Supreme Court of India
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITEDversusTULIP STAR HOTELS LIMITED & ORS.
- Citation
- 2022 INSC 777
- Decided
- 1 August 2022
- Disposal
- Appeal(s) allowed
- Bench
- INDIRA BANERJEE
Holding
An IBC Section 7 application is not barred by limitation if the corporate debtor acknowledges the debt in its financial statements within the three‑year period, as such acknowledgment under Section 18 extends the limitation, and the IBC’s overriding provisions apply.
Summary
The Supreme Court examined an appeal by Asset Reconstruction Company (India) Ltd., a financial creditor, against a NCLAT order that held a Section 7(2) IBC application against V. Hotels Ltd. was time‑barred. The Court clarified that the Limitation Act, 1963 applies to IBC applications and that the three‑year limitation period under Article 137 is extended by any valid acknowledgment of liability under Section 18. It held that entries in the corporate debtor’s financial statements constitute such acknowledgment, even if made in balance‑sheets prepared under the Companies Act. Consequently, the appellant’s application filed on 3 April 2018 fell within the extended limitation period, and the NCLAT’s finding that books of account cannot be treated as acknowledgment was erroneous. The Court set aside the NCLAT judgment, allowing the appeals.
Issues considered
- The applicability of the Limitation Act, 1963 to applications under Section 7 of the IBC.
- Whether the three‑year limitation period for IBC applications is governed by Article 137 of the Limitation Act.
- If entries in a corporate debtor’s books of account or financial statements amount to an acknowledgment of liability under Section 18 of the Limitation Act.
- The overriding effect of Section 238 and Section 238A of the IBC over other statutes.
- Whether the NCLAT erred in holding that the corporate debtor’s books of account could not extend the limitation period.
Legislation cited
- Companies Act, 1956s. 210, s. 211, s. 215, s. 216, s. 217
- Companies Act, 2013s. 128, s. 129, s. 134
- Insolvency and Bankruptcy (Amendment) Act, 2018s. Section 238A
- Insolvency and Bankruptcy Code, 2016s. 238, s. 238A, s. 62, s. 7(2)
- Limitation Act, 1963s. 18, s. Article 137 (Schedule)
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)s. 13(2), s. 13(4)
Subjects
InsolvencyCorporate Insolvency Resolution ProcessLimitationSection 7 IBCSection 18 Limitation ActFinancial CreditorBooks of AccountAcknowledgment of DebtNCLTNCLATOverriding Effect of IBC
Judgment
1112 [2022]REPORTS
SUPREME COURT 5 S.C.R. 1112 [2022] 5 S.C.R.
A ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED
v.
TULIP STAR HOTELS LIMITED & ORS.
(Civil Appeal Nos. 84-85 of 2020)
B AUGUST 01, 2022
[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]
Insolvency and Bankruptcy Code, 2016 – ss. 7(2), 62 & 238A
– Limitation Act, 1963 – s. 18 – Corporate Insolvency Resolution
Process (CIRP) – Extension of period of limitation –
C Acknowledgement in books of account – A loan agreement was
executed between the consortium of banks and the corporate debtor
– Pursuant to which, a loan amount of Rs.129 crore was sanctioned
to corporate debtor – Corporate debtor was classified as non-
performing asset (NPA) – Thereafter, parties entered into a settlement
agreement – There were extensions of time and revised settlements –
D
Ultimately, the appellant revoked the settlement – Corporate debtor
acknowledged its liabilities towards the appellant in its financial
statement from 2008-09 to 2016-17 – Application was filed by the
appellant u/s 7(2) of IBC before the NCLT for initiation of CIRP
against the corporate debtor – Corporate debtor filed a application
E seeking dismissal of application u/s 7(2) as time barred – NCLT
dismissed the application of corporate debtor and admitted the
application for initiation of CIRP – NCLAT held that CIRP was
barred by limitation and the books of account cannot be treated as
an acknowledgement of liability in respect of debt – On appeal,
held: IBC has overriding effect over other laws – There is no specific
F
period of limitation prescribed in the Limitation Act, 1963, for an
application under the IBC – Therefore, it is to be governed by the
Article 137 of 1963 Act which prescribes period of limitation as 3
years – It is well settled that entries in books of accounts and/or
balance sheets of a corporate debtor would amount to an
G acknowledgment u/s. 18 of the Limitation Act – Hence, an application
u/s. 7 of the IBC would not be barred by limitation, if there were an
acknowledgement of the debt by the corporate debtor before expiry
of the period of limitation of 3 years – NCLAT erred in law in holding
that the books of account of a company could not be treated as
acknowledgement – In the present case, corporate debtor
H
1112
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1113
TULIP STAR HOTELS LTD.
