M/s. Primee Silicones (Chennai) Pvt. Ltd. Vs. M/s. UCAL Fuel Systems Ltd.- It is also a settled proposition of law that a cheque which has not been encashed cannot amount to an ‘acknowledgement of liability’ in terms of Section 18 of the Limitation Act, 1963.

 NCLAT Chennai (17.02.2023) In M/s. Primee Silicones (Chennai) Pvt. Ltd. Vs. M/s. UCAL Fuel Systems Ltd.  [Company Appeal (AT) (CH) (Ins.) No. 299 of 2021] held that;. 

• It can be clearly seen that the amounts were paid towards specific invoices and therefore keeping in view the ratio of the aforenoted Judgements the said ‘Account’ cannot be termed as a ‘running Account’.

• It is also a settled proposition of law that a cheque which has not been encashed cannot amount to an ‘acknowledgement of liability’ in terms of Section 18 of the Limitation Act, 1963.

Excerpts of the order; 

# 1. Dissatisfied with the ‘Order’ dated 29.04.2021 passed by the Learned Adjudicating Authority, (National Company Law Tribunal, Division Bench – II, Chennai) in IBA No.364/2020, M/s. Primee Silicones (Chennai) Private Limited/the ‘Operational Creditor’ preferred this ‘Appeal’, challenging the ‘Order’ of dismissal of the Application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as ‘The Code’). While dismissing the Section 9 Application, the ‘Adjudicating Authority’ observed as follows:

• “6. Further, the account is not a “Running Account” as stated in reply by respondent. Clearly, 17 out of 25 invoices are beyond the period of limitation. The applicant has not filed any documents to satisfy that the old invoices are valid and enforceable in the eye of law. The respondent has stated in para-8 of the reply, the payment was made to exact amount of each invoice. Hence, on perusal of pleadings and documents, we conclude that the account cannot be termed as “running account” as evidence in Invoices at Page 18 to page 42, calculation sheet at page.43. The Operational Creditor has claimed interest at the rate of 24% per annum since earlies invoice dated 29.04.2015. The claim of Applicant included principal and interest since 29.04.2015. Admittedly, out of 25 invoices 17 are barred by limitation. The applicant has failed to prove “debt” and “default” as stated in application. However, this order does not bar the applicant to approach Civil Court for recovery, if any.”

# 2. It is stated that the ‘Operational Creditor’ is involved in the business of manufacturing Metal Forming Fluid Lubricant and Industrial Oils and in the due course of business, the ‘Corporate Debtor’ had placed several ‘Orders’ and accordingly the ‘Appellant’/‘Operational Creditor’ has supplied ‘Die Coat’ to the ‘Corporate Debtor’ from the Year 2013 onwards and corresponding Tax Invoices were raised from time to time. It is the case of the ‘Appellant’ that the last payment was received from the ‘Corporate Debtor’ on 07.11.2019 and despite several emails sent for seeking payment, the ‘Corporate Debtor’ did not respond. It is submitted that a ‘Demand Notice’ was issued on 07.02.2020, which was received by the ‘Corporate Debtor’, but the ‘Company’ has not made any further payments. It is the case of the ‘Operational Creditor’ that the ‘Corporate Debtor’ is required to pay a sum of Rs.13,24,275/- (Rs.8,03,815/- towards ‘principal amount’ and Rs.5,20,460/- towards ‘interest’ at 24% p.a.) and with further interest of 24% p.a. till the date of payment.

