The Limitation Act applies only to courts, unless made statutorily applicable to tribunals, the Committee was of the view that such Act should be made to apply to the IBC as well, observing that though the IBC is not a debt recovery law, the trigger being “default in payment of debt” would render the exclusion of the law of limitation “counter-intuitive”. Thus, it was made clear that an application to the IBC should not amount to resurrection of time-barred debts which, in any other forum, would have been dismissed on the ground of limitation. (Para 6)
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED V. BISHAL JAISWAL&ANR.
CIVIL APPEAL NO.323 OF 2021
Decided on April 15, 2021.
Counsel for the appellant: Shri Ramji Srinivasan
Counsel for the respondent: Shri Abhijeet Sinha
A three-judge bench of the Supreme Court comprising of Justice RohintonFaliNariman, Justice B.R. Gavai and Justice Hrishikesh Roy decided the present case. The Court allowed the appeal setting aside the majority judgement and the impugned judgement of the National Company Law Appellate Tribunal (NCLAT). The matter was remanded back to the NCLAT, which will decide the matter based on a ruling of the Supreme Court.
In 2009, Corporate Power Ltd. hereby referred to as the corporate debtor, availed loans from various lenders, one being the State Bank Of India (SBI) to set up a thermal power plant in Jharkhand. Its account was declared as a non-performing asset on 31.07.2013 and on 27.03.2015, SBI issued a loan-recall notice. Later, on 31.03.2015 all the various lenders of the corporate debtor assigned the debts owed by the corporate debtor to the Asset Reconstruction Company (India) Limited, the appellant.
The appellant issued a notice under Section 13(2) of The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 and took possession of the assets of the corporate debtor. An application filed by the appellant under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal,( NCLT) Calcutta, on 26.12.2018 seeks Rs.5997,80,02,973/- in default from the corporate debtor. Since no default date was given, the appellant by filing a supplementary affidavit before the NCLT, mentioned the default date and by acquiring the copies of the balance sheet, acknowledged the debt was due. The NCLT following examination of the balance sheet under Section 7 signed acknowledgements of the liability, and entries in such balance sheets were considered acknowledgements of the debt for the purposes of Section 18 of The Limitation Act, 1963.
The Corporate debtor filed an appeal to the NCLAT relying upon the judgment of V. Padmakumar v. Stressed Assets StabilisationFund Company Appeal (AT) (Insolvency) No. 57 of 2020 (decided on 12.03.2020) , where a full bench judgement of the NCLAT held that the entries in the Balance Sheet would not amount to an acknowledgement of debt for the purpose of extending limitation under Section 18 of the Limitation Act. The three-member bench passed an order referring the matter to the Acting Chairman of the NCLAT to constitute a Bench of coordinated strength to reconsider the judgment in V. Padmakumar. Where the five-member bench of the NCALT vide impugned judgement dated 22.12.2020 refused to pass the judgment stating that the reference to the case of V. Padmakumarwas incompetent.
Shri Ramji Srinivasan, the Counsel for Appellant criticized the impugned judgement stating that the full bench of NCLAT lacked the facts and knowledge of the law while giving its judgement in the case of V. Padmakumar. The Counsel referred to various judgments where it was stated that in Section 238A of the Insolvency and Bankruptcy Code, Section 18 of the Limitation Act is applicable to a proceeding under Section 7 of the Insolvency and Bankruptcy Code. Adding further, the Counsel via two HighCourtjudgments stated that entries made in signed balance sheets of the corporate debtor would amount to acknowledgements of liability and have, therefore, correctly been relied upon by the NCLT.
Shri Abhijeet Sinha, the Learned Advocate appearing on behalf of the respondent while explaining the Section 7 argued that “default” contained in Section 3(12) of the IBC, would preclude the application of Section 18 of the Limitation Act in as much as default in respect of financial debt would include a financial debt owed not only to the applicant-financial creditor but to all other financial creditors of the corporate debtor. Further by referring to two judgments from the Andhra Pradesh High Court and Gauhati High Court, he stated that entries made in balance sheets do not amount to an acknowledgement of debt. Moreover, it is further added that no date of default was mentioned in the original form which was submitted with the Section 7 application and that this should constitute a non-curable defect, due to which the Section 7 application should have been dismissed at the threshold.
The Supreme Court heard the arguments advanced and relied upon the judgement in Jignesh Shah v. Union of India, (2019) 10 SCC 750 and stated:
A perusal of the above would show that considering that the Limitation Act applies only to courts, unless made statutorily applicable to tribunals, the Committee was of the view that such Act should be made to apply to the IBC as well, observing that though the IBC is not a debt recovery law, the trigger being “default in payment of debt” would render the exclusion of the law of limitation “counter-intuitive”. Thus, it was made clear that an application to the IBC should not amount to resurrection of time-barred debts which, in any other forum, would have been dismissed on the ground of limitation. (Para 6).
The court answered the question of whether an entry in a balance sheet of a corporate debtor would constitute an acknowledgement of liability under Section 18 of the Limitation Act after referring to various judgments.
The court stated:
A perusal of the aforesaid Sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7). Equally, the auditor’s report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills (supra), that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act. (Para 22)
The court also set aside the impugned decision by NCLAT and held:
On the facts of this case, the NCLT, by its judgment dated 19.02.2020, recorded that the default in this case had been admitted by the corporate debtor, and that the signed balance sheet of the corporate debtor for the year 2016-2017 was not disputed by the corporate debtor. As a result, the NCLT held that the Section 7 application was not barred by limitation, and therefore, admitted the same. We have already set aside the majority judgment of the Full Bench of the NCLAT dated 12.03.2020, and the impugned judgment of the NCLAT dated 22.12.2020 in paragraphs 33 and 34. This appeal is, therefore, allowed, and the matter is remanded to the NCLAT to be decided in accordance with the law laid down in our judgment.( Para 35)
View/Download Judgment : ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED V. BISHAL JAISWAL&ANR.
Utkarsh Kumar Jayaswal
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