No bar in limitation law to amendment of pleadings in application u/s 7 of IBC or to the filing of additional documents-Supreme Court
ABCAUS Case Law Citation
ABCAUS 3538 (2021) (08) SC
Important case law relied referred:
Asset Reconstruction Company (India) Limited vs. Bishal Jaiswall and Anr.
Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff
This Appeal u/s 62 of the Insolvency and Bankruptcy Code 2016 (IBC) is against a judgment and final order by the National Company Law Appellate Tribunal (NCLAT) holding that Petition of the Bank under Section 7 of the IBC was barred by limitation.
The appellant was a bank who has sanctioned Term Loan and other credit facilities to the respondent Corporate Debtor who defaulted in repayment of its dues and the Loan Account was declared Non Performing Asset (NPA).
The Debt Recovery Tribunal passed order/decree against the Corporate Debtor. On failure of the Corporate Debtors, Appellant Bank filed a Petition before the Adjudicating Authority u/s 7 of the Insolvency and Bankruptcy Code, 2016
About three months thereafter, the Government of India amalgamated the appellant Bank.
Thereafter, the Appellant Bank filed an application before Adjudicating Authority under Rule 11 of the National Company Law Tribunal Rules 2016 (NCLT Rules) for permission to place on record additional documents.
However, the Corporate Debtor filed its preliminary objection to the Petition filed by the Appellant Bank under Section 7 of the IBC, inter alia, contending that the said Petition was barred by limitation.
The Adjudicating Authority admitted the Petition u/s 7 of the IBC, and appointed an Interim Resolution Professional. The objection of the bar of limitation, raised on behalf of the Corporate Debtor was considered at length, but rejected.
However, on the appeal of the Corporate Debtor, the NCLAT set aside the order passed by the Adjudicating Authority (NCLT) and dismissed the Petition filed by the Appellant Bank under Section 7 of the IBC, holding that the said application was barred by limitation.
The Hon’ble Supreme Court framed the following three questions of Law to be decided:
(i) whether a Petition under Section 7 of the IBC would be barred by limitation, on the sole ground that it had been filed beyond a period of 3 years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the Appellant Bank, within a period of three years prior to the date of filing of the Petition u/s 7 of the IBC, by making a proposal for a One Time Settlement, or by acknowledging the debt in its statutory Balance Sheets and Books of Accounts?
(ii) Whether a final judgment and decree of the DRT in favour of the Financial Creditor, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action to the Financial Creditor to initiate proceedings under Section 7 of the IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the Certificate of Recovery?
(iii) Whether there is any bar in law to the amendment of pleadings, in a Petition under Section 7 of the IBC, or to the filing of additional documents, apart from those filed initially, along with the Petition under Section 7 of the IBC in Form-1?
The Hon’ble Supreme Court stated that it is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act.
The Hon’ble Supreme Court stated that the Certificate of Recovery in itself gives a fresh cause of action to the Appellant Bank to institute a petition under Section 7 of IBC. It was stated that a final judgment and/or decree of any Court or Tribunal or any Arbitral Award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7 of the IBC.
The Hon’ble Supreme Court also stated that there an offer of One Time Settlement of a live claim, made within the period of limitation, shall be construed as an acknowledgment to attract Section 18 of the Limitation Act.
The Hon’ble Supreme Court opined that 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.
It was further held that if the loan account of the Corporate Debtor as NPA and there was an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, period of limitation would get extended by a further period of three years.
The Hon’ble Supreme Court also held 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 Section 7 of the IBC.
The Hon’ble Supreme Court opined that 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.
Accordingly, the appeal was allowed in favour of the appellant and the impugned judgment and order of the NCLAT was set aside.
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