# 3. Learned Counsel for the ‘Appellant’ strenuously contended that the ‘Operational Creditor’ is a registered MSME; that the ‘Corporate Debtor’ has not disputed the receipt of goods or raised any disputes prior to the receipt of ‘Statutory Notice’ dated 07.02.2020, but their only contention is that some of the invoices are dated prior to 2017 and are hence ‘time barred’. It is submitted that the Account is a ‘running Account’ and the ‘claim’ is well within the period of ‘Limitation’. It is the case of the ‘Appellant’ that even if the Accounts are not construed to be a ‘running Account’, the email sent by the ‘Corporate Debtor’ on 23.10.2018, asking the ‘Appellant’ to reconcile the Accounts and share of ‘payment advice’ mentioning Invoice Number very specifically and also mentioning the details of the cheque dated 13.03.2017 drawn on Bank of India for Rs.3 Lakhs/- would show that the Respondent Company had admitted the liability. It is argued that since the payment was not received by the ‘Appellant’ as on 13.03.2017 or on any other subsequent dates, the communication between the ‘parties’ in October 2018 should be construed as an actual date of acknowledgment of default and therefore the ‘Right to Sue’ accrues on that date, and the Section 9 Application having been filed on 24.02.2020 was well within the period of ‘Limitation’.

# 4. Learned Counsel for the ‘Appellant’ submitted that during the pendency of the case on 06.03.2021, at 4:00 PM, an amount of Rs.3,23,723.36/- was transferred to the Account of ‘Appellant’ without seeking leave of the ‘Tribunal’ and without giving any ‘Notice’ to the ‘Appellant’. Therefore, the ‘Appellant’ as per Section 60 of the Contract Act, 1872, has adjusted the amount paid towards the interest dues. It is contended that the Respondent had served a memo on 08.03.2021 that 8 invoices, which are not ‘barred by Limitation’ have been paid, but the same was objected to on the ground that the amount was apportioned towards interest. As far as interest is concerned, the ‘terms’ and ‘conditions’ of the invoice attract ‘Penal Interest’ at 24% p.a. after the Credit period of 90 days. It is also submitted that the Hon’ble Supreme Court has held that any acknowledgement in the Balance Sheet of the ‘Corporate Debtor’ is an ‘acknowledgement of debt’, and in the present case, the ‘Corporate Debtor’ having admitted to the invoices in October 2018, would only show that ‘Corporate Debtor’ has acknowledged their liability to pay the amounts. Further, the earliest unpaid invoice is dated 29.04.2015, for which the ‘Limitation’ of three Years, expires on 28.04.2018, but the cheque payment alleged by the ‘Corporate Debtor’ is dated 13.03.2017 which construes an intention to pay and therefore the Application is well within the period of ‘Limitation’.

# 5. Learned Sr. Counsel Mr Pandian argued that the Application was clearly ‘barred by Limitation’ and that the Account cannot be termed as a ‘running Account’ as the ingredients of a ‘running Account’ would include:

• (a) the value of the goods supplied to be debited in the Debit Column;

• (b) when amounts are paid by the ‘buyer’ to the ‘seller’, they are entered in the Credit Column; and

• (c) the difference is continuously maintained in the column for balance.

# 6. It is argued by the Learned Sr. Counsel for the Respondent/‘Corporate Debtor’, that non-payment of invoices and payment without specifying a particular invoice does not make the transaction a ‘running Account’, which in any case is not the position in the present matter. The ‘Appellant’ for the first time in these proceedings, contended that the amount of Rs.3,23,723.36/- paid by the ‘Corporate Debtor’ has been appropriated in the manner provided in Section 60 of the Contract Act 1872, as the payment was made only towards the ‘principal amount’ in respect of the 8 invoices thereby eliminating any question of it being appropriated towards any alleged interest amounts and hence Section 60 of the Contract Act, 1872, is inapplicable to the facts of this case. It is only to overcome the bar of ‘Limitation’, that the ‘Appellants’ have resorted to this argument that the amount was apportioned towards interest, when many of the invoices do not carry the interest component. The ‘interest rate’ has been stipulated as 24% p.a. on every invoice, except the invoices raised between the Years 2017 & 2019, which are already paid by the ‘Corporate Debtor’. The ‘Appellant’ themselves have calculated the number of days and delay and interest in respect of each ‘individual invoice’ clearly recognising that the transactions were on an individual ‘invoice to invoice’ basis and not a ‘running Account’. It is the case of the Respondent/‘Corporate Debtor’, that the ‘Appellant’ cannot claim an interest on all the 17 invoices, in respect of which all claims are clearly ‘time-barred’. With respect to the balance 8 invoices which have already been cleared, they do not stipulate for payment of any interest and therefore the question of any interest liability in respect of these payments does not arise.