acknowledge its liability in its financial statement from 2008-09 to A
2016-17 and the application u/s. 7(2) was filed on 03.04.2018 –
Hence, the application was well within the extended period of
limitation – Impugned Judgment and order of NCLAT set aside.
Allowing the appeals, the Court
HELD:1.Under the scheme of the IBC, the Insolvency B
Resolution Process begins, when a default takes place, in the
sense that a debt becomes due and is not paid. Where any
Corporate Debtor commits default, a Financial Creditor, an
Operational Creditor or the Corporate Debtor itself may initiate
Corporate Insolvency Resolution Process in respect of such C
Corporate Debtor, in the manner as provided in Chapter II of the
IBC. The provisions of the IBC are designed to ensure that the
business and/or commercial activities of the Corporate Debtor
are continued by a Resolution Professional, upon imposition of a
moratorium, to give the Corporate Debtor some reprieve from
coercive litigation, which could drain the Corporate Debtor of its D
financial resources. The IBC is not just a statute for recovery of
debts. It is also not a statute which only prescribes the modalities
of liquidation of a corporate body, unable to pay its debts. It is
essentially a statute which works towards the revival of a corporate
body, unable to pay its debts, by appointment of a Resolution E
Professional [Paras 44-46, 55][1130-B; 1146-C-E; 1149-D]
2. IBC has overriding effect over other laws. Section 238
of the IBC provides that the provisions of the IBC shall have
effect, notwithstanding anything inconsistent therewith contained
in any other law, for the time being in force, or any other
F
instrument, having effect by virtue of such law. The IBC is a
beneficial legislation for equal treatment of all creditors of the
Corporate Debtor, as also the protection of the livelihoods of its
employees/workers, by revival of the Corporate Debtor through
the entrepreneurial skills of persons other than those in its
management, who failed to clear the dues of the Corporate Debtor G
to its creditors. It only segregates the interests of the Corporate
Debtor from those of its promoters/persons in management.
Relegation of creditors to the remedy of coercive litigation against
the Corporate Debtors could be detrimental to the interests of
H
1114 SUPREME COURT REPORTS [2022] 5 S.C.R.
A the Corporate Debtor and its creditors alike. While multiple
coercive proceedings against a Corporate Debtor in different
forums could impede its commercial/business activities, deplete
its cash reserves, dissipate its assets, moveable and immoveable
and precipitate its commercial death, such proceedings might not
be economically viable for the creditors as well, because of the
B
length of time consumed in the litigations, the expenses of
litigation, and the uncertainties of realisation of claims even after
ultimate success in the litigation. It is, therefore, imperative that
the provisions of the IBC and the Rules and Regulations framed
thereunder be construed liberally, in a purposive manner to
C further the objects of enactment of the statute. [Paras 57, 59-
61][1150-B-G]
3. There is no specific period of limitation prescribed in the
Limitation Act, 1963, for an application under the IBC, before
the Adjudicating Authority (NCLT). An application for which no
D period of limitation is provided anywhere else in the Schedule to
the Limitation Act, is governed by Article 137 of the Schedule to
the said Act. Under Article 137 of the Schedule to the Limitation
Act, the period of limitation prescribed for such an application is
three years from the date of accrual of the right to apply. There
can be no dispute with the proposition that the period of limitation
E for making an application under Section 7 or 9 of the IBC is three
years from the date of accrual of the right to sue, that is, the date
of default. [Paras 68 & 69][1152-F-H; 1153-A]
4. As per Section 18 of Limitation Act, an acknowledgement
of present subsisting liability, made in writing in respect of any
F 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
G acknowledgement must be made before the relevant period of
limitation has expired. It is well settled that entries in books of
accounts and/or balance sheets of a Corporate Debtor would
amount to an acknowledgment under Section 18 of the Limitation
Act. [Paras 83 & 85][1139-E-F; 1160-G]
H
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1115
TULIP STAR HOTELS LTD.
