Rajendra Narottamdas Sheth & Anr. vs Chandra Prakash Jain & Anr.

Maintainability of – Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 – Limitation Act – s.18 – Loans were granted by the Financial Creditor-respondent no.2 to the Corporate Debtor-appellants – The Corporate Debtor was unable to settle the dues of the Financial Creditor in time – The account of the Corporate Debtor was declared as Non-Performing Asset (NPA) – The Financial Creditor issued notice for recovery of all dues payable – Pursuant to the notice, the Financial Creditor filed an application before the Debt Recovery Tribunal u/s. 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for recovery of the dues, which was still pending consideration – Meanwhile, the Financial Creditor filed an application u/s. 7 of the Insolvency and Bankruptcy Code averring that the Corporate Debtor owed an amount of Rs. 24.62 crore – There are two issues that arise for consideration in this appeal before Supreme Court, the first pertains to the maintainability of the application u/s. 7 of the Code filed by a power of attorney holder and the second relates to the question of limitation of the same application u/s.7 of the Code – Held: As per Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the financial creditor is required to make an application for initiating the corporate insolvency resolution process against the corporate debtor u/s. 7 of the Code in Form 1 which is required to be signed by the “person authorized to act on behalf of the financial creditor” – In the instant case, general authorisation, in terms of the power of attorney with respect to all the business and affairs of the Bank, including commencement of legal proceedings was given to a person ‘P’ who has filed the application u/s.7 of the Code – Hence, Application filed u/s 7 of the Code is maintainable – As far as limitation is concerned, any suit, appeal or application filed after the prescribed period of limitation shall be dismissed in spite of limitation not being set up as a defence, as per s. 3 of the Limitation Act – s.238A of the 2016 Code makes the provisions of the Limitation Act applicable to the proceedings before the Adjudicating Authority, as far as may be – Application u/s 7 has to filed within 3 years from the date of default – In the present case date of default is 30.09.2014 and the application was filed on 25.04.2019 – However, Corporate Debtor had placed on record a letter dated 17.11.2018, which detailed the amount repaid till 30.09.2018 and acknowledged the amount outstanding as on 30.09.2018 – On the basis of the said letter and the record showing that the Corporate Debtor had executed various documents amounting to acknowledgement of the debt even in the financial year 2019-20 – Therefore, the Application u/s.7 is not time barred by limitation.

Dismissing the appeal, the Court

HELD: 1. Essentially, there are two issues that arise for consideration in this Appeal. The first pertains to the maintainability of the application under Section 7 of the Code filed by a power of attorney holder. The second relates to the question of limitation. [Para 6][845-E-F]

Maintainability of the application under Section 7 when filed by a power of attorney holder

2. Initiation of the corporate insolvency resolution process by a financial creditor is dealt with under Section 7 of the Code. Section 7 (2) provides that the financial creditor shall make an application in such form and manner and accompanied with such fee as may be prescribed. As per Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the financial creditor is required to make an application for initiating the corporate insolvency resolution process against the corporate debtor under Section 7 of the Code in Form 1, accompanied with documents and records required therein. Form

1 is in a tabular form and the financial creditor has to give particulars of the details sought. Further, the Form is required to be signed by the “person authorised to act on behalf of the financial creditor”. [Para 9][846-D-F]

3. The authorisation, in terms of the power of attorney, given by the Financial Creditor to a person ‘P’ who has filed the application under Section 7 of the Code has been placed on record. Pursuant to the resolution passed by the board of directors of the Bank on 06.12.2008, the power of attorney was executed by the general managers in 2011. By way of the said power of attorney, ‘P’ was appointed by the Bank to act as its constituted attorney with respect to “all the business and affairs of the Bank and to conduct and manage and to assist in the conduct and management of all such businesses and affairs of the Bank, both within and outside India and to do all acts, deeds and things necessary or proper for carrying on the business and affairs of the Bank”. Further, ‘P’ has also been authorised to “commence, prosecute, endorse, defend, answer and/or oppose any suit or other legal proceedings including any civil or criminal proceedings in any Court or Tribunals and any demand touching any matters in which the Bank may or may hereafter be interested or concerned and also, … compromise, refer to arbitration, abandon, submit to judgement or become non- suited, in any such suits or proceedings, to appoint advocate, solicitors and pleaders as occasion shall require and to make sign, execute, present and file all applications, plaints, petitions, written statements, vakalatnamas or any other papers expedient or necessary … to be made, signed, executed, presented or filed”. [Para 10][846-G-H; 847-A-C]

