corporate debtor again failed to comply with the settlement – Thereafter, an agreement between the Assignor Bank and the appellant was entered into, the appellant was substituted as applicant in place of the Assignor Bank in DRT and an amended Recovery Certificate was issued on 13.12.2012 – On 27.07.2018, the appellant filed application u/s. 7 of the IBC against the corporate debtor for initiation of Corporate Insolvency Resolution Process (CIRP) before the NCLT, which was dismissed – The NCLAT also found that application u/s.7 was barred by limitation – Before the Supreme Court, appellant adverted to two documents, that is, (i) the Balance sheet of the corporate debtor dated 16.08.2017 and (ii) a letter dated 23.04.2019 issued by the corporate debtor in the Paper Book to contend that the proceedings u/s. 7 of the IBC are not barred by limitation, as limitation would start running afresh for a period of three years u/s.18 of the Limitation Act – Held: The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application u/s. 7 of the IBC, the application would be barred u/Art.137 of the Limitation Act – The right to sue accrued on 01.04.1993 when the amount of the corporate debtor with the Assignor Bank was declared NPA – In Part IV of its application u/s.
7 of the IBC, the appellant itself declared the date of default as 01.04.1993 – Thus, the claim is apparently barred by limitation – Even the application u/s.7 of the IBC was filed almost 6 years after issuance of the amended Recovery Certificate (issued on 13.12.2012) – As far as two documents referred by the appellants are concerned, the two documents cannot be construed as admissions that amount to acknowledgment of the jural relationship and existence of liability – The balance sheet dated 16.08.2017 does not acknowledge or admit any debt – Further, the letter dated 23.04.2019 again is not an acknowledgment and admission of liability – The language and tone of the letter makes it absolutely clear that the liability was denied – The Balance Sheet of the corporate debtor dated 16.08.2017 and the letter dated 23.04.2019, do not constitute any acknowledgment of liability and were not even referred to by the appellant in its application under IBC – The NCLAT, rightly held that the application u/s.7 of the IBC is barred by limitation.
Limitation Act, 1963 – Art. 137 – Insolvency and Bankruptcy Code, 2016 – ss. 7 and 9 – In B.K. Educational Services Private Ltd. v. Parag Gupta and Associates (2009) 11 SCC 633: [2018] 12 SCR 794 held that the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. Limitation Act, 1963 – Art. 137 – Insolvency and Bankruptcy Code, 2016 – s. 7 – Held: In Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. and Ors. (2019) 10 SCC 572, it was held that “an application” which is filed u/s. 7, would fall only within the residuary Art. 137.
Dismissing the appeal, the Court
HELD: 1. It is well settled by a catena of decisions of this Court, that Article 137 of the Limitation Act gets attracted to applications filed under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application under Section 7 of the IBC, the application would be barred 6 under Article 137 of the Limitation Act. At the highest, limitation started ticking on 27th March 2003, when a Recovery Certificate was issued by the DRT. The appellant has not disclosed any material in its application under Section 7 of the IBC to demonstrate that the application is not barred by limitation. [Para 19][503-F-G]
2. In its application under Section 7 of the Insolvency Bankruptcy Code, 2016, the Appellant has not shown that the debt due to the Appellant from the Corporate Debtor is not barred by limitation. The right to sue accrued on 1st April 1993 when the amount of the Corporate Debtor with the Assignor Bank was declared NPA. In Part IV of its application under Section 7 of the IBC, the Appellant declared the date of default as 1st April, 1993. The claim is apparently barred by limitation. Even the judgment of the DRT was dated 09.04.2001 and the Recovery Certificate was dated 27th March 2003. The Appellant’s own statement of accounts as on 18th July 2018 is not material to the question of limitation for making an application under Section 7 of the IBC, which is three years from the date of accrual of the right to sue. [Para 23][504-F-H; 505-A]
3. Under Section 18 of the Limitation Act, 1963, the acknowledgement of liability in writing, signed by a party in respect of any right or property claimed by such party within the prescribed period of limitation to file a suit and/or application, leads to computation of the period of limitation afresh, from the time when the acknowledgement is so signed. [Para 24] [505-A-B]
4. In this case, the Corporate Debtor has not signed any acknowledgement in writing after the settlement of 30th June 2001, on the basis of which, a Recovery Certificate was issued by the DRT on 27 th March 2003. An arrangement between the Assignor Bank and the Appellant and the consequential substitution of the Appellant as party to the Execution/Recovery proceedings in the DRT does not save limitation to initiate proceedings under Section 7 of IBC. In any case, even the amended Recovery Certificate, relied upon by the Appellant, is dated 13th December, 2012. The application under Section 7 of the IBC was filed almost 6 years after issuance of the amended Recovery Certificate. [Para 25][505-C-D]
5. 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 30][506-D-F]
Khan Bahadur Shapoor Freedom Mazda v. Durga
Prasad Chamaria and Others, AIR 1961 SC 1236 : [1962] 1 SCR 140 – relied on.
6. In the present case, reliance ought not to be placed on the balance sheet dated 16th August 2017 and letter dated 23rd April 2019 primarily for two reasons. First, there is no evidence or material to show that the documents were signed before the expiry of the prescribed period of limitation. There is no pleading to the said effect in the application under Section 7 of the IBC filed by the appellant in the statutory form. In fact, the two documents were never relied upon. Secondly, the two documents cannot be construed as admissions that amount to acknowledgment of the jural relationship and existence of liability. The balance sheet dated 16th August 2017 does not acknowledge or admit any debt. Rather, the Corporate Debtor has disputed and denied its liability. The letter dated 23rd April 2019 again is not an acknowledgment and admission of liability. The language and tone of the letter makes it absolutely clear that the liability was denied. [Paras 32, 33 and 34][507-F-H; 508-A, G]
7. The Balance Sheet of the Corporate Debtor dated 16th August, 2017 and the letter dated 23rd April, 2019, as observed, do not constitute any acknowledgment of liability and were not even referred to by the Appellant in its application under IBC. It is, therefore, not necessary for this Court to delve into the question of whether Section 18 of the Limitation Act is attracted in the case of a petition under Section 7 of the IBC. [Para 35][509-D-E]
B.K. Educational Services Private Limited v. Parag Gupta and Associates (2019) 11 SCC 633: [2018]
12 SCR 794; Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. and Ors. (2019)
10 SCC 572; Radha Export (India) Private Limited v. K.P. Jayaram (2020) 10 SCC 538; Balakrishna
Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan [1959] Supp (2) SCR 476; Khan Bahadur Shapoor Freedom Mazda v. Durga Prasad Chamaria and Others, AIR 1961 SC 1236 :
[1962] SCR 140 – relied on.
Vashdeo R. Bhojwani v. Abhyudaya Cooperative Bank Ltd. & Anr., (2019) 9 SCC 158 : [2019] 12 SCR 75 ; Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353 : [2017] 10 SCR 1006; Transmission Corporation of Andhra Pradesh Limited v. Equipment Conductors and Cables Limited (2019) 12 SCC 697 : [2018] 13 SCR 1067 – 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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