Jagdish Prasad Sarada Vs. Allahabad Bank - a). Date of default vs. NPA, b). Extension of Limitation U/s 19 of Limitation Act.

NCLAT (28.08.2020) in Jagdish Prasad Sarada Vs. Allahabad Bank [Company Appeal (AT) (Insolvency) No. 183 of 2020] held that;

• Further, in the context of Section 19 of the Act, the Hon’ble Supreme Court in the case of Kamla Devi and Ors. Vs. Pt. Mani Lal Tiwari & Ors. (1976) 4 SCC 818 held that “4…. The function of Section 19 is to provide a later date to count the period of limitation afresh, and that fresh period of limitation will be computed from the time when the acknowledgement is signed….”.

• The Hon’ble Supreme Court has already observed in Civil Appeal No. 439, 436, 3137, 4979, 5819 & 7289 of 2018 in B.K.Educational Services Pvt. Ltd Vs. Parag Gupta and Associates dated 11.10.2019 that the limitation period for application under section 7 of the Code is 3 years as provided by Article 137 of the Limitation Act, 1963 which commences from the date of default and is extendable only by application of section 5 of Limitation Act, 1963 if any case for condonation of delay is made out.

• We are of the firm view that the determining factor is the three years period from date of default/NPA.

• that the provisions of The Limitation Act, 1963 vide Section 238A of the I&B Code, 2016 will be applicable to all NPA cases provided they meet the criteria of Article 137 of the Schedule to The Limitation Act, 1963. The extension for the period of Limitation can only be done by way of application of Section 5 of The Limitation Act, 1963, if any case for the condonation of delay is made out.

Excerpts of the order;

# 7. The Respondent Bank in its submission has also made an observation that when this Appellate Authority was hearing the matter on 07.02.2020, it has already observed “only issue that deserves consideration in this matter is whether the Application under Section 7 of the I&B Code, 2016 filed by the Respondent Bank was within the period of limitation”. 

# 8. The Respondent Bank has also submitted that the Corporate Debtor/Appellant was already sanctioned the cash credit facility of Rs.20 Crore, Term Loan of Rs.14 crore and Letter of Creditor of Rs.65 Crores by way of a Common Sanction Letter dated 31.05.2012. It was also submitted that the Appellant became irregular in repayment and consequently the account was declared NPA on 30.09.2015. The Respondent Bank has taken necessary measure by invoking provisions section 13(2) & (4) SARFAESI Act, 2002. They have realized Rs.49,50,000/- on 19.02.2016 by way of cash and is reflected in the ledger of Corporate Debtor maintained with the Respondent Bank. The Respondent Bank has gone on further submission that by operation of Section 19 of the Limitation Act, 1963 read with Article 137 of the Schedule to the said Act, a fresh period of limitation of 3 years commenced from 19.02.2016 when a part of the debt/interest was repaid. The Respondent Bank has also averred that they have filed under Section 7 Application of I&B Code, 2016 on 31.12.2018 which is within 3 years from 19.02.2016. They have cited the Hon’ble Apex Court Judgment of M/s. Gaurav Hargovindbhai Dave Vs Asset Reconstruction Company (India) Ltd. & Anr., (2019) 10 SCC 572. This decision has been followed by this Hon’ble Tribunal in the matter of Ishrat Ali Vs. Cosmos Cooperative Bank Ltd & Anr. (Company Appeal (AT) (Ins) No.1121 of 2019). Further, in the context of Section 19 of the Act, the Hon’ble Supreme Court in the case of Kamla Devi and Ors. Vs. Pt. Mani Lal Tiwari & Ors. (1976) 4 SCC 818 held that “4…. The function of Section 19 is to provide a later date to count the period of limitation afresh, and that fresh period of limitation will be computed from the time when the acknowledgement is signed….”.

# 9. The Appellant has averred that even after the alleged payment of 19.02.2016 made by them the account of the Corporate Debtor remained to be an NPA and was not regularized by the Respondent Bank and ‘Debt’ of ‘Default’ continued to be mentioned as the date of NPA.

# 10. The Hon’ble Supreme Court has already observed in Civil Appeal No. 439, 436, 3137, 4979, 5819 & 7289 of 2018 in B.K.Educational Services Pvt. Ltd Vs. Parag Gupta and Associates dated 11.10.2019 that the limitation period for application under section 7 of the Code is 3 years as provided by Article 137 of the Limitation Act, 1963 which commences from the date of default and is extendable only by application of section 5 of Limitation Act, 1963 if any case for condonation of delay is made out. The view taken by the Hon’ble Apex Court in ‘B.K.Educational Services Private Limited Vs. Parag Gupta and Associates’ that the limitation period for application under Section 7 of the I&B Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of The Limitation Act, 1963 if any case for condonation of delay is carved out, has again been reiterated in the latest pronouncement of Hon’ble Apex Court in ‘Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. (Civil Appeal No.6347 of 2019) decided on 14th August, 2020. It is therefore manifestly clear that date of default will be the date of declaration of account as NPA and such date of default would not shift.

# 11. We are of the firm view that the determining factor is the three years period from date of default/NPA. This Appellate Tribunal has also observed in Rajendra Kumar Tekriwal Vs. Bank of Baroda in Company Appeal(AT) (Ins) No.225 of 2020 dated 13.08.2020 that the period of three years from the date of the Account of Corporate Debtor is classified as NPA then it becomes impermissible to proceed with Section 7 Application as observed in the para 11 of the Judgment.

# 12. All these leads to reiterate that the provisions of The Limitation Act, 1963 vide Section 238A of the I&B Code, 2016 will be applicable to all NPA cases provided they meet the criteria of Article 137 of the Schedule to The Limitation Act, 1963. The extension for the period of Limitation can only be done by way of application of Section 5 of The Limitation Act, 1963, if any case for the condonation of delay is made out.

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Author’s comments; With this decision, we are left with two dates i.e. a). Date of NPA &  b). Date of Default, for counting the Limitation period, while determining the eligibility of insolvency application under section 7 of the Code. If both dates (i.e. Date of NPA & Date of Default) are the same or different ?

Default has been defined in the Code as under;

# Section 3. Definitions. –

(12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be;

Code & Regulations made thereunder, have not defined NPA or Date of NPA. The concept of NPA is stranger to the Code  (except for the purpose of eligibility of resolution applicant under section 29A). RBI in Prudential Norms for classification of Bank’s assets (Loans & Advances) and for reserve requirements of the Banks has laid down the definition of  Non Performing Assets (NPA).

Definition of  NON PERFORMING ASSET (NPA) as per RBI Prudential Norms for Asset Classification.

• When it ceases to generate Income for the Bank.

• Non-performing as per criteria.

• Risk is Higher than Normal Risk.

• Classify an account as NPA only if the installment /interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.

From the above definition of NPA, it can be observed that Banks are required to classify a loan account as NPA only after 90 days from the end of the quarter in which default has occurred & default has continued fully or partially.  As such there will be a gap of 180 to 90 days, between the date of default & date of classifying the account as NPA by the bank.

Thus in my opinion, taking the date of NPA in alternative to date of default for calculating limitation period in insolvency application by NCLAT was erroneous & beyond the provisions of the Code & the decision pronounced attracts the “Doctrine of Per Incuriam”. 

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