# 7. It is the case of the ‘Corporate Debtor’ that the email communications relied upon by the ‘Appellant’ does not construe ‘acknowledgement of debt’, but only contain a ‘payment advice’ from the Respondent. Further, the cheque which was issued by the Respondent in respect of these amounts was not even cleared by the Bank. The email includes a ‘payment advice’ from the Respondent that they have made payments to the tune of Rs.3 Lakhs/- towards certain invoices by a cheque dated 13.03.2017. It is the case of the Respondents that the email can at best be treated as a Statement of payment and not an acknowledgement of a subsisting debt. Learned Sr. Counsel placed reliance on the Judgement of the Hon’ble High Court of Madras in ‘Karamadai Naicken’ Vs. ‘R. Raju Pillai & Anr.’1, in support of his submissions that a Statement made by the Debtor that he was under a liability, coupled with a Statement that he has discharged the debt, would not amount to an ‘acknowledgement’ of a subsisting liability. It is also contended that a cheque which is dishonoured, cannot be construed as part payment within the meaning of Section 20 of the Limitation Act, 1963. It is the case of the Respondent that the issue of Balance Sheets and ‘acknowledgement’ therein was raised by the ‘Appellant’ for the very first time in these ‘Appeals’ and the said Balance Sheets have also not been filed. Nor is there any attempt made by the ‘Appellant’ to show as to how ‘Asset Reconstruction Company India Limited’ Vs. ‘Bishal Jaiswal and Anr.’2, is applicable to the facts of this case.

Assessment:

# 8. The main point for consideration in this ‘Appeal’ is whether the ‘Adjudicating Authority’ was justified in dismissing the Application filed under Section 9 of the Code, as ‘barred by Limitation’. At the outset, the question as to whether the ‘Account’ between the ‘parties’ could be construed as a ‘running Account’ is being decided. Learned Sr. Counsel for the Respondent/‘Corporate Debtor’ has strenuously argued that the basic requirements of the Account having clear ‘Debit’ and ‘Credit’ entries was not satisfied in the present case and that all payments have been made towards ‘individual invoices’ and therefore the Account cannot be construed as a ‘running Account’. At this juncture, the Respondent placed reliance on the Judgement of the Hon’ble Delhi High Court in ‘Bharat Skins Corporation’ Vs. ‘Taneja Skins Corporation Private Limited’3 in which, para 19, reads as follows:

• “19. In case of a running and non-mutual account between the buyer and seller, when goods are delivered by the seller to the buyer, the value of the goods is debited in the debit column and when amounts are paid by the buyer to the seller, they are entered in the credit column. The difference is continuously struck in the column for balance. In such a case, when the buyer defaults to make balance payment, the seller’s action is not for the price of goods sold and delivered but for the balance due at the foot of an account. Thus, Article 14 would have no application in suits of recovery of money due on a running and a non-mutual current account between the buyer and seller.”

# 9. The Hon’ble High Court of Bombay in ‘Wilsons Jacobs’ Vs. ‘Lucid Prints & Ors.’4, has observed as hereunder:

• “7. There is then an argument that between the parties there was a running account. The fact that there were continuous transactions does not make it a running account. Again the concept of a running account in commercial practice is well-known. It must be demonstrated that there are debits and credits going on simultaneously or on a regular basis and that balances are struck with some periodicity; not that there are a number of invoices, some of which remain unpaid. Non-payment of invoices and payment without specifying a particular invoice does not make the transactions a “running account”.”    (Emphasis Supplied)

# 10. From the aforenoted Judgements it is clear that for an Account to be termed a ‘running Account’ it must be demonstrated that there are ‘Debits’ and ‘Credits’ entries going on simultaneously or on a regular basis and the balances are struck with some periodicity. Non-payment of invoices and payment without specifying a particular invoice does not make the transaction a ‘running Account’. As can be seen from the invoices/communication dated 18.04.2018, 24.04.2018, 12.05.2018, 12.10.2018, 26.10.2018, 15.11.2018, 11.12.2018 & 24.12.2018, it can be clearly seen that the amounts were paid towards specific invoices and therefore keeping in view the ratio of the aforenoted Judgements the said ‘Account’ cannot be termed as a ‘running Account’.