5. To sum up, in considered opinion of this Court an A
application under Section 7 of the IBC would not be barred by
limitation, on the ground that it had been filed beyond a period of
three years from the date of declaration of the loan account of the
Corporate Debtor as NPA, if there were an acknowledgement of
the debt by the Corporate Debtor before expiry of the period of
B
limitation of three years, in which case the period of limitation
would get extended by a further period of three years. In this
case, the amount of the Corporate Debtor was declared NPA on
1st December 2008. By a letter dated 7th February, 2011, written
well within three years, the Corporate Debtor acknowledged its
liability and proposed a settlement. This was followed by several C
requests of extension of time to make payment and revised
settlements. On 6th April, 2013, the Corporate Debtor sought
extension of time to pay Rs.239,88,27,673 outstanding as on 31 st
March 2013. On 19 th April, 2013, the Corporate Debtor made
payment of Rs.17,50,00,000/-. On 1 st July, 2013, the Corporate
D
Debtor acknowledged its liability – this was after the Appellant
Financial Creditor revoked the settlement invoking the default
clause. The Corporate Debtor acknowledged its liabilities in its
financial statements from 2008-09 till 2016-17. The application
under Section 7(2) of the IBC was filed on 3rd April 2018, well
within the extended period of limitation. [Paras 97 & 98][1169- E
F-H; 1170-A-B]
Sesh Nath Singh & Anr. v. Baidyabati Sheoraphuli
Cooperative Bank Ltd. 2021 SCC Online SC 244;
Babulal Vardharji Gurjar v. Veer Gurjar Aluminium
Industries (P) Ltd. (2020) 15 SCC 1; B. K. Educational F
Services Private Limited v. Parag Gupta and Associates
(2019) 11 SCC 633 : [2018] 12 SCR 794; Swiss
Ribbons Private Limited & Anr. v. Union of India and
Ors. (2019) 4 SCC 17: [2019] 3 SCR 535; Innoventive
Industries Ltd. v. ICICI Bank and Anr. (2018) 1 SCC
407 : [2017] 8 SCR 33; Dena Bank (Now Bank of G
Baroda) v. C. Shivakumar Reddy and Another (2021)
10 SCC 330 - relied on.
Asset Reconstruction Company (India) Limited. v. Bishal
Jaiswal and Anr. (2021) 6 SCC 366; Credit &
H
1116 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Development Syndicate Now Called I.C.D.S. Ltd. v.
Smithaben H. Patel (Smt.) and Others (1999) 3 SCC 80
: [1999] 1 SCR 555; Gaurav Hargovindbhai Dave v.
Asset Reconstruction Company (India) Ltd. (2019) 10
SCC 572 : [2019] 13 SCR 224; Jignesh Shah v. Union
of India (2019) 10 SCC 750 : [2019] 12 SCR 678;
B
Radha Exports (India) (P) Ltd. v. K.P. Jayaram (2020)
10 SCC 538; Vashdeo R. Bhojwani v. Abhyudaya Co-
operative Bank Ltd. & Ors. (2019) 9 SCC 158 : [2019]
12 SCR 75; Balkrishna Savalram Pujari Waghmare v.
Shree Dhyaneshwar Maharaj Sansthan [1959] 2 Suppl.
