{"id":241412,"date":"2020-12-29T14:18:24","date_gmt":"2020-12-29T08:48:24","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=241412"},"modified":"2020-12-30T09:34:14","modified_gmt":"2020-12-30T04:04:14","slug":"nclat-whether-reflection-of-debt-in-balance-sheet-of-a-corporate-debtor-would-amount-to-acknowledgement-under-s-18-of-limitation-act-5-member-bench-decodes-interplay-between-ibc","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2020\/12\/29\/nclat-whether-reflection-of-debt-in-balance-sheet-of-a-corporate-debtor-would-amount-to-acknowledgement-under-s-18-of-limitation-act-5-member-bench-decodes-interplay-between-ibc\/","title":{"rendered":"NCLAT | Whether reflection of debt in Balance Sheet of a Corporate Debtor would amount to acknowledgement under S. 18 of Limitation Act? 5-Member Bench decodes Interplay between IBC & Limitation Act; discusses ‘Judicial Indiscipline’"},"content":{"rendered":"

National Company Law Appellate Tribunal (NCLAT), New Delhi: <\/strong>The Bench of Justice Bansi Lal Bhat (Acting Chairperson) and Justice Venugopal M. (Judicial Member), Justice Anant Bijay Singh (Judicial Member), Kanthi Narahari (Technical Member) and Shreesha Merla (Technical member), while addressing the present matter observed that:<\/p>\n

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“…for purpose of computing the period of limitation under Section 7 of I&B Code, the date of default is NPA.”<\/p>\n<\/blockquote>\n<\/div>\n<\/div>\n<\/div>\n

Background<\/span><\/h3>\n

The three-member Bench of this Appellate Tribunal had opined that the decision rendered by the 5-member Bench of this Appellate Tribunal in\u00a0V. Padmakumar v. Stressed Assets Stabilization Fund (SASF),<\/em>2020 SCC OnLine NCLAT 417<\/b><\/a>required reconsideration.<\/p>\n

Issue formulated by the three-member Referral Bench, as noticed in the reference order was as follows:<\/p>\n

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\u201cHon\u2019ble Supreme Court and various Hon\u2019ble High Courts have consistently held that an entry made in the Company\u2019s Balance Sheet amounts to an acknowledgement of debt under Section 18 of the Limitation Act, 1963, in view of the settled law, V. Padmakumar\u2019s Case requires reconsideration.\u201d<\/em><\/div>\n
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Facts and Contentions<\/span><\/h3>\n
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Corporate Debtor had defaulted in repaying the dues availed as a loan from the Consortium Lenders leading to recalling of the loan facility by the Financial Creditor — State Bank of India and the Consortium Lenders issuing notices under Section 13(2) of the SARFAESI Act, 2002 demanding total amount of Rs 59,97,80,02,973.\u00a0<\/span><\/div>\n
Corporate Debtor failed to discharge its liability.<\/div>\n
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When the Financial Creditor initiated CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, Lenders had assigned the debt in favour of ‘Asset Reconstruction Company (India) Ltd. NCLT, Kolkata Bench on being satisfied that debt and default were established, admitted the application. Further on being aggrieved with the same, Ex-Director of Corporate Debtor filed an appeal against the admission order in light of Corporate Debtor’s account being declared as NPA in 2014 and application under Section 7 was filed in 2018 after a delay of around 5 years, hence the same was barred by limitation.<\/div>\n
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Financial Creditor contended that the right to sue for the first time accrued to it upon the classification of the accounts as NPA in 2013 but thereafter, Corporate Debtor had admitted time and again and unequivocally acknowledged its debt in the Balance Sheets for the years ending 31st March, 2015, 31st March, 2016 and 31st March, 2017.<\/span><\/div>\n
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Hence, the right to sue stood extended in terms of Section 18 of the Limitation Act, 1963.<\/div>\n
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Referral Bench had declined to accept the argument that Section 18 of the Limitation Act, 1963 is not applicable Insolvency Cases and proceeded to record the reasons for reconsideration of V. Padmakumar’s<\/em> Judgment.<\/div>\n<\/div>\n

Analysis, Law and Decision<\/span><\/h3>\n<\/div>\n
Bench noted that in \u2018V. Padmakumar\u2019s Case\u2019<\/em>, IDBI had advanced financial assistance of Rs 600 Lakhs by way of Term Loan Agreement dated 02-03-2000 to the Corporate Debtor and the loan was duly secured.<\/span><\/div>\n
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Further, the Corporate Debtor’s account was classified as NPA in 2002, later IDBI initiated recovery proceedings in 2007. Recovery Certification was issued in 2009 which was reflected in the Balance Sheet dated 31-03-2012.<\/div>\n
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Limitation Period<\/span><\/strong><\/div>\n
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This Appellate Tribunal noted the decisions delivered by Supreme Court in Jignesh Shah v. Union of India<\/em> \u2013 (2019) 10 SCC 750<\/a>, Gaurav Hargovindbhai Dave v. Asset Reconstructions Company (India) Ltd.<\/em>\u00a0 \u2013 (2019) 10 SCC 572<\/a>, Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Ltd.<\/em> \u2013 (2019) 9 SCC 158<\/a>, and the decision of this Appellate Tribunal in V. Hotels Ltd. v. Asset Reconstruction Company (India) Ltd.<\/em>– Company Appeal (AT) (Insolvency) No. 525 of 2019, decided on 11-12-2019, was of the view that for the purpose of computing the limitation period for application under Section 7 the date of default was NPA and hence a crucial date.<\/span><\/span><\/div>\n
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5-Member Bench further dealt with the acknowledgement of claim in audited Balance Sheet of Corporate Debtor to arrive at a finding as to whether such acknowledgement would fall within the ambit of Section 18 of Limitation Act, 1963<\/em><\/span>.<\/span><\/div>\n
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Bench expressed that the Referral bench failed to take note of the fact that the 5-Member Bench Judgment rendered in \u2018V. Padmakumar\u2019s Case\u2019<\/em> with a majority of 4:1 was delivered to remove uncertainty arising out of the conflicting verdicts of Benches of co-equal strength in \u2018V. Hotel\u2019s Case\u2019<\/em> and \u2018 Ugro Capital Ltd.\u2019s Case\u2019.<\/em><\/span><\/div>\n
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Once a Larger Bench of this Appellate Tribunal came to be constituted in the wake of two conflicting judgments rendered by Benches of co-equal strength on the issue, one of the two Benches having failed to notice the judgment of the Supreme Court on the subject, the issue raised by the Referral Bench can no more be said to be res integra<\/em>, in so far as the jurisdiction exercised by this Appellate Tribunal under I&B Code is concerned.<\/span><\/p>\n<\/blockquote>\n

Observations:<\/strong><\/span><\/h4>\n
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