# 11. Learned Counsel for the ‘Appellant’ placed reliance on the email dated 23.10.2018 in support of his contention that the said email specifies that the ‘Corporate Debtor’ had acknowledged their liability and the dishonouring of the cheque dated 13.03.2017 further strengthens his case. At this juncture, this ‘Tribunal’ finds it relevant to reproduce the email dated 23.10.2018:

# 12. From the aforenoted email, it is clear that the subject of the email was ‘payment advice’ and the cheque was dated 13.03.2017 and the payments were towards the specific invoices the amount is for Rs.3 Lakhs/-:

# 13. It is also relevant to reproduce the email dated 29.10.2018:

# 14. From the aforenoted email it is established that the cheque was never realised and the amount was not paid. This cheque was meant for invoices dated 25.05.2015 to 25.09.2015, as can be seen from the aforenoted Statement of Account.

# 15. It is clear from the para 14 Statement of Account that these invoices pertain to the period from 25.05.2015 to 25.09.2015 and therefore pertain to the period 3 Years prior to the filing of the Application. The Section 9 Application was filed on 24.02.2020 and it is the case of the ‘Appellant’ that during the pendency of the proceedings on 08.03.2021, a sum of Rs.3,23,723.36/- was also paid by the Respondent. Section 18 of the Limitation Act, 1963 reads as follows:

• “18. Effect of acknowledgment in writing.—

• (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment 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 acknowledgment was so signed.

• (2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.

• Explanation.—For the purposes of this section,—

• (a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right,

• (b) the word “signed” means signed either personally or by an agent duly authorised in this behalf, and  

• (c) an application for the execution of adecree or order shall not be deemed to be an application in respect of any property or right.”

# 16. In the instant case, the contention of the Learned Counsel for the ‘Appellant’ that the email dated 29.05.2019 should be construed as ‘acknowledgement’ is also not within 3 Years of the dates of invoices. It is also a settled proposition of law that a cheque which has not been encashed cannot amount to an ‘acknowledgement of liability’ in terms of Section 18 of the Limitation Act, 1963. This ‘Tribunal’ is of the considered view that the emails relied upon by the ‘Appellant’ do not strictly construe an ‘acknowledgement of liability’ as provided for under Section 18 of the Limitation Act, 1963. Though it is mentioned by the ‘Appellant’ in the ‘Notes of Submissions’ that these amounts have been ‘acknowledged’ in the Balance Sheets, the same has neither been produced before the ‘Adjudicating Authority’ or before this ‘Tribunal’. This Pleading is not even a part of the grounds of ‘Appeal’ or pleaded before the ‘Adjudicating Authority’.

# 17. This ‘Tribunal’ is also conscious of the fact that some of the invoices does not carry the interest component. Be that as it may, it is seen from the record that majority of the invoices are beyond the period of ‘Limitation’ and that interest claimed by the ‘Appellant’/‘Operational Creditor’, as can be seen from the Statement made in Part-IV of the Application @24% p.a. is from the invoices dated 29.04.2015. The amounts said to be ‘due and payable’ include the ‘principal and interest’ calculated from the Year 29.04.2015 and therefore this ‘Tribunal’ agree with the finding of the ‘Adjudicating Authority’ that out of 25 invoices, 17 are ‘barred by Limitation’.

# 18. The Hon’ble Apex Court in a catena of Judgements has laid down that IBC is not a Recovery Proceeding but is meant for Resolution. The ‘Adjudicating Authority’, exercising powers under Section 7 or Section 9 of IBC, is not a ‘Debt Collection Forum’. The IBC tackles and/or deals with Insolvency and Bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalize ‘Solvent Companies’ for non-payment of disputed dues claimed by an ‘Operational Creditor’.

