The
Brief Factual Background
In 2011,
Since no payment was forthcoming for more than a year, the Bank approached the
Thereafter, in the Promoter's appeal from the NCLT judgment, the
Issues before the
1. Whether a petition under Section 7 of the IBC would be barred by limitation on the sole ground that it had been filed beyond three years from the declaration of the loan account as an NPA, even though the Corporate Debtor may have subsequently acknowledged the liability.
2. Whether a final judgment and decree of the DRT in favour of the financial creditor, or a Recovery Certificate, would give rise to a fresh cause of action to initiate proceedings under Section 7 of the IBC.
3. Whether there is any bar in law to the amendment of pleadings to include additional documents under a Section 7 petition.
Court's Findings
It is well established that the principles of Section 18 of the Limitation Act are applicable to Section 7 petitions under IBC. As per Section 18 of the Limitation Act, 1963, an acknowledgement of a subsisting liability in respect of any right claimed by the opposite party has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. The acknowledgement, however, must be made before the relevant period of limitation has expired. It is also well established that acknowledgement of a debt in a company's balance sheet extends the period of limitation; see Ergo Update on ARCIL v
The Court rejected the Corporate Debtor's objection that the additional documents (containing the purported acknowledgements) were not originally filed with the Petition. Stressing on the need for a purposive interpretation of the provisions of the IBC, the Court held that provisions thereof must not be given a pedantic interpretation. It conjointly read Sections 7(2) to 7(5) of the IBC along with the relevant rules to hold that there is no bar in law to the amendment of pleadings or filing of additional documents at any time until a final order admitting or dismissing the application has been passed. The Court, however, observed that in an event of inordinate delay, the NCLT may use its discretion to decline such a request.
Considering the above, the Court held that the financial statements of the Corporate Debtor for F.Y. 2016-17 and 2017-18 as well as the OTS Letter were brought on record before NCLT prior to admission of the petition; consequently the period of limitation was extended by the Corporate Debtor's acknowledgement of the debt in its accounts and in its offer for one time settlement. In light of this, the finding of the NCLAT that there was no acknowledgement of debt within 3 years was held to be unsustainable.
With respect to the issue of limitation, the Court further proceeded to hold that the Recovery Certificate in itself gave a fresh cause of action to the Bank to institute proceedings under Section 7 of IBC. In support of the above finding, the Court referred to a decision of the
Comments
While NCLAT, in its certain previous decisions, had adopted a contrary view, the
Notably, this is the first time that the
This decision may pave the way for judgment creditors / decree holders to approach the NCLT under Section 7 of IBC with a claim based on a decree / recovery certificate. It is bound to be exalted by banks and financial institutions, who may, under certain circumstances, prefer the IBC route over conventional execution proceedings.
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