C 2 SCR 476; Laxmi Pat Surana v. Union Bank of India
(2021) 8 SCC 481; Khan Bahadur Shapoor Fredoom
Mazda v. Durga Prasad Chamaria and Others AIR 1961
SC 1236 : [1962] 1 SCR 140; Reliance Asset
Reconstruction Co. Ltd. v. Hotel Poonja International
Pvt. Ltd. 2021 SCC Online SC 289; Lakshmirattan
D
Cotton Mills Co. Ltd. v. Aluminium Corpn. of India Ltd.
(1971) 1 SCC 67 : [1971] 2 SCR 623 – referred to.
Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff
1961 SCC Cal 128 : AIR 1962 Cal 115; South Asia
Industries (P) Ltd. v. General Krishna Shamsher Jung
E Bahadur Rana ILR (1972) 2 Del 712; Hegde Golay
Ltd. v. State Bank of India 1985 SCC Kar 290 : ILR
1987 Kar 2673; Ferro Alloys Corporation Limited v.
Rajhans Steel Limited (1999) SCC Online Pat 1196 –
referred to.
F Case Law Reference
(2021) 6 SCC 366 referred to Para 33
[2017] 8 SCR 33 relied on Para 39
[1999] 1 SCR 555 referred to Para 40
G [2019] 3 SCR 535 relied on Para 56
[2019] 13 SCR 224 referred to Para 69
[2018] 12 SCR 794 relied on Para 70
[2019] 12 SCR 678 referred to Para 71
H (2020) 10 SCC 538 referred to Para 72
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1117
TULIP STAR HOTELS LTD.
(2020) 15 SCC 1 referred to Para 73 A
[2019] 12 SCR 75 referred to Para 74
[1959] 2 Suppl. SCR 476 referred to Para 74
(2021) 8 SCC 481 referred to Para 81
[1962] 1 SCR 140 referred to Para 84 B
[1971] 2 SCR 623 referred to Para 94
(2021) 10 SCC 330 referred to Para 96
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 84-85
of 2020.
C
From the Judgment and Order dated 11.12.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No.525 of 2019 with Company Appeal (AT) (Insolvency)
No. 627 of 2019.
Neeraj Kishan Kaul, Sr. Adv., Ms. Prerna Priyadarshini, Siddharth
D
Ranade, Vividh Tandon, Ms. Priyashree Sharma PH, Deepak Joshi,
Ms. Rushali Agarwal, Ms. Samrudhi Chotani, Pakashal Jain, Ms. Saloni
Gupta, Shankh Sengupta, Ms. Tina Abraham, Advs. for the Appellant.
Nakul Dewan, Sr. Adv., Mrs. Shally Bhasin, Mahesh Agarwal,
Ankur Saigal, Himanshu Satija, Rohan Talwar, E. C. Agrawala, Advs.
for the Respondents. E
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
1. These appeals under Section 62 of the Insolvency and
Bankruptcy Code 2016 (IBC) filed by the Financial Creditor, Asset F
Reconstruction Company (India) Limited are against a common judgment
and final order dated 11 th December 2019 passed by the National
Company Law Appellate Tribunal (NCLAT), allowing Company Appeal
(AT)(Insolvency) No.525 of 2019 and Company Appeal(AT) (Insolvency)
No.627 of 2019 and holding that the Corporate Insolvency Resolution
Process (CIRP) initiated by the Appellant against the Corporate Debtor, G
V. Hotels Ltd. was barred by limitation.
2. The Respondent No.1, Tulip Star Hotels Limited and the
Respondent No.2 Tulip Hotels Private Limited are the shareholders of
the Corporate Debtor, V. Hotels Limited. The Respondent Nos. 1 and 2
H
1118 SUPREME COURT REPORTS [2022] 5 S.C.R.
A each hold 50% share in the Corporate Debtor. Mr. Ajit B. Kerkar is the
Managing Director of the Respondent No.1, Tulip Star Hotel Limited,
Chairman of the Respondent No.2, Tulip Hotels Private Limited and
also the Chairman of the Corporate Debtor.
