Thursday 19 November 2020

Ashish Kumar vs. Vinod Kumar Pukhraj Ambavat RP. - Letters for OTS offering payment for full & final settlement are Ack. U/s 18 of Limitation Act.

NCLAT (17.02.2020) in Ashish Kumar vs. Vinod Kumar Pukhraj Ambavat RP. [Company Appeal (AT) (Insolvency) No. 1411 of 2019] held that ; is clear that by the OTS described above/letters, the Corporate Debtor had offered the payment of varying amounts to Allahabad Bank/Respondent No.2 for full and final settlement liability and thereby admitted the jural relationship of Debtor- Creditor between them and the bank, . . . . . . the letters of acknowledgement/OTS created fresh period of limitation with effect from the date when the OTS/letter of acknowledgement was signed..


Excerpts of the order;

This Appeal emanates from the Order passed by the Adjudicating Authority/National Company Law Tribunal, Cuttack Bench, Cuttack in C.P. (IB) No.54/CTB/2019, whereby the Adjudicating Authority has admitted the Application for initiation of Corporate Insolvency Resolution Process („CIRP‟) against the „Corporate Debtor‟, filed under Section 7 of the Insolvency and Bankruptcy Code (in short „I&B Code‟) on 03rd October, 2019 in the case of M/s ASREC (India) Limited Vs. Mr R.K. Jain Construction (India) Pvt. Ltd. The parties are represented by their original status in the company petition for the sake of convenience. 


The Appellant has filed this appeal mainly on two grounds, firstly on limitation; secondly, the order has been passed ex-parte; which is illegal, arbitrary, and passed mechanically through a non-speaking order.


# 2. Brief facts of the case are as follows: The „Corporate Debtor‟ was granted a loan by the Allahabad Bank in 2008. The loan amount was extended/increased until the year 2010. The account was declared NPA by the Bank on 29th August 2012. Notice under Section 13(2) of the SARFAESI Act was issued against the Corporate Debtor on 03rd October 2012, after that, the notice under Section 13(4) of the SARFAESI Act was issued on 05th December 2012. The Adjudicating Authority has observed that:

  • “the Respondent/Corporate Debtor was served notice. However, there were no representations. Notice was also taken by way of publication dated 20th August 2019 in English newspaper “Central Chronicle” and Hindi newspaper “Swadesh”. However, there was no representation for the Corporate Debtor. Hence, called absent & set ex-parte on 04th September 2019.”


# 7. The Corporate Debtor/Appellant had taken the plea that the impugned order was passed Ex-parte. But we find that the Adjudicating Authority had proceeded ex-party, when the Corporate Debtor made no representation, despite, service of notice.


# 8. Regarding the limitation issue, the Appellant contends that the “Loan Facility‟ from Allahabad Bank was availed by the Corporate Debtor in 2008. The account of the Corporate Debtor was classified NPA on 29th August 2012. Therefore, the petition should have been filed within three years from the date, when the account was declared NPA. Since the petition has been filed beyond the statutory period of limitation, as per Art 137 of the Limitation Act 1963, therefore petition is time-barred. 


# 9. The counsel for the Appellant has placed reliance on the following cases of the Hon‟ble Supreme Court.

  • i). Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC 158: 2019 SCC OnLine SC 1159 at page 159 . . . . . ,

  • ii). Gaurav Hargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd., (2019) 10 SCC 572: 2019 SCC OnLine SC 1239 at page 574.

  • iii). B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528: 2018 SCC OnLine SC 1921at page 656

  • iv). Jignesh Shah vs. Union of India, (2019) 10 SCC 750: (2020) 1 SCC (Civ) 48: 2019 SCC OnLine SC 1254 at page 764.

-  # 19. The aforesaid judgments correctly hold that a suit for recovery based upon a cause of action that is within limitation cannot in any manner impact the separate and independent remedy of a winding up proceeding. In law, when time begins to run, it can only be extended in the manner provided in the Limitation Act. For example, an acknowledgement of liability under Section 18 of the Limitation Act would certainly extend the limitation period, but a suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding up proceeding is to be filed, by somehow keeping the debt alive for the purpose of the winding up proceeding. 


