V. Padmakumar vs. Stressed Assets Stabilisation Fund (SASF) & Anr - Decree passed by a Court cannot shift forward the date of Default

NCLAT (2020.03.12) in V. Padmakumar vs. Stressed Assets Stabilisation Fund (SASF) & Anr [Company Appeal (AT) (Insolvency) No. 57 of 2020] held that a suit for recovery of money can be filed only when there is a default of dues. Even if the decree is passed, the date of default cannot be shifted forward to the date of decree or date of payment for execution as a decree can be executed within a specified period i.e. 12 years. If it is executable within the period of limitation, one cannot allege that there is a default of decree or payment of dues. Therefore, a Judgment or a decree passed by a Court for recovery of money by the Civil Court/ Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the Code.

It was further held that in the present case, as the account of the Corporate Debtor was declared NPA on 31st October, 2002 and decree was passed on 19th June, 2009 / 31st August, 2009, the application under Section 7 filed by M/s. Stressed Assets Stabilization Fund (SASF) against M/s. Uthara Fashion Knitwear Limited- (Corporate Debtor) is barred by limitation and is not maintainable.

Excerpts of the order;

# 3. On notice, the Respondents appeared and relied on decision of the three Hon’ble Members of this Appellate Tribunal dated 22nd January, 2020 in “M/s. Ugro Capital Limited v. M/s. Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd. (BDDE) Company Appeal (AT) (Insolvency) No. 984 of 2019”. In the said case, the Hon’ble Members of this Appellate Tribunal taking into consideration that the suit was decreed on 22nd May, 2015, held that non-payment of debt thereafter amounts to “committed default” in terms of Section 3(12) of the ‘I&B Code’ for the first time and in terms of Article 137 of the Limitation Act, 1963, for the purpose of filing application under Section 7 of the ‘I&B Code’ three years from the date the right to apply accrued for the first time from the date of default in terms of decree.

# 4. As the Judgment was doubted, the matter was referred to Larger Bench to decide the issue.

# 7. Section 7 relates to ‘initiation of corporate insolvency resolution process by financial creditor’. As per Section 7(1), the ‘Financial Creditor’ may file an application for initiation of ‘Corporate Insolvency Resolution Process’ against a ‘Corporate Debtor’ before the Adjudicating Authority when ‘a default has occurred’.

# 10. Similar issue fell for consideration before the Hon’ble Supreme Court in “Gaurav Hargovindbhai Dave vs. Asset Reconstructions Company (India) Limited and another – (2019) 10 SCC 572”. In the said case, the Hon’ble Supreme Court has noticed that the Respondent was declared NPA on 21st July, 2011. The Bank had filed two OAs before the Debts Recovery Tribunal in 2012 to recover the total debt. Taking into consideration the facts, the Supreme Court held that the default having taken place and as the account was declared NPA on 21st July, 2011, the application under Section 7 was barred by limitation.

13. The aforesaid decisions of the Hon’ble Supreme Court and this Appellate Tribunal make it clear that for the purpose of computing the period of limitation of application under Section 7, the date of default is ‘NPA’ and hence a crucial date.

# 16. ……… Thus, while holding so, the Hon’ble Supreme Court held that the date of default to be taken into consideration for computing the period of limitation of application under Section 7. As the decision of Hon’ble Supreme Court is binding, we hold that mere filing of a suit for recovery or a decree passed by a Court cannot shift forward the date of default

# 17. A suit for recovery of money can be filed only when there is a default of dues. Even if the decree is passed, the date of default cannot be shift forward to the date of decree or date of payment for execution as a decree can be executed within specified period i.e. 12 years. If it is executable within the period of limitation, one cannot allege that there is a default of decree or payment of dues.

# 18. Therefore, we hold that a Judgment or a decree passed by a Court for recovery of money by Civil Court/ Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the ‘I&B Code’.

# 20. It is next submitted by the learned counsel appearing for the Respondents that the application under Section 7 was not barred by limitation as the ‘Corporate Debtor’ has acknowledged the claim in its Audited Balance Sheet for the F.Y. 2011-2012 & 2012-2013 onwards.

# 21. The question as to whether reflection of debt in a Balance Sheet of the ‘Corporate Debtor’

prepared pursuant to Section 92 of the Companies Act, 2013 amounts to acknowledgment of debt fell for consideration before this Appellate Tribunal in “Sh. G Eswara Rao v. Stressed Assets Stabilisation Fund - Company Appeal (AT) (Insolvency) No. 1097 of 2019”. In the said case, this Appellate Tribunal by Judgment dated 7th February, 2020 noticed the provision of acknowledgment in writing under Section 18 of the Limitation Act, 1963 and Section 92 of the Companies Act, 2013. This Appellate Tribunal also noticed the decree passed by the Debt Recovery Tribunal to find out whether the same can be held to be acknowledgment of debt under Section 18 of the Limitation Act, 1963, and held:

• # 15. As the filing of Balance Sheet/ Annual Return being mandatory under Section 92(4), failing of which attracts penal action under Section 92(5) & (6), the Balance Sheet / Annual Return of the ‘Corporate Debtor’ cannot be treated to be an acknowledgement under Section 18 of the Limitation Act, 1963.

• # 16. If the argument is accepted that the Balance Sheet / Annual Return of the ‘Corporate Debtor’ amounts to acknowledgement under Section 18 of the Limitation Act, 1963 then in such case, it is to be held that no limitation would be applicable because every year, it is mandatory for the ‘Corporate Debtor’ to file Balance Sheet/ Annual Return, which is not the law.”

# 23. In the present case, as we find that the account of the ‘Corporate Debtor’ was declared NPA on 31st October, 2002 and decree was passed on 19th June, 2009/ 31st August, 2009, we hold that the application under Section 7 filed by ‘M/s. Stressed Assets Stabilization Fund (SASF)’ against ‘M/s. Uthara Fashion Knitwear Limited’- (‘Corporate Debtor’) is barred by limitation and was not maintainable.

----------------------------------------------------------

In the present case, Justice A.I.S. Cheema, Member (Judicial), gave a dissenting judgement. Excerpts of the same are as follows;

# 15. Thus, I find it is settled law appearing from the Judgements of the High Court of Delhi and other High Courts that Balance Sheets can be looked into to see if there is acknowledgement of debt. Perusing Judgements of Hon’ble Supreme Court I find that even Hon’ble Supreme Court has looked into Balance Sheets and Books of Account to see if there is Acknowledgement of Liability. If the amount borrowed is shown in the Balance Sheet, it may amount to Acknowledgement. I find the Judgements of Hon’ble Supreme Court of India are binding and Balance Sheets cannot be outright ignored.

# 16. For the above reasons, I am of the opinion that Annual Returns/Audited Balance Sheets, one time settlement proposals, proposals to restructure loans, by whatever names called, cannot be simply ignored as debarred from consideration and in every given matter, it would be a question of applying the facts to the law and vice versa, to see whether or not the specific contents, spell out an acknowledgement under the Limitation Act.

# 16. For such reasons, in my view, the present should be placed before the regular Bench to consider whether or not the audited Balance Sheets and OTS proposals referred would on facts read with the law, amount to acknowledgements, so as to save limitation.

# 17. Except for the above aspects, I agree with the erudite Judgement of the Hon’ble Chairperson.

-----------------------------------