G Eswara Rao Vs Stressed Assets Stabilisation Fund - A Decree passed by the DRT or any suit cannot shift forward the date of default.

NCLAT (07.02.2020) In Sh G Eswara Rao Vs Stressed Assets Stabilisation Fund, [Company Appeal (AT) (Insolvency) No. 1097 of 2019] held that;

A Decree passed by the Debts Recovery Tribunal or any suit cannot shift forward the date of default. On the other hand, the judgment and Decree passed by Debts Recovery Tribunal on 17th August, 2018, only suggests that debt become due and payable. It does not shifting forward the date of default ………..

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

Excerpts of the order;

Pursuant to the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ‘I&B Code’), filed by Stressed Assets Stabilisation Fund, the Adjudicating Authority (National Company Law Tribunal) Amaravathi Bench, Hyderabad by impugned order dated 1st October, 2019 initiated ‘Corporate Insolvency Resolution Process’ against Saritha Synthetics and Industries Ltd. (‘Corporate Debtor’).

# 2. The Appellant Mr. G Eswara Rao, Shareholder, Director challenged the order on the ground that Application under Section 7 of the I&B Code was barred by limitation.

# 3. The Adjudicating Authority (National Company Law Tribunal) taking into consideration that the Debts Recovery Tribunal-I, Hyderabad (DRT) by order dated 17th August, 2018 allowed the application of recovery of debt with pendent lite and future interest at the rate of 12% per annum, held that the application is not barred by limitation.

# 4. The questions arise for consideration are:

• (i) Whether the application under Section 7 of the I&B Code was barred by limitation? And;

• (ii) Whether the order of Decree passed by the Debts Recovery Tribunal-I, Hyderabad on 17th August, 2018 can be taken into consideration to hold that application under Section 7 of the I&B Code is within period of three years as prescribed under Article 137 of Limitation Act, 1963?

# 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.

# 24. In the present case, the ‘Corporate Debtor’ defaulted to pay prior to 2004, due to which O.A. No.193 of 2004 was filed by Respondent (‘Financial Creditor’). A Decree passed by the Debts Recovery Tribunal or any suit cannot shift forward the date of default. On the other hand, the judgment and Decree passed by Debts Recovery Tribunal on 17th August, 2018, only suggests that debt become due and payable. It does not shifting forward the date of default as Decree has to be executed within a specified period. It is not that after passing of judgment or Decree, the default takes place immediately, as recovery is permissible, all the debts in terms of judgment and Decree dated 17th August, 2018 with pendent lite and future interest at the rate of 12% per annum could have been executed only through an execution case.

# 25. In “Binani Industries Limited vs. Bank of Baroda & Anr. – Company Appeal (AT) (Insolvency) No.82 of 2018” decided on 14th November, 2018, this Appellate Tribunal has held that ‘Corporate Insolvency Resolution Process’ is not a recovery proceeding. It is not a ‘litigation’ nor it is an auction.

# 26. By filing an application under Section 7 of the I&B Code, a Decree cannot be executed. In such case, it will be covered by Section 65 of the I&B Code, which stipulates that the insolvency resolution process or liquidation proceedings, if filed, fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, attracts penal action.

# 27. The Adjudicating Authority (National Company Law Tribunal) has failed to consider the aforesaid fact and wrongly held that the date of default took place when the judgment and Decree was passed by Debts Recovery Tribunal on 17th August, 2018.

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