# 10. Thus in the case mentioned above, the Hon‟ble Supreme Court has held that for an application U/S 7 or 9 of Insolvency and Bankruptcy Code 2016, Art 137 of the Limitation Act will be applicable. But the said period of limitation can only be extended in the manner provided in the Limitation Act. For example, an acknowledgement of liability under Section 18 of the Limitation Act would certainly extend the limitation period.


# 11. In reply to the above, the Learned Counsel for the Respondent financial creditor submits that there are various acknowledgements of liability by the Corporate Debtor from time to time, within the meaning by Section 18 of the Limitation Act, and there are also part payments by the Corporate Debtor over the period from 2013 to 2017. Therefore, the period of limitation is extended in the light of Section 19 of the Limitation Act.


# 14. As per provision of Section 18(1) of the Limitation Act, acknowledgement generally refers to acceptance or admission of something that exist hence it can be said that the act uses the “acknowledgement” to mean an admission of existing liability, by which the period of limitation is extended. The question that arises as to what shall constitute, as an acknowledgement of debt under Section 18 of the Act. 


# 15. Admittedly, in this case, the account of the Appellant/Corporate Debtor was classified as NPA on 29th August, 2012 thereafter, demand notice under Section 13(2) of the SARFAESI Act, was issued on 03rd October, 2012. In view of the law laid down by Hon‟ble Supreme Court in case of Jignesh Shah (supra), it is clear that period of limitation will be computed from the date when the account of the Corporate Debtor was classified as NPA. Thus, the limitation available for initiation of CIRP under Section 7 or 9 of the I&B Code was available up to 02nd October, 2015. It is also on record that the Corporate Debtor issued OTS/letter of acknowledgement dated 26th November 2012; 01st August 2013; 04th September 2013; 25thOctober, 2013; 25th May 2014; 05th June 2014; 20th June 2014; 13th September 2016; 22nd September 2016; 04th March 2018; 15th October 2018; 30th October 2019 and 01st November 2019. Thus, it is clear that by the OTS described above/letters, the Corporate Debtor had offered the payment of varying amounts to Allahabad Bank/Respondent No.2 for full and final settlement liability and thereby admitted the jural relationship of Debtor- Creditor between them and the bank.


# 16. Given the provision of Section 18 of the Limitation Act and the law laid down by Hon‟ble Supreme Court in case J.C. Budhraja the letters of acknowledgement/OTS created fresh period of limitation with effect from the date when the OTS/letter of acknowledgement was signed. 


# 17. Since the account of Corporate Debtor was classified as NPA on 29.08.2012 and after that three years period was available as the provision of Article 137 of Limitation Act and within that period on different dates, the Corporate Debtor submitted the OTS letter and acknowledged the liability, on different dates. The chart showing the acknowledgement is given in para 14 of this judgement. The OTS proposal/acknowledgement of debt was given regarding the subsisting liability of the Corporate Debtor. Given the provision of Section 18 of Limitation Act and law laid down by the Hon‟ble Supreme Court, on the acknowledgement of liability, afresh period of limitation started. Therefore, it is clear that the petition is not barred by limitation. 


# 18. In this case, it is clear that on the day of filing the petition U/S 7 of the Code, there was a subsisting liability on the corporate debtor, and due to the acknowledgement of debt in writing, though the account of the corporate debtor which was classified as NPA on 29th August, 2012, its validity got extended from time to time by acknowledgement of debt in writing and a fresh period of limitation started after the acknowledgement of debt as per provision of Sec 18 of the Limitation Act.


# 19. During the argument, the Learned Counsel for the Appellant has assailed the impugned order only on the Limitation point. Based on the discussion as above, we are of the considered opinion that the petition filed Company Appeal (AT) (Insolvency) No. 1411 of 2019 by the Respondent Oriental Bank of Commerce is not barred by limitation. Hence Appeal is rejected. No order as to costs.


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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.