Hemanshu Jamnadas Domadia Vs. Central Bank of India - That to get the benefit of Section 19 of the Limitation Act, two conditions are essential; first, payment must be made within the prescribed period of limitation and secondly, it must be acknowledged by some form of writing either in the handwriting of payer himself or signed by him.

NCLAT (10.11.2021) In Hemanshu Jamnadas Domadia Vs. Central Bank of India [Company Appeal (AT) (Insolvency) No. 623 of 2020] held that;

• Mere use of word ‘Power of Attorney’ while delegating such power will not take away the authority of such officer and for all purposes it is to be treated as an ‘authorisation’ by the ‘Financial Creditor’/‘Operational Creditor’/‘Corporate Applicant’ in favour of its officer, which can be delegated even by designation.

• General authorisation given to an officer of the financial creditor by means of a power of attorney, would not disentitle such officer to act as the authorised representative of the financial creditor while filing an application under Section 7 of the Code, merely because the authorisation was granted through a power of attorney

• That to get the benefit of Section 19 of the Limitation Act, two conditions are essential; first, payment must be made within the prescribed period of limitation and secondly, it must be acknowledged by some form of writing either in the handwriting of payer himself or signed by him. It is the payment that extends the period of limitation. Still, payment has to be proved in a particular way, and a written or signed acknowledgement is the only proof of payment. Oral testimony is excluded unless there is acknowledgement in the required form

• The Gujarat High Court in Hiralal Chhotalal Shah Vs Central Bank of India & Ors 1980 SCC Online Guj 53 Paras 11 to 18 and 35 have held that even if – a debtor makes part payment to a creditor, it will not extend the limitation for enforcement of creditor’s remedy against surety u/s. 19 Limitation Act since payment is not done by the surety.

Excerpts of the order;

3. Appellants Submission

3.1 The Corporate Debtor resisted the Application primarily on two grounds: 

• (i) the Application filed by the Respondent Bank is barred by limitation, and 

• (ii) the Application is not filed by a duly authorised person of the Respondent Bank hence not maintainable.

3.2 The Appellant/Corporate Debtor had contended that the date of default mentioned in the Application is 01 July 2015, while the Application was filed on 22 October 2018. Thus, the Application was filed after the prescribed limitation period, i.e. three years, under Article 137 of the Limitation Act, 1963. Therefore, the Application was hopelessly time-barred.

3.3 The Appellant contends that the Adjudicating Authority has given the benefit of Section 19 of the Limitation Act based on the last payment made by the Corporate Debtor, i.e. on 30 December 2015. Therefore, the Adjudicating Authority has found that the Application is filed within the prescribed period of limitation.

a. Appellant submits that the credit entry of 30 December 2015 for Rs.5,99,760 is on account of payment by one’ Dynamic Extractor’. It is contended that the said payment is neither made by the Appellant nor the Appellant’s agent.

b. A payment may extend the period of limitation as per Section19 of the Limitation Act. However, for Section 19 Limitation Act to apply, it is necessary to make the payment by the Appellant or the Appellant’s agent. (Pg. 10)

c. However, herein the payment is made by a completely unrelated party. Hence, the limitation period cannot extend u/S. 19 of Limitation Act since the conditions thereof are not fulfilled.

d. Even the said payment by Dynamic Extractor was wrongfully made, and it was returned by the Appellant.

e. It is further contended that the Respondent never set up this case before the Adjudicating Authority. The Ld. Adjudicating Authority made out this incorrect case for the Respondent on its own accord. Moreover, since this issue was neither raised nor argued by the Respondent, the Appellant never had an opportunity to rebut these contentions.

f. The Respondent has raised a new issue that credit entry of 31.12.2015 for Rs. 87,57,769/- will also extend the limitation period. It is pertinent to note that the said entry is not a payment but an INCA (Interest Not Collected Account) reversal. The said term is an accounting method adopted by the banks for NPA accounts, as per the Income Recognition and Assets Classification (IRAC) Norms. As per INCA reversal – the unrealised interest in an NPA account is reversed, and this is done monthly. Hence, it is not a payment by any party but an accounting method of the banks to balance the book of NPA accounts. Therefore, such tallying methods in no manner can attract Section 19 of the Limitation Act.

g. Further, this Hon’ble Tribunal in the case of Jagdish Prasad Sarada Vs Allahabad Bank Company Appeal No. 183 of 2020 Judgment 28 August 2020 (Paras 10-11) has categorically held that the date of default will be the date of declaration of NPA and it would not shift.

h. The Gujarat High Court in Hiralal Chhotalal Shah Vs Central Bank of India & Ors 1980 SCC Online Guj 53 Paras 11 to 18 and 35 have held that even if – a debtor makes part payment to a creditor, it will not extend the limitation for enforcement of creditor’s remedy against surety u/s. 19 Limitation Act since payment is not done by the surety.

i. In the instant case, the limitation will not extend because of the last credit entry of 30 December 2015 since the payment was made by an unrelated party. Even this payment was by mistake, which was returned by the Appellant.

3.4 The Appellant further contends that Acknowledgment in Balance sheets will not extend the limitation period u/s. 18 Limitation Act

a. The Ld. Adjudicating Authority in the Impugned Order has extended the limitation period for a credit entry and not on acknowledgement in balance sheets. However, the Respondent herein has raised a ground that there is an acknowledgement in the balance sheet; hence, the limitation period ought to extend.

b. However, this issue is no longer res Integra, and the Hon’ble Supreme Court and this Hon’ble Tribunal have laid this controversy to rest by deciding that acknowledgement in a balance sheet will not extend the limitation period u/s 18 Limitation Act for IBC proceedings.

c. The Hon’ble Supreme Court in Babulal Vardhari Gurjar versus Gurjar Aluminium Industries Pvt Ltd. 2020 SCC Online SC 547 Para 91-93 has held explicitly that Section 18 Limitation Act will not apply to IBC proceedings.

d. Further, this Hon’ble Tribunal in V Padmakumar versus Stressed Assets Stabilisation Fund 2020 SCC Online NCLAT 417 Para 20-22 and Bishal Jaiswal versus Asset Reconstruction Company (India) Ltd. Company Appeal No. 385 of 2020 Judgment dated 22 December 2020 Para 13-14 has held that acknowledgement in balance sheets will not extend limitation period u/s. 18 of the Limitation Act for IBC proceedings.

3.5 Hence, the instant Appeal ought to be allowed since the Section 7 Application filed by the Respondent was time-barred.

3.6 We have heard the argument of the Learned Counsels for the parties and perused the record. Following issues arise for deciding this Appeal;

• a) Whether the Application/petition is filed by a person having proper authorisation?

• b) Whether the Application/Petition is barred by limitation?

 

4. Analysis

Whether the Application/Petition is filed by an Authorised Person?

4.1 Hon’ble Supreme Court in the case of Rajendra Narottamdas Sheth and Another (supra) has clarified the legal position regarding the issue of Maintainability of the Application when filed by a power of attorney holder under Section 7 of the Code. In this case, Hon’ble Supreme Court has held that;

• 11. The NCLAT, in its judgment in Palogix Infrastructure (supra), held that a ‘power of attorney holder is not competent to file an application under Section 7 on behalf of the financial creditor. However, the NCLAT made certain further observations, as reproduced below:

•      “41. In so far as the present case is concerned, the ‘Financial Creditor’- Bank has pleaded that by Board’s Resolutions dated 30May, 2002 and 30October, 2009, the Bank authorised its officers to do needful in the legal proceedings by and against the Bank. If general authorisation is made by any ‘Financial Creditor’ or ‘Operational Creditor’ or ‘Corporate Applicant’ in favour of its officers to do needful in legal proceedings by and against the ‘Financial Creditor’/‘Operational Creditor’/‘Corporate Applicant’ in favour of its officer, mere use of word ‘Power of Attorney’ while delegating such power will not take away the authority of such officer and for all purposes it is to be treated as an ‘authorisation’ by the ‘Financial Creditor’/‘Operational Creditor’/‘Corporate Applicant’ in favour of its officer, which can be delegated even by designation. In such case, officer delegated with power can claim to be the ‘Authorized Representative’ for the purpose of filing any application under section 7 or Section 9 or Section 10 of ‘I &B Code’.”

• 12. The NCLAT was of the opinion that general authorisation given to an officer of the financial creditor by means of a power of attorney, would not disentitle such officer to act as the authorised representative of the financial creditor while filing an application under Section 7 of the Code, merely because the authorisation was granted through a power of attorney. Moreover, the NCLAT in Palogix Infrastructure (supra) has held that if the officer was authorised to sanction loans and had done so, the Application filed under Section 7 of the Code cannot be rejected on the ground that no separate specific authorisation letter has been issued by the financial creditor in favour of such officer. In such cases, the corporate debtor cannot take the plea that while the officer has power to sanction the loan, such officer has no power to recover the loan amount or to initiate corporate insolvency resolution process, in spite of default in repayment. We approve the view taken by the NCLAT in Palogix Infrastructure (supra).

• 13. In the present case, Mr. Praveen Kumar Gupta has been given general authorisation by the Bank with respect to all the business and affairs of the Bank, including commencement of legal proceedings before any court or tribunal with respect to any demand and filing of all necessary applications in this regard. Such authorisation, having been granted by way of a power of attorney pursuant to a resolution passed by the Bank’s board of  directors on 06.12.2008, does not impair Mr. Gupta’s authority to file an application under Section 7 of the Code. It is therefore clear that the Application has been filed by an authorised person on behalf of the Financial Creditor and the objection of the Appellants on the maintainability of the Application on this ground is untenable.”         (emphasis supplied)

 

4.2 In the instant case, the Application under section 7 of the Code was filed by the Assistant General Manager, who happens to be the principal officer of Respondent number 1 Bank. Accordingly, the said officer is duly authorised through a General Power of Attorney in his favour on 27 September 2011, which is still valid and effective.

4.3 Under the said Power of Attorney, the said officer of the bank is authorised to grant the loan, execute documents for and on behalf of the bank, recover loans, if necessary and further, entitled to initiate proceedings under the Insolvency and Bankruptcy Code. Additionally, Respondent number 1 Bank has also filed a copy of the permission letter dated 11 June 2018, which categorically allows the bank to file the present Application under section 7 of the Code. The signatory to the Application is well authorised to sign the Application given the law laid down by the Hon’ble Supreme Court in the case, Rajendra Narottamdas Sheth and Another (supra).

 

5. Whether the Application/Petition filed u/s 7 of the I& B Code is barred by limitation?

5.1 The Appellants claims that the account of the Corporate Debtor was classified as Non-Performing Assets on 01 July 2015. Therefore, the date of default, as mentioned in Section 7 petition, is 01 July 2015. Therefore, the limitation period for filing the Petition ended on 30 June 2018. However, the Application was filed on 22 October 2018. Thus, the Application/petition is filed much after the expiry of the limitation period.

5.2 The Appellants contention is mainly based on the premise that the Adjudicating Authority has wrongly considered the credit entry of 30 December 2015 for Rs.5,99,760/- from the Corporate Debtor. They are considering this entry as the last payment received from the Corporate Debtor. The Appellant submits that the said payment was made by a completely unrelated party, ‘Dynamic Extractor’. The said payment is neither made by the Appellant nor its agent. Therefore, based on the credit entry dated 30 December 2015 limitation period cannot be extended under Section 19 of the Limitation Act, 1963. Appellant returned even the said payment made by ‘Dynamic Extractor’.

5.4 The Learned Counsel for the Appellant submits that to get the benefit of Section 19 of the Limitation Act, two conditions are essential; first, payment must be made within the prescribed period of limitation and secondly, it must be acknowledged by some form of writing either in the handwriting of payer himself or signed by him. It is the payment that extends the period of limitation. Still, payment has to be proved in a particular way, and a written or signed acknowledgement is the only proof of payment. Oral testimony is excluded unless there is acknowledgement in the required form (Sant Lal Mahton v. Kamala Prasad A.I.R. 1951 S.C. 477).

 

5.6 Further, the balance sheets as of 31 March 2017, 31 March 2018 and 31 March 2019, the amount due and payable to the Respondent No.1 Bank is recorded under long term borrowings (in respect of term loan) and short term borrowing in respect of cash credit) (Ref page no. 72, 74, 102 and 104 of the Reply). Further, in both the balance sheets, there is a note stating, “loan from Central Bank of India towards packing credit is secured against hypothecation of stocks related to export and cash credit is secured against hypothecation of stocks and book debts and equitable mortgage of personal residential property of the director and factory land and building, belonging to MOCIL”. Hence, on both the counts above, there is a clear admission/acknowledgement that the amount is due and payable to Respondent No.1, i.e. Central Bank of India,

5.7 These balance sheets are also signed by the Appellant. Hence, the Application under Section 7, which was filed on 22 October 2018, is well within limitation. Further, through various demand promissory notes, the Corporate Debtor has acknowledged the loan disbursed by Respondent No.1 and has promised to pay on demand (Ref pg:155 to 133). Acknowledgement is also evident from the board resolution passed by the Corporate Debtor from time to time (Ref Pg-171-176).

5.9 Further,In the case Rajendra Narottamdas Sheth and Another v Chandra Prakash Jain and Another 2021 SCC OnLine SC 843 Hon’ble Supreme Court has held that;

“22. In the instant case, there is no dispute that the date of default is 30.09.2014 and the Application under Section 7 of the Code was filed on 25.04.2019. According to the Financial Creditor, Section 18 of the Limitation Act is applicable in view of the Corporate Debtor acknowledging its debt by way of letters, written in and after 2018, giving details of amount repaid, acknowledging the amount outstanding and requesting consideration of onetime settlement proposal. Sub-section (1) of Section 18 of the Limitation Act reads as under:

18. Effect of acknowledgement in writing. – (1) Where, before the expiration of the prescribed period for a suit or Application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed.

23. It is no more res integra that Section 18 of the Limitation Act is applicable to applications filed under Section 7 of the Code. In case the Application under Section 7 is filed beyond the period of three years from the date of default and the financial creditor furnishes the required information relating to the acknowledgement of debt, in writing by the corporate debtor, before the Adjudicating Authority, with such acknowledgement having taken place within the initial period of three years from the date of default, a fresh period of limitation commences and the Application can be entertained, if filed within this extended period.

24. There is no dispute that the date of default in this case is 30.09.2014, as mentioned by the financial creditor in its Application under Section 7. A copy of the debit balance confirmation letter dated 07.04.2016 was filed along with the Application. As the Application was filed only on 25.04.2019, which is beyond a period of three years even after taking into account the debit balance confirmation letter dated 07.04.2016, the Application was barred by limitation. However, the Corporate Debtor had, in its reply before the Adjudicating Authority, placed on record a letter dated 17.11.2018, which detailed the amount repaid till 30.09.2018 and acknowledged the amount outstanding as on 30.09.2018. On the basis of this letter and the record showing that the Corporate Debtor had executed various documents amounting to acknowledgement of the debt even in the financial year 2019-20, the NCLT was of the opinion that the Application was filed within the period of limitation. The said view was upheld by the NCLAT.

25. We have already held that the burden of prima facie proving occurrence of the default and that the Application filed under Section 7 of the Code is within the period of limitation, is entirely on the financial creditor. While the decision to admit an application under Section 7 is typically made on the basis of material furnished by the financial creditor, the Adjudicating Authority is not barred from examining the material that is placed on record by the corporate debtor to determine that such Application is not beyond the period of limitation. Undoubtedly, there is sufficient material in the present case to justify enlargement of the extension period in accordance with Section 18 of the Limitation Act and such material has also been considered by the Adjudicating Authority before admitting the Application under Section 7 of the Code. The plea of Section 18 of the Limitation Act not having been raised by the Financial Creditor in the Application filed under Section 7 cannot come to the rescue of the Appellants in the facts of this case. It is clarified that the onus on the financial creditor, at the time of filing an application under Section 7, to prima facie demonstrate default with respect to a debt, which is not time-barred, is not sought to be diluted herein. In the present case, if the documents constituting acknowledgement of the debt beyond April, 2016 had not been brought on record by the Corporate Debtor, the Application would have been fit for dismissal on the ground of lack of any plea by the Financial Creditor before the Adjudicating Authority with respect to extension of the limitation period and Application of Section 18 of the Limitation Act.”

(emphasis supplied)

5.10 In the instant case undisputedly, the account of the Corporate Debtor was classified Non-Performing Asset on 01 July 2015. The date of default, as mentioned in Section 7 petition, is 01 July 2015. On perusal of the statement of the account of Corporate Debtor, it appears that the amount of Rs.5,99,760/- was credited in the account of Corporate Debtor on 30 December 2015. The Appellant claims that this payment was made by a completely unrelated party, i.e. ‘Dynamic Extractors’. It is further stated that the said payment by ‘Dynamic Extractors’ was wrongfully made, and the Appellant returned it. The contention of the Appellant is unsupported by any evidence. However, it is unbelievable that an unrelated party will transfer such a vast amount of Rs.5,99,760/- in the loan account of Corporate Debtor. Moreover, there is no such document to show that  Appellant ever returned the said amount to the ‘Dynamic Extractors’.

5.11 Apart from the above, the Respondent Bank has filed the balance sheet as of 31March 2017, 31 March 2018 and 31 March 2019 showing the amount due and payable to the Respondent No.1 Bank, which is recorded under the heading long term borrowings (in respect of term loan) and short term borrowing (in respect of cash credit), which proves that on 31 March 2016. Term loan of Central Bank of India secured against hypothecation of the windmill is shown as Rs.83,61,600/- as of 31 March 2016, and short term borrowing (secured) from Central Bank of India is shown as Rs.20,47,65,214/-. In this statement, a note is also mentioned:

“Loan from Central Bank of India towards Packing Credit is secured against hypothecation of stock related to export and Cash Credit is secured against hypothecation of stock and book debts and equitable mortgage of personal residential property of director and factory land & building belonging to MOCIL.”

5.12 Based on the above discussion, we believe that the learned Adjudicating Authority has rightly admitted the Application filed under section 7 of the Insolvency and Bankruptcy Code 2016. The Appeal filed by the Appellant sans merit and deserves to be dismissed.

In fine, the company appeal (AT) (Insolvency) No. 623 of 2020 fails. No order as to costs.

 

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