NCLAT (08.04.2021) in Sandeep Jindal vs. State Bank of India. [Company Appeal (AT) (Ins.) No. 395 of 2020] held that;
For the above reasons, we are 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.
IBC has not excluded Application of Section 4 to 24 while determining Period of Limitation and Section 29 (2) appears to be applicable. This being so, Section 18 and 19 of Limitation Act must be said to be applicable.
It is clear that the legislative policy moved from the concept of “inability to pay debts” to “determination of default” and one of the policy reasons for this was that “cause of default” is not relevant. We are unable to appreciate the submission made by the Learned Counsel for the Appellant that because of shift in legislative policy from “inability to pay debts” to “determination of default”, it makes any difference to the applicability or inapplicability of provisions of Limitation Act, as far as may be.
Excerpts of the order;
# 1. Respondent-State Bank of India (Financial Creditor) filed Application C.P. (IB) No. 375/CHD/PB/2018 before the Adjudicating Authority (National Company Law Tribunal, Chandigarh Bench, Chandigarh) under Section 7 of Insolvency and Bankruptcy Code, 2016 (IBC in short). The Corporate Debtor in the said Petition filed C.A. 1161 of 2019 claiming that the Application was time-barred. The Adjudicating Authority heard both sides and by the Impugned Order dated 3rd March, 2020, inter alia after considering Judgment of Hon’ble Supreme Court in the matter of “A.V. Murthy Vs. B.S. Nagabasavanna” (2002) 2 SCC 642 considered the balance-sheets available on record and found that there were acknowledgments of debts under Section 18 of the Limitation Act, 1963 and rejected the Application filed by the Corporate Debtor and admitted the Application under Section 7 of IBC. Corporate Insolvency Resolution Process (CIRP in short) was thus started. Hence, the present Appeal by Director of the Suspended Board of Corporate Debtor.
# 2. . . . . . . The State Bank of India pointed out balance-sheets for the year ending 31.03.2015 and 31.03.2016 which were signed by the Director of the Corporate Debtor and referred to entries of long-term borrowings to point out that there was acknowledgment under Section 18 (1) of the Limitation Act, 1963. The Corporate Debtor referred the Judgments of this Tribunal where it has been held that balance sheets of the Corporate Debtor cannot be termed to be a document of an acknowledgment in terms of section 18. However, the Adjudicating Authority relied on the Judgment in the matter of A.V. Murthy (Supra) and concluded that the Application was within time.
# 26. Judgement in the matter of “A.V. Murthy” (supra) was relied on by the Hon’ble Supreme Court in the matter of “S. Natarajan Vs. Sama Dharman” reported as MANU/SC/0698/2014. Thus, what appears to us is that even the Hon’ble Supreme Court has observed that if the amount borrowed by the party is shown in the Balance Sheet, it may amount to acknowledgement and the creditor might have a fresh period of limitation from the date on which the acknowledgement was made.
# 27. Thus, we 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 we 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. We find that the Judgements of Hon’ble Supreme Court of India are binding and Balance Sheets cannot be outright ignored.
# 28. For the above reasons, we are 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.
# 29. As mentioned there are Judgments especially of the Hon’ble Supreme Court which show that entries in the Balance-sheet may amount to acknowledgment. We are bound by the observations of the Hon’ble Supreme Court.
# 30. Apart from the above, reference needs to be made to Section 29 of the Limitation Act which reads as under:
“29 Savings (1) Nothing in this Act shall affect section 25 of the Indian Contract Act, 1872 (9 of 1872).
(2) Where any special or local law prescribes for any suit, appeal or application a period of limitation different from the period prescribed by the Schedule, the provisions of section 3 shall apply as if such period were the period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in sections 4 to 24 (inclusive) shall apply only in so far as, and to the extent to which, they are not expressly excluded by such special or local law.