# 19. Needless to mention that the ‘Appellant’ may avail such other remedies or may be available in accordance with law.

# 20. For all the foregoing reasons, this ‘Tribunal’ is of the earnest view that there is no ‘illegality’ or ‘infirmity’ in the ‘Well Considered and Reasoned Order’ of the `Tribunal’ (`NCLT’) in IBA No.364/2020 and therefore this ‘Tribunal’ hold that Comp. App. (AT) (CH) (Ins.) No. 299/2021 is accordingly ‘dismissed’. No costs.

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

Surender Singh Vs. Yes Bank Ltd. & Anr. - Hon’ble Supreme Court on considering the aforesaid Rules (Order 22 Rule 10) had held that on account of failure of assignee to file application to continue the proceeding, the application could not have been dismissed, the original Applicant could have continued the proceeding for the benefit of assignee.

NCLAT (16.02.2023) In Surender Singh Vs. Yes Bank Ltd. & Anr.  [Company Appeal (AT) (Insolvency) No. 179 of 2023] held that;. 

• The legislature has not envisaged the penalty of dismissal of the suit or appeal on account of failure of the assignee to move an application for impleadment and to continue the proceedings. 

• Thus, there cannot be dismissal of the suit or appeal, as the case may be, on account of failure of the assignee to file an application to continue to proceedings. 

• It would be open to the assignor to continue the proceedings notwithstanding the fact that he ceased to have any interest in the subject-matter of dispute. He can continue the proceedings for the benefit of assignee.”

• Hon’ble Supreme Court on considering the aforesaid Rules had held that on account of failure of assignee to file application to continue the proceeding, the application could not have been dismissed, the original Applicant could have continued the proceeding for the benefit of assignee.

Excerpts of the order; 

16.02.2023: Heard learned Counsel for the parties.

# 2. This appeal has been filed against an order dated 10.02.2023 passed by the Adjudicating Authority (NCLT Mumbai) by which order the Adjudicating Authority has admitted Section 7 Application filed by Yes Bank, the Respondent No. 1 herein. The Appellant before us was extended various financial facilities by the Financial Creditor and on account of default committed by the Appellant, the Application was initiated alleging default of Rs. 4,689,990,947.45. The Adjudicating Authority heard the parties on 14.12.2022 and reserved the order. Subsequent to reserving of the order by the Adjudicating Authority, an Interlocutory Application was filed by the Corporate Debtor being I.A. no. 210/2023. In the I.A. the Corporate Debtor stated that final hearing in the Application took place on 14.12.2022 and the matter was reserved for orders. It is submitted that Yes Bank has already assigned the debt in favour of JC Flowers Asset Reconstruction Company. Letter dated 13.12.2022 sent by Yes Bank has also been referred and in the Application following prayer was made:

“PRAYERS:

In view of the above, the Applicant abovenamed prays for the following reliefs form this Hon’ble Tribunal:

• a. that, this Hon’ble Tribunal be pleased to dismiss the Company Petition No. 301 of 2022 and Interlocutory Application No. 1257 of 2022;

• b. that, pending hearing and final disposal of the present Interlocutory Application, this Hon’ble Tribunal be pleased to stay the proceedings in the Company Petition No. 301 of 2022 and the Interlocutory Application No. 1257 of 2022;

• c. that, this Hon’ble Tribunal be pleased to grant costs to the Applicant for preferring the present Interlocutory Application;

• d. interim relief in terms of prayer (b) above and,

• e. that, this Hon’ble Tribunal be pleased to pass such other order(s) and/or directions(s) as the circumstances of the present case warrant.”

# 3. The Application came before the Adjudicating Authority on 19.01.2023 on which date following order was passed:

• “ORDER 

• IA 210/2023

• Ld. Counsel appearing for the Applicant, Corporate Debtor is present. It is observed that the main Company Petition is heard extensively and was Reserved for Orders on 14.12.2022. The present Interlocutory Application is filed by the Corporate Debtor for brining on record assignment of Debt.

