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National Company Law Appellate Tribunal, Delhi: The Bench of Anant Bijay Singh, J., Judicial Member, and Shreesha Merla, Technical Member, dismissed a company appeal and held that a One-Time Settlement Proposal (OTS proposal) falls within the definition of ‘acknowledgment of debt' as defined the provisions of the Limitation Act, 1963.

Background of the case

Financial Creditor, Bank of Baroda, extended financial assistance to the Corporate Debtor through various term loans for an amount of Rs.9,91,00,000/-. On 01-08-2016, an OTS proposal was filed by the Corporate Debtor before the DRT, Pune, but it was not accepted by Financial Creditor. Thereafter, a new OTS proposal was proposed on 07-03-2018 which was accepted by the Financial Creditor on 27-03-2018. However, the Corporate Debtor failed to pay its repayment obligations.

The Financial Creditor filed a petition under Section 7 of the Insolvency and Bankruptcy Act, 2016 (IBC), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Adjudicating Authority admitted the application and initiated CIRP against the Corporate Debtor. The Corporate Debtor filed an appeal before the NCLAT, challenging the initiation of CIRP.

Analysis and decision

After considering the facts, the Bench relied on the Supreme Court judgment, Dena Bank v. C. Shivkumar Reddy, (2021) 10 SCC 330, where it was held that “Section 18 of the Limitation Act, 1963 gets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate Resolution Process under Section 7 of IBC ensures. Section 18 of the Limitation Act would come into whenever the Principal Borrower and/or the Corporate Guarantor (Corporate Debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgment, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to ‘acknowledgment of the debt', from time to time, for the institution of the proceedings under Section 7 of IBC. Further, the acknowledgment must be of a liability in respect of which the ‘Financial Creditor' can initiate action under Section 7 of IBC. Hence, the 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.”

In the light of the above-mentioned judgment, the Bench held that the OTS proposal dated 01-08-2016 and 27-03-2018 falls within the definition of the ambit of ‘acknowledgement of debt' as envisaged under Section 18 of the Limitation Act, 1963. Hence, dismissed the company appeal.

[Tejas Khandhar v. Bank of Baroda, Company Appeal (AT) (Insolvency) No. 371 of 2020, decided on- 12-07-2022]

Advocates who appeared in this case :

Pulkit Deora, Advocate, for the Appellant;

Mr Brijesh Kumar Tamber , Advocate, for the Bank of Baroda;

Lzafeer Ahmad B.F, Advocate, for the Resolution Professional.

Punjab and Haryana High Court
Case BriefsHigh Courts

Punjab and Haryana High Court: The Division Bench of Rajan Gupta and Karamjit Singh, JJ., allowed the petition seeking writ of mandamus against the impugned order of District Magistrate whereby the Magistrate refused to restrain the respondent from taking physical possession of the mortgaged property of the petitioner on breach of the terms and conditions of the One Time Settlement (“OTS”).

In the instant petition, the petitioner was a partnership firm which availed a loan of Rs 1.55 crore from the respondent Bank. The petitioner defaulted in repaying the same and it was declared as Non-Performing Asset (NPA) by the Bank on 06-10-2018. The proceedings under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“the Act”), were initiated against it. The Bank also filed an application before the District Magistrate to take possession of the secured assets.

Subsequently, the petitioner effected OTS dated 31-05-2019 with the Bank, as per which, he was to pay Rs 1.29 crore by 30-11-2019. Pursuant to the said settlement, the petitioner deposited an amount of Rs 51,00,000. For the payment of the remaining amount, the petitioner was banking upon the assurance given by his son, Vikas Goel and his brother-in-law, Prem Nath Garg, who were running separate business of Commission Agent Firm. Prem Nath Garg handed over the keys to his Accountant. In the absence of both the partners, the said accountant had stolen the cheques and other important documents lying in the locker. Due to aforesaid unforeseen circumstances, the petitioner was unable to deposit the balance amount of Rs 78 lakhs as per OTS. Consequently, the petitioner made a request to the Magistrate for extension of time to make the payment of balance amount. However, the Magistrate rejected the said request.

It is contended by counsel for the petitioner, Aalok Jagga that the petitioner was ready to make payment of the balance amount within next six months alongwith reasonable interest for the period of delay. It was further argued that, the petitioner being a deserving borrower who is willing to clear his loan account should be given one opportunity to do so, by extending the time.

The Bank contended that the petitioner paid an amount of Rs 51 lakhs upto 31-10-2019 but failed to pay the balance amount of Rs 78 lakhs as per OTS. It was prayed by the Bank that the writ petition be dismissed.

The Court observed that in the present case, the amount paid was just 40% of the settled amount and reasons put forth by the petitioner for failure to pay the balance amount, were not plausible. The Court relied on Union Bank of India v. Anil Kumar Wadhera, 2017 SCC OnLine All 2942, where it was held that, no separate orders are required to be passed in the matter of the OTS having become defunct for non-compliance of its conditions by the borrowers and the logical consequence in case of breach of the terms and conditions of the OTS is that the Bank becomes free to recover the money outstanding in accordance with law irrespective of the OTS.

In light of the above, the Court observed that the petitioner itself affected OTS and agreed to pay the entire amount within a period of six months. The petitioner had failed to convince this Court that he failed to pay the balance amount within the stipulated period due to the reasons beyond his control and to show his bonafide intent to make the payment of balance amount. Therefore, it was held that no ground is made out for this Court to interfere in this case. Accordingly, the instant petition was dismissed, being devoid of merits. However, the Court stated that the petitioner is at liberty to avail the appropriate remedy available to under the law and to approach the Bank under the new OTS scheme. [Milkhi Ram Bhagwan Dass v. District Magistrate, 2020 SCC OnLine P&H 2293, decided on 23-12-2020]