4. In the present case, ‘P’ has been given general authorization by the Bank with respect to all the business and affairs of the Bank, including commencement of legal proceedings before any court or tribunal with respect to any demand and filing of all necessary applications in this regard. Such authorisation, having been granted by way of a power of attorney pursuant to a resolution passed by the Bank’s board of directors on 06.12.2008, does not impair P’s authority to file an application under Section

7 of the Code. It is therefore clear that the application has been filed by an authorised person on behalf of the Financial Creditor and the objection of the Appellants on the maintainability of the application on this ground is untenable.[Para 12][848-D-F] LIMITATION

5. In the instant case, there is no dispute that the date of default is 30.09.2014 and the application under Section 7 of the Code was filed on 25.04.2019. According to the Financial Creditor, Section 18 of the Limitation Act is applicable in view of the Corporate Debtor acknowledging its debt by way of letters, written in and after 2018, giving details of amount repaid, acknowledging the amount outstanding and requesting consideration of one-time settlement proposal. It is no more res integra that Section 18 of the Limitation Act is applicable to applications filed under Section 7 of the Code. In case the application under Section 7 is filed beyond the period of three years from the date of default and the financial creditor furnishes the required information relating to the acknowledgement of debt, in writing by the corporate debtor, before the Adjudicating Authority, with such acknowledgement having taken place within the initial period of three years from the date of default, a fresh period of limitation commences and the application can be entertained, if filed within this extended period. [Para 21][852-FG; 853-C-D]

6. There is no dispute that the date of default in this case is 30.09.2014, as mentioned by the financial creditor in its application under Section 7. A copy of the debit balance confirmation letter dated 07.04.2016 was filed along with the application. As the application was filed only on 25.04.2019, which is beyond a period of three years even after taking into account the debit balance confirmation letter dated 07.04.2016, the application was barred by limitation. However, the Corporate Debtor had, in its reply before the Adjudicating Authority, placed on record a letter dated 17.11.2018, which detailed the amount repaid till 30.09.2018 and acknowledged the amount outstanding as on 30.09.2018. On the basis of this letter and the record showing that the Corporate Debtor had executed various documents amounting to acknowledgement of the debt even in the financial year 2019-20, the NCLT was of the opinion that the application was filed within the period of limitation. The said view was upheld by the NCLAT. [Para 22][853-D-G]

7. The burden of prima facie proving occurrence of the default and that the application filed under Section 7 of the Code is within the period of limitation, is entirely on the financial creditor. While the decision to admit an application under Section 7 is typically made on the basis of material furnished by the financial creditor, the Adjudicating Authority is not barred from examining the material that is placed on record by the corporate debtor to determine that such application is not beyond the period of limitation. Undoubtedly, there is sufficient material in the present case to justify enlargement of the extension period in accordance with Section 18 of the Limitation Act and such material has also been considered by the Adjudicating Authority before admitting the application under Section 7 of the Code. The plea of Section

18 of the Limitation Act not having been raised by the Financial Creditor in the application filed under Section 7 cannot come to the rescue of the Appellants in the facts of this case. It is clarified that the onus on the financial creditor, at the time of filing an application under Section 7, to prima facie demonstrate default with respect to a debt, which is not time-barred, is not sought to be diluted herein. In the present case, if the documents constituting acknowledgement of the debt beyond April, 2016 had not been brought on record by the Corporate Debtor, the application would have been fit for dismissal on the ground of lack of any plea by the Financial Creditor before the Adjudicating Authority with respect to extension of the limitation period and application of Section 18 of the Limitation Act. [Paras 23-24][853G-H; 854-A-D]

Palogix Infrastructure Private Limited v. ICICI Bank Limited (2017 SCC Online NCLAT 266) – approved.

Dena Bank v. C. Shivkumar Reddy & Anr. (2021) SCC Online SC 543; Asset Reconstruction Company (India) Limited v. Bishal Jaiswal & Anr. (2021) 6 SCC 366; Noharlal Verma v. District Cooperative Central Bank Limited, Jagdalpur (2008) 14 SCC 445 : [2008] 14 SCR 774; B.K. Educational Services Private Limited v. Parag Gupta and Associates (2019) 11 SCC 633 : [2018] 12 SCR 794 – referred to.