3. On or about 8th March 2002, a loan agreement was executed
B by and between a consortium of banks consisting of Bank of India, Punjab
National Bank, Union Bank of India, Vijaya Bank, Canara Bank and
Indian Bank, led by Bank of India (hereinafter referred to collectively as
the Consortium) and the Corporate Debtor, pursuant to which the
Consortium collectively sanctioned loan to the extent of Rs.129,00,00,000/
- (Rupees One Hundred and Twenty-Nine Crore Only) to the Corporate
C Debtor.
4. On 5th June 2003, the Corporate Debtor entered into an
arrangement with Abu Dhabi Commercial Bank (ADCB) whereby
ADCB agreed to advance USD 29,000,000/- to the Corporate Debtor
for repayment of the loan taken by the Corporate Debtor from the
D Consortium under the loan agreement executed on 8th March 2002. It is
stated that the Corporate Debtor repaid the amount disbursed by Bank
of India to the Corporate Debtor under the said loan agreement from out
of funds disbursed to the Corporate Debtor by ADCB, between August
and December 2003.
E 5. In August/ September 2008, a bank guarantee issued by Bank
of India in favour of ADCB, on behalf of the Corporate Debtor was
invoked by ADCB and Bank of India paid Rs.24,49,59,208/- (Twenty
Four Crores Forty Nine Lakhs Fifty Nine Thousand Two Hundred and
Eight) to ADCB under the Bank Guarantee.
6. Around the same time, Bank of India, Punjab National Bank
F
and Union Bank of India also converted their facility under the loan
agreement into a non-fund-based bank guarantee.
7. On 1st December 2008, the account of the Corporate Debtor in
the Bank of India was classified as non-performing asset (NPA) and on
31st December 2008, an assignment agreement was executed by Bank
G of India assigning its receivables to the Appellant Financial Creditor.
8. By a letter dated 7th February 2011 addressed to the Appellant,
the Corporate Debtor proposed a settlement which is as follows:-
(i) The Corporate Debtor would pay interest to the Appellant
Financial Creditor at an average rate of 21% per annum at
H quarterly rests.
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1119
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
(ii) The Corporate Debtor would pay a sum of Rs.9,02,00,000/ A
- being 10% of the aggregate assigned debt to the Appellant
Financial Creditor immediately on acceptance of the
settlement.
(iii) The Corporate Debtor proposed that the balance
aggregate assigned debt of Rs.154,13,00,000/- along with B
interest accrued thereon from the date of the payment of the
initial amount up to 30th September 2011 would be repaid in
three equated monthly instalments beginning from 15th October
2011.
9. On or about 10th February 2011, the Corporate Debtor submitted C
a revised proposal offering to pay interest on its outstanding dues to the
Appellant at the rate of 22% per annum with monthly rests with effect
from 1 st July 2010. The Corporate Debtor also offered to pay
Rs.10,00,00,000/- to the Appellant immediately upon acceptance of the
revised proposal.
D
10. The Corporate Debtor also agreed to pay the settlement amount
of Rs.150,75,83,970/- being the aggregate assigned debt as on 30 th June
2010 along with interest at the rate of 22% per annum compounded at
monthly rests from 1st July 2010 till 30th September 2011.
11. On or about 28th February 2011 the parties entered into a
Settlement Agreement, the key terms whereof were as follows:- E
(i) The Corporate Debtor agreed to pay the settlement amount
of Rs.150,75,83,970/- (Rupees One Hundred Fifty Crores
Seventy-Five Lakhs Eighty-three Thousand Nine Hundred and
Seventy Only) being the Aggregate amount in default as on
30th June 2010 along with the accrued interest at the rate of F
22% per annum to be compounded at monthly rests from 1st
July 2010 till 30th September 2011.
(ii) Rs. 10,00,00,000/- (Rupees Ten Crore Only) would be paid
as upfront payment upon execution of the Settlement
Agreement. G
(iii) The balance amount after adjusting the upfront payment
of Rs.10,00,00,000/- (Rupees Ten Crore Only) would be repaid
on or before 30th September 2011.
12. On 12th September 2011, the Corporate Debtor addressed a
letter to the Appellant, seeking an extension of time till 30th September H
1120 SUPREME COURT REPORTS [2022] 5 S.C.R.
A 2012 to pay its balance outstanding dues towards principal and interest.
The Corporate Debtor acknowledged that its aggregate outstanding
liability towards principal and interest to the Appellant was
Rs.176,83,00,000/-. The Corporate Debtor offered to make an interim
payment of Rs.15,00,00,000/- (Rupees Fifteen Crores Only) by
31st December 2011. On 29th September 2011, the agreement between
B
the Corporate Debtor and the Appellant was modified.
13. On 30th December 2011, the Appellant accepted the request
of the Corporate Debtor for extension, subject to the condition that the
Corporate Debtor would pay Rs.15,00,00,000/- (Rupees Fifteen Crores
Only) by 31st December 2011, and the balance portion of the aggregate
C assigned debt totalling Rs.150,75,83,970/-, outstanding as on 30th June
2010, along with accrued interest at the rate of 22% per annum, to be
compounded at monthly rests from 1st July 2010 till the date of payment,
that is, 31st March 2012.
14. On 17th March 2012, the Corporate Debtor confirmed that the
D aggregate assigned debt outstanding as on 31 st March 2012 was
Rs.192,89,46,697/- and requested for a further extension of time from
31st March 2012 to 31st December 2012 to pay the outstanding amounts.
15. On 6th August 2012, the Appellant accepted the aforesaid
extension request and agreed to the extension for repayment of the
E aggregate assigned debt outstanding as on 30 th September 2012.
16. On 10th September 2012, the Corporate Debtor sought further
extension till 31st March 2013 for payment of outstanding principal and
interest aggregating to Rs.211,35,16,073/-. On 5th December 2012, the
Appellant accepted the extension subject to payment of processing fee
F of Rs.25,00,000/-.
17. On 6th April 2013, the Corporate Debtor again sought extension
of the date for repayment of the then outstanding amount. The Corporate
Debtor acknowledged the outstanding aggregate assigned debt (inclusive
of principal and interest) which had increased to Rs.239,88,27,673/- as
G on 31st March 2013. The Corporate Debtor offered to make an interim
payment of Rs.91,00,00,000/- (Indian Rupees Ninety One Crores Only)
by 31 st August 2013 and the balance outstanding amounts by
30th September 2013.
18. On 19th April 2013, the Corporate Debtor paid Rs.17,50,00,000/
- to the Appellant, towards part repayment of the aggregate assigned
H
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1121
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
debt. On 29th May 2013, the Appellant again accepted the request of the A
Corporate Debtor for extension of time.
19. Ultimately, on 17th June 2013, the Appellant revoked the
settlement and in terms of the default obligations under the Settlement
Agreement, the rate of interest under the Deed of Variation was revised
to 22%. By its letter dated 1 st July 2013, the Corporate Debtor B
acknowledged its obligation to repay the aggregate assigned debt inclusive
of interest.
20. On 10th July 2013, the Appellant sent the Corporate Debtor a
notice under Section 13(2) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 C
(SARFAESI Act) in order to enforce security interests against the
Corporate Debtor. On 14th October 2013, the Appellant, through its
authorized officer, issued a possession notice under Section 13(4) of the
SARFAESI Act.
21. On 6th May 2014, the Appellant invoked the personal guarantee
D
of Mr. Ajit Kerkar, Managing Director of the Corporate Debtor. The
aggregate assigned debt as on 6th May 2014 of principal and interest at
22% per annum was Rs.235,46,34,381/-.
22. The Corporate Debtor apparently acknowledged its liabilities
towards the Appellant in its Financial Statements from 2008-09 to 2016-
17. E
23. The Appellant has filed an application to bring on record
additional documents which were part of the records below including
the copies of the financial statements.
24. Mr. Neeraj Kishan Kaul, Senior Advocate appearing on behalf
F
of the Appellant, rightly submitted that the Financial Statements provide
a true and fair view of the state of affairs of a company in view of
Sections 128 and 129 read with Section 134 of the Companies Act 2013
as also Sections 210, 211, 215, 216 and 217 of the Companies Act, 1956.
25. On 3rd April 2018, the Appellant, as Financial Creditor, filed an
application under Section 7(2) of the IBC in the National Company Law G
Tribunal (NCLT), Mumbai for initiation of the Corporate Insolvency
Resolution Process (CIRP) against the Corporate Debtor which was
registered and numbered CP(IB) No.532 of 2018.
26. The Corporate Debtor filed a Miscellaneous Application being
Misc. App. No.693 of 2018 in CP (IB) No.532 of 2018 before the NCLT, H
1122 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Mumbai praying for dismissal of the application of the Appellant under
Section 7(2) of the IBC, inter alia, contending that the application was
barred by limitation. By an order dated 1st May 2019, the Adjudicating
Authority (NCLT), Mumbai dismissed the said Miscellaneous Application
filed by the Corporate Debtor.
B 27. By an order dated 31st May 2019, the Adjudicating Authority
(NCLT) admitted the said application under Section 7(2) of the IBC and
appointed one Mr. Anish Nanavaty as the Interim Resolution Professional
(IRP). The Committee of Creditors confirmed the appointment of Mr.
Anish Nanavaty as the Resolution Professional of the Corporate Debtor.
C 28. The Corporate Debtor filed an appeal being Company Appeal
(AT) (Insolvency) No.525 of 2019 before NCLAT against the order
dated 1st May 2019, dismissing the Miscellaneous Application filed by
the Corporate Debtor, seeking dismissal of the application of the Appellant
Financial Creditor under Section 7(2) of the IBC.
29. The shareholders of the Corporate Debtor, that is, the
D
Respondent No.1, Tulip Star Hotels Limited and the Respondent No.2,
Tulip Hotels Private Limited, filed an appeal being Company Appeal
(AT) (Insolvency) No.627 of 2019 in the NCLAT against the order dated
31st May of the Adjudicating Authority, admitting the application of the
Appellant under Section 7(5)(a) of the IBC.
E 30. Both the appeals have been allowed by the common judgment
of the Appellate Tribunal (NCLAT) dated 11th December 2019, impugned
in these appeals.
31. On behalf of the Corporate Debtor, it has been argued:
(i) There is no debt due and payable from the Corporate Debtor
F
to the Appellant. The amounts advanced by the Consortium to the
Corporate Debtor have been repaid.
(ii) In the statutory notice issued by the Appellant to the Corporate
Debtor under Section 13(2) of the SARFAESI Act, the Appellant
had claimed that principal amount of Rs.90.35 Crores was due
G from the Corporate Debtor to the Appellant.
(iii) The Corporate Debtor has paid the Appellant much more
than the Principal amount claimed by the Appellant, as per the
table set out below:-
H
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1123
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
A
B
C
D
E
(iv) Even though the principal amount had been paid in the full, in F
the Application under Section 7 of the IBC, the Appellant claimed
that principal amount of Rs.35,43,72,852/- and
towards interest.
(v) There is no amount outstanding towards principal, and there is
a long standing dispute in respect of the amount of interest payable
G
by the Corporate Debtor to the Appellant.
(vi) In the Application under Section 7 of the IBC, the Appellant
has claimed a