Supreme Court of India.(21.01.2021) in Reliance Asset Reconstruction Company Ltd. Vs. Hotel Poonja International Pvt. Ltd. (Civil Appeal No. 4221 of 2020) held that;
It is well settled by a catena of decisions of this Court, that Article 137 of the Limitation Act gets attracted to applications filed under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application under Section 7 of the IBC, the application would be barred under Article 137 of the Limitation Act.
As per Section 18 of Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgement must be made before the relevant period of limitation has expired.
“In a recent judgment of this Court in Mobilox Innovations Private Limted v. Kirusa Software Private Limited (2018) 1 SCC 353, this Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked….”
Excerpts of the order;
This appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 hereinafter referred to as “IBC”, is against a judgment and order dated 5th February 2020 passed by the National Company Law Appellate Tribunal, New Delhi, hereinafter referred to as the “NCLAT”, dismissing the Company Appeal (AT) (Insolvency) No. 1011 of 2019 filed by the Appellant, whereby the Appellant had challenged an order dated 20th August 2019 passed by the Adjudicating Authority, i.e. the National Company Law Tribunal, Bengaluru Bench, hereinafter referred to as the “NCLT” rejecting an application being CP (IB) No.170/BB/2018 filed by the Appellant under Section 7 of the IBC.
# 11. By an order dated 20th August 2019, the NCLT, dismissed the said petition under Section 7 of the IBC, holding that it was the settled proposition of law that the provisions of the IBC could not be invoked for recovery of outstanding dues, but could only be invoked to initiate CIRP for just reasons.
# 12. The NCLT, Bengaluru took note of the following relevant facts:
“In the instant case, it is not in dispute that Vijaya Bank had sanctioned loan of 40 lakhs to Corporate Debtor on 20.05.1986 and it has defaulted in making payment of the loan as per the terms of the loan agreement. The account of the Corporate Debtor was classified as NPA on 1.04.1993. Vijaya Bank also filed original application OA No.547/1998 before DRT, Bangalore and DRT has decreed and issued a recovery certificate by issuing an order dated 9th April, 2001. Further, due to non-repayment of the amount as per the order dated 9th April, 2001, DRT, Bangalore issued another recovery certificate vide DCP no.2691 dated 27.03.2003 directing the Recovery Officer to recover the amount of debt as stated therein. Subsequently, Vijaya Bank assigned the loan disbursed in favour of the Corporate Debtor to the Petitioner/Financial Creditor herein vide Assignment Agreement dated 3rd May, 2011. Consequently, an amended recovery certificate dated 13th May, 2011 was issued by the DRT, Bangalore recognizing the assignment to the petitioner/Financial Creditor and vesting rights of recovery with it.”
# 13. Being aggrieved by the judgment and order of NCLT, Bengaluru dismissing the application of the Appellant under Section 7 of the IBC, the Appellant filed an appeal therefrom, being Company Appeal (AT) (INS.)1011 of 2019, before the NCLAT. The Appeal has been dismissed by the judgment and order impugned.
# 14. The NCLAT also found that the application filed by the Appellant under Section 7 of the IBC was barred by limitation. The NCLAT, however, made it clear that the dismissal of the application under Section 7 of the IBC, would not preclude the appellant from availing the appropriate remedy for redressal of its grievances, in accordance with law, before the competent forum.
# 19. It is well settled by a catena of decisions of this Court, that Article 137 of the Limitation Act gets attracted to applications filed under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application under Section 7 of the IBC, the application would be barred under Article 137 of the Limitation Act. At the highest, limitation started ticking on 27th March 2003, when a Recovery Certificate was issued by the DRT. The appellant has not disclosed any material in its application under Section 7 of the IBC to demonstrate that the application is not barred by limitation.
# 20. In B. K. Educational Services Private Limited v. Parag Gupta and Associates reported in (2019) 11 SCC 633, this Court held:
“42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act,..”
# 21. In Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. And Ors. reported in (2019) 10 SCC 572, where the account of the Corporate Debtor was declared NPA on 21.7.2011, this Court observed:
“6. …The present case being “an application” which is filed under Section 7, would fall only within the residuary Article 137. As rightly pointed out by the learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21-7-2011, as a result of which the application filed under Section 7 would clearly be time-barred…”
# 22. In Radha Export (India) Private Limited v. K.P. Jayaram reported in (2020) 10 SCC 538, authored by one of us (Justice Indira Banerjee), this Court referred to B. K. Educational Services (P) Ltd. v. Parag Gupta & Associates (supra), and held:
35. It was for the applicant invoking the corporate insolvency resolution process, to prima facie show the existence in his favour, of a legally recoverable debt. In other words, the respondent had to show that the debt is not barred by limitation, which they failed to do.
