Financial creditors’ insolvency plea valid even after three years, rules SC, BFSI News, ET BFSI
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A two-judge bench set aside an order of National Company Law Appellate Tribunal (NCLAT) by which it had said that application under section 7 of Insolvency and Bankruptcy Code (IBC) of Dena Bank (now Bank of Baroda) for initiation of insolvency process was time barred.
The bench said, “To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years”.
It said that the impugned judgement and order of NCLAT is unsustainable in law and facts and allowed the appeal of Dena Bank.
The case
Dena Bank has moved the top court in appeal against December 18, 2019 order of NCLAT setting aside an order of March 21, 2019 passed by NCLT, Bengaluru admitting the application of the bank for initiation of insolvency proceedings against company Kaveri Telecom Infrastructure Limited and its director C Shivakumar Reddy.
By a letter dated December 23, 2011 the Bank had sanctioned term loan and Letter of Credit Cum Buyers’ Credit in favour of the company, with an upper limit of Rs 45 Crores.
The said term loan was to be repaid in 24 quarterly instalments of Rs 187.50 lakhs, which were to commence two years after the date of disbursement, and the entire term loan was to be repaid in eight years, inclusive of the implementation period of one year and the moratorium period.
On September 20, 2013 the corporate debtor defaulted in repayment of its dues to the bank and the loan account of the company was therefore declared Non Performing Asset (NPA) on December 31, 2013
The rationale
The bench said that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under the provision of the IBC in Form-1.
“In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the adjudicating authority committed any illegality or error in permitting the appellant bank to file additional documents,” it said.
The top court, however, said that depending on the facts and circumstances of the case, when there is inordinate delay, the adjudicating authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.
“In our considered view, the decision of the adjudicating authority to entertain and/or to allow the request of the appellant bank for the filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal,” it said.
Fresh cause of action
The top court said that a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the financial creditor, would give rise to a fresh cause of action, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, if the dues remain unpaid.
It said that in the instant case the balance sheets and financial statements of the Corporate Debtor for 2016-2017, constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certificate of Recovery was issued in favour of the appellant bank in May 2017.
It said that the National Company Law Tribunal (NCLT), Bengaluru had rightly admitted the application of the bank by its order dated March 21, 2019.
Limitation Act
It said that there is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the NCLT but an application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the schedule of the said Act.
“There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default,” it said.
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