. . . . . . It is clear that Insolvency and Bankruptcy Code is a special law. Section 238 A of IBC states that the provisions of the Limitation Act shall, as far as may apply to the proceedings or Appeals before the Adjudicating Authority and this Tribunal as the case may be. Article 137 of the Limitation Act applies to the applications filed under Section 7 and 9 of IBC has already been held by the Hon’ble Supreme Court. IBC has not excluded Application of Section 4 to 24 while determining Period of Limitation and Section 29 (2) appears to be applicable. This being so, Section 18 and 19 of Limitation Act must be said to be applicable.
# 32. We are not entering into the procedure required to be followed by the Bank with regard to the backdate of date of NPA when effort of restructure fails. We will give benefit to the Corporate Debtor by taking up the oldest date of NPA which is stated to be 30.09.2012 and treat is as date which will not shift.
# 36. Thus, if the NPA is counted even from 30.09.2012, the balance sheets which were before the Adjudicating Authority for year ending 2015 to 2016 show acknowledgment of debt and the Application under Section 7 filed on 3rd October, 2018 cannot be said to be time-barred. The balance sheet for financial year ending 2015 was signed at 30.05.2015 and balance sheet for financial year ending 31st March, 2016 was signed on 30.05.2016. Thus the Application under Section 7 was within limitation. The Learned Counsel for the State Bank of India has also relied on the One Time Settlement offer given by the Corporate Debtor vide letter dated 20th January, 2017 (Annexure 3 which was filed with the Reply, Present Annexure A-9). The Learned Counsel for the Appellant has argued that this letter only stated that the Corporate Debtor was trying to find investors. However, the letter also contains a sentence that the Bank should consider the OTS “So that we can finalise the deal with potential investors for repayment of dues of all the lending banks under OTS”. This document read with the rejection letter at Page 159 shows that the Bank in the context of this letter stated that OTS of 23 Crores was very low considering the principle plus interest outstanding. Thus, OTS was declined. Even keeping this document in mind, if one was to keep in view the balance sheet for year ending 31st March, 2015 and consider this OTS proposal and perused the date of filing of Application under Section 7 of IBC, still the claim must be held within limitation.
# 38. The main thrust of the argument of Learned Counsel for the Appellant has been that in the matter of “Swiss Ribbons” Hon’ble Supreme Court has referred to the shift in the legislative policy and thus see date of default, simply calculate three years and hold the Application as time
barred unless there is Application under Section 5 of Limitation Act. The paragraph concerned from Judgment in the matter of “Swiss Ribbons” which is relied on may be reproduced as a whole. In Paragraph 37 of the said Judgment Hon’ble Supreme Court observed as under:
“37. The trigger for a financial creditor’s application is non-payment of dues when they arise under loan agreements. It is for this reason that Section 433 (e) of the Companies Act, 1956 has been repealed by the Code and a change in approach has been brought about. Legislative policy now is to move away from the concept of “inability to pay debts” to “determination of default”. The said shift enables the financial creditor to prove, based upon solid documentary evidence, that there was an obligation to pay the debt and that the debtor has failed in such obligation. Four policy reasons have been stated by the learned Solicitor General for this shift in legislative policy. First is predictability and certainty. Secondly, the paramount interest to be safeguarded is that of the corporate debtor and admission into the insolvency resolution process does not prejudice such interest but, in fact, protects it. Thirdly, in a situation of financial stress, the cause of default is not relevant; protecting the economic interest of the corporate debtor is more relevant. Fourthly, the trigger that would lead to liquidation can only be upon failure of the resolution process.”
# 39. It is clear that the legislative policy moved from the concept of “inability to pay debts” to “determination of default” and one of the policy reasons for this was that “cause of default” is not relevant. We are unable to appreciate the submission made by the Learned Counsel for the Appellant that because of shift in legislative policy from “inability to pay debts” to “determination of default”, it makes any difference to the applicability or inapplicability of provisions of Limitation Act, as far as may be.
For the above reasons, we do not find any substance in the Appeal. The Appeal is dismissed. No order as to costs.
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