• Ld. Counsel for the Respondent, Financial Creditor is present and waives service of notice and seeks time to file Reply. Let the same be done well before the adjourned date by duly serving copy to the other side well in advance. List this matter on Board on 21.02.2023.”

# 4. Subsequent to the order dated 19.01.2023, the Adjudicating Authority by the Impugned order dated 10.02.2023, admitted the Section 7 Application.

# 5. Shri Krishnendu Dutta, learned Sr. Counsel appearing for the Appellant contends that when the Corporate Debtor had filed an Application praying for dismissal of the Application and it was entertained on 19.01.2023 and 21.02.2023 was the date fixed in the Application, there was no occasion for the Adjudicating Authority to admit Section 7 Application. It is submitted that the Adjudicating Authority ought to have considered the consequences of assignment in the Application no. 210 of 2023.

# 6. Mr. Ramji Srinivasan appearing for assignee, J.C. Flower ARC has submitted that there is no consequence of the assignment made to the proceeding and even if the assignee is not brought on record, since the hearing completed on 14.12.2022, therefore the Adjudicating Authority could have pronounced well before 10.02.2023. It is submitted that the application filed by the Corporate Debtor on which notice was issued on 19.01.2023, it does not mean that the Adjudicating Authority shall consequently reopen the case and hear the parties again. It is submitted that after reserving of the order many applications are filed and mere fact that the notices were issued is inconsequenced. He has further submitted that in view of the provision of Section 5(4) of SARFAECI Act, 2002, the proceeding could not have been abated merely because of an assignment and proceeding could have been continued and it was open for the assignee to come or not to come and there was no error in the order dated 10.02.2023. He has relied upon a judgment of the Hon’ble Supreme Court- 2016(1) SCC 730 titled “Sharadamma Vs. Mohammed Pyrejan (Dead) through Legal representatives and Another”.

# 7. We have heard the parties and perused the records. There is no dispute between the parties that Section 7 Application was heard on 14.12.2022 and order was reserved. After reserving of the order by the Adjudicating Authority, I.A. No. 210 of 2023 has been filed by the Corporate Debtor. In paragraph-3 of the Application the fact it is clearly mentioned that the order was reserved and hearing took place on 14.12.2023.

# 8. The events which took place pertaining to assignment in favour of JC Flower ARC has been mentioned in paragraphs 4 to 7. It is useful to extract the contents of paragraphs 3 to 7

• “3. The Applicant states that, the ‘Final Hearing’ of the Petition took place on 14th December 2022. After hearing the Ld. Senior Counsels representing the parties extensively, this Hon’ble Court was pleased to reserve the matter ‘For Orders’.

• 4. During the hearing of the Petition, the Respondent represented to this Hon’ble Court that, it is the ‘financial creditor’ to the present Applicant. However, for reasons best known to itself, the Respondent has suppressed from this Hon’ble Court that, as on the date of final hearing of the Petition, the Interlocutory Application No. 1257 of 2022 and the Interlocutory Application No. 3769 of 2022, i.e., on 14th December, 2022, it has already agreed to assign the (alleged) debt of the Applicant, as well as the debts of the Principal Borrowers in favour of the J.C. Flowers Asset Reconstruction Private Limited (hereinafter referred to herein as ‘JC Flower ARC’). It is obvious that the Respondent was in discussions with JC Flower ARC to enter into terms of assignment of the debt much prior to 14th December 2022 as the total debt being assigned was in the sum upwards of Rs. 4,80,00,00,00,000/- (Rupees Forty-Eight Thousand Crores) which would require an extensive amount of time, deliberation and due diligence by the parties involved.

• 5. The Applicant states that, on 30th December 2022 the Respondent addressed letters to the Principal Borrowers and the present Applicant respectively, thereby intimating the addresses that, “…pursuant to the execution of Assignment Agreement dated December 16, 2022 between YBL and JCF ARC (“Assignment Agreement”), we have absolutely assigned and transferred, unto and in favour of JCF ARC, the Loans and all the amounts due and monies stipulated in or payable under the Financing Documents by the Borrower to YBL, together with all underlying security interests… and our rights, title and interests (of whatsoever nature) in relation to the same”.