# 23. In its application under Section 7 of the IBC, the Appellant has not shown that the debt due to the Appellant from the Corporate Debtor is not barred by limitation. The right to sue accrued on 1stApril 1993 when the amount of the Corporate Debtor with the Assignor Bank was declared NPA. In Part IV of its application under Section 7 of the IBC, the Appellant declared the date of default as 1st April, 1993. The claim is apparently barred by limitation. Even the judgment of the DRT in OA No.547/98 was dated 09.04.2001 and the Recovery Certificate was dated 27th March 2003. The Appellant’s own statement of accounts as on 18th July 2018 is not material to the question of limitation for making an application under Section 7 of the IBC, which is three years from the date of accrual of the right to sue.
# 24. Under Section 18 of the Limitation Act, 1963, the acknowledgement of liability in writing, signed by a party in respect of any right or property claimed by such party within the prescribed period of limitation to file a suit and/or application, leads to computation of the period of limitation afresh, from the time when the acknowledgement is so signed.
# 25. In this case, the Corporate Debtor has not signed any acknowledgement in writing after the settlement of 30thJune 2001, on the basis of which, a Recovery Certificate was issued by the DRT on 27th March 2003. An arrangement between the Assignor Bank and the Appellant and the consequential substitution of the Appellant as party to the Execution/Recovery proceedings in the DRT does not save limitation to initiate proceedings under Section 7 of IBC. In any case, even the amended Recovery Certificate, relied upon by the Appellant, is dated 13th December, 2012. The application under Section 7 of the IBC was filed almost 6 years after issuance of the amended Recovery Certificate.
# 26. In Vashdeo R. Bhojwani v. Abhyudaya Cooperative Bank Ltd. & Anr., reported in (2019) 9 SCC 158, this Court had set aside the orders of the NCLT and the NCLAT, holding that the application under Section 7 of the IBC was time barred, as the loan account had been declared Non Performing Asset on 23rd December 1999 and thereafter the Debt Recovery Tribunal had issued a Recovery Certificate dated 24th December 2001. Insolvency proceedings before the NCLT were admitted on 5th March 2018.
# 27. In Vashdeo R. Bhojwani (supra), this Court rejected the contention that the default was a continuing wrong and Section 23 of the Limitation Act 1963 would apply, relying upon Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan reported in 1959 Supp (2) SCR 476.
# 28. To quote B. Gajendragadkar, J in Balakrishna Savalram Pujari Wagmare (supra):-
“ Section 23 refers not to a continuing right but to a continuing wrong. It is the very essence of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of the said injury. If the wrongful act causes an injury which is complete, there is no continuing wrong even though the damage resulting from the act may continue. If, however, a wrongful act is of such a character that the injury caused by it itself continues, then the act constitutes a continuing wrong. In this connection it is necessary to draw a distinction between the injury caused by the wrongful act and what may be described as the effect of the said injury. It is only in regard to acts which can be properly characterised as continuing wrongs that Section 23 can be invoked. ”
# 30. As per Section 18 of Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgement must be made before the relevant period of limitation has expired.
# 35. The Balance Sheet of the Corporate Debtor dated 16thAugust, 2017 and the letter dated 23rd April, 2019, as observed above, do not constitute any acknowledgment of liability and were not even referred to by the Appellant in its application under IBC. It is, therefore, not necessary for this Court to delve into the question of whether Section 18 of the Limitation Act is attracted in the case of a petition under Section 7 of the IBC.
# 36. At the cost of repetition, it is reiterated that in its application under Section 7 of the IBC, the Appellant declared the date of default as 1st April, 1993. At the highest, limitation started running from 27thMarch, 2003, when the Recovery Certificate was issued by the DRT in favour of the Assignor. The NCLAT has rightly held that the application of the Appellant under Section 7 of the IBC barred by limitation.
# 37. In any case, there are pending proceedings in the DRT, in respect of the dues of the Corporate Debtor. The Appellant has been substituted in place of the Assignor Bank in the execution proceedings in the DRT. There is an amended Certificate issued by the DRT. Orders have, from time to time, been passed in the Execution Proceedings. The Appellant is not without remedy against the Corporate Debtor.
# 38. As held by this Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited reported in (2018) 1 SCC 353, the IBC is not intended to be a substitute to a recovery forum. In Transmission Corporation of Andhra Pradesh Limited Equipment Conductors and Cables Limited reported in (2019) 12 SCC 697, this Court followed its earlier judgment in Mobilox Innovations Private Ltd. (supra) and observed as hereunder:-
“In a recent judgment of this Court in Mobilox Innovations Private Limted v. Kirusa Software Private Limited (2018) 1 SCC 353, this Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked….”
# 39. There is no infirmity in the judgment and order of the NCLAT under appeal that calls for interference of this Court. The appeal is therefore, dismissed.
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