• Copies of the letters dated 30th December 2022 issued by the Respondent to the Applicant and the Principal Borrowers are annexed hereto and marked as ‘Exhibit B(Colly)’.

• 6. Thereafter, on 2nd January 2023, JC Flowers ARC addressed letters to the Principal Borrowers and the present Applicant, thereby informing the addressees thereto that,

• “… Yes Bank Limited (“YES Bank”) has absolutely assigned and transferred all the rights, title and interests in the financial assets pertaining to … together with the security created thereof in favour of J.C. Flowers Asset Reconstruction Private Limited (“JCF ARC”) vide assignment agreement executed in favour of JCF ARC acting in its capacity as trustee of JCF YES 2022-23/4 Trust on December 16, 2022..

• Pursuant to the above, JCF ARC has become the lender and all the rights, title and interest of YES Bank with respect to the financial assets pertaining to the Borrower together with security created thereof stands vested in JCF ARC pursuant to the provisions of Securitisation and Reconstruction of Financial assets and Enforcement of Security Interest Act, 2022…”

• Copies of the letters dated 2nd January 2023 issued by JC Flowers ARC to the Applicant and the Principal Borrowers are annexed hereto and marked as ‘Exhibit C(colly)’.

• 7. Under Section 60(5)(a) of the Code read with Rule 11 of the NCLT Rules, this Hon’ble Tribunal has the inherent jurisdiction to entertain or dispose off any application or  proceedings by or against the corporate or corporate person for meeting ends of justice and/or to prevent abuse of process of this Hon’ble Tribunal. For the reasons as set out herein, the present IA is required to be decided by this Hon’ble Tribunal.”

# 9. The submission which has been made by learned Counsel Mr. Ramji Srinivasan is relying on Section 5(4) of the SARFAESI is that the proceeding could have been continued and assignment had no effect on the proceeding. Section 5 deals with acquisition of rights and interest on financial assets which provides as follows:

• “Section 5 in The Securitisation And Reconstruction Of Financial Assets And enforcement Of Security Interest Act, 2002

• 5. Acquisition of rights or interest in financial assets.-

• (1) Notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution-

• (a) by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between hem; or

• (b) by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them.

• (2) If the bank or financial institution is a lender in relation to any financial assets acquired under sub- section (1) by the securitisation company or the reconstruction company, such securitisation company or reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets.

• (3) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers- of- attorney, grants of legal representation, permissions, approvals, consents or no- objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub- section (1) and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favor of the securitisation company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, securitisation company or reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favor of securitisation company o reconstruction company, as the case may be.

• (4) If, on the date of acquisition of financial asset under sub- section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the third proviso to sub- section (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986 ) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the securitisation company or reconstruction company, as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the securitisation company or reconstruction company, as the case may be.”

# 10. The provisions of Section 5(4) of SARFAESI Act are clear and categorical that mere assignment during pendency of the proceeding, as referred in 5(4) of SARFACEI Act, shall not be prejudicially affected by the reason of acquisition of financial debt by the said JC Flower ARC as the case may be, but the suit or appeal or other proceeding may be continued, prosecuted and enforced by the assignee JC Flower ARC.

# 11. In the facts of the present case, we proceed on the premise that by virtue of Section 5(4) of SARFAECI Act, the Application could have been continued and would not have been prejudicially affected by reason of acquisition of the financial asset. But present is the case, where an application has been filed by the Corporate Debtor praying for dismissal of Section 7 Application on which application the Adjudicating Authority passed the order on 19.01.2023 taking note of the Application and granted time to Financial Creditor to file Reply since it has waived notice. Adjudicating Authority categorically directed that the Reply be filed before the adjourned date after duly serving copy to the Corporate Debtor.

# 12. Hon’ble Supreme Court in the matter of “Sharadamma Vs. Mohammed Pyrejan (Dead) through Legal representatives and Another”.(supra) where the Hon’ble Supreme Court had occasion to consider order 22, Rules 10 & 11 of Civil Procedure Code after noticing the aforesaid provisions in paragraphs 4 & 5, the following have been laid down:

• “4. Order 22 Rule 10 and Order 22 Rule 11 CPC are extracted hereunder:

• Order 22 Rules 10 & 11

• “10. Procedure in case of assignment before final order in suit. – (1) In other cases of an assignment, creation or devolution of any interest during the pendency of a suit, the suit may, by leave of the Court, be continued by or against the person to or upon whom such interest has come or devolved.

• (2) The attachment of a decree pending an appeal therefrom shall be deemed to be an interest entitling the person who procured such attachment to the benefit of sub-rule (1).

• 11. Application of Order to appeals. – in the application of this Order to appeals, so far as may be, the word ‘plaintiff’ shall be held to include an appellant, the word ‘defendant’ a respondent, and the word ‘suit’ an appeal.”

• 5. A bare reading of the provisions of Order 22 Rule 10 makes it clear that the legislature has not envisaged the penalty of dismissal of the suit or appeal on account of failure of the assignee to move an application for impleadment and to continue the proceedings. Thus, there cannot be dismissal of the suit or appeal, as the case may be, on account of failure of the assignee to file an application to continue to proceedings. It would be open to the assignor to continue the proceedings notwithstanding the fact that he ceased to have any interest in the subject-matter of dispute. He can continue the proceedings for the benefit of assignee.”

# 13. Hon’ble Supreme Court on considering the aforesaid Rules had held that on account of failure of assignee to file application to continue the proceeding, the application could not have been dismissed, the original Applicant could have continued the proceeding for the benefit of assignee. There can be no dispute to the proposition laid down by the Hon’ble Supreme Court in reference to provision under Order 22, Rules 10 & 11 of CPC. In the present case we are considering the case where Section 7 Application was filed by the Yes Bank where hearing took place before the Adjudicating Authority, the fact of assignment was brought under notice and prayer was made to dismiss Section 7 Application. Application was entertained by the Adjudicating Authority and notices were issued on 19.01.2023 fixing 21.12.2022 as the next date.

# 14. We are of the view that the Adjudicating Authority, it having already issued notice on the application, granted time to the Financial Creditor to reply the Application, ought to have considered the Application. At this stage when the Application has not been considered, we are of the view that it is not necessary for us to express any opinion on the merits of the Application which may prejudice the parties before the Adjudicating Authority. The fact that the Adjudicating Authority itself has fixed the date 21.02.2022 on the application in the same CP(IB) 301(MB) 2022, before considering the said Application it was not appropriate to deliver the order under Section 7 Application.

# 15. The submission of Mr. Ramji Srinivasan that after reserving of the order, several applications are filed and if notices are issued, that should not prejudice the matter which has already been reserved, does not appeal to us. In the present case, the Adjudicating Authority has issued Notices and prayer of the Financial Creditor to file Reply was acceded to, it was necessary to decide the said application. Hence, before the date fixed for consideration of the case, the Adjudicating Authority ought not to have admitted Section 7 Application. In view of the above, we allow this Appeal and set aside the order dated 10.02.2022. I.A. No. 210/2023 may be considered by the Adjudicating Authority and dispose of in accordance with law. We make it clear that we are not expressing any opinion on the merits of Section 7 Application and it is open for the parties to raise all submissions as permissible in law.

# 16. Learned Counsel for the Assignee submits that assignee may also be permitted to file response to the Application and it may also be permitted to be brought on record. In view of the aforesaid, the assignee be impleaded in I.A. No. 210 of 2023 and time is allowed to file response to the Application before the next date before the Adjudicating Authority. We also make it clear that we have not expressed any opinion about the merit of I.A. No. 210 of 2023. Let the Adjudicating Authority consider the Application and pass fresh order both on Application IA No. 210 of 2023 and Section 7 Application in accordance with law.

All contentions of both the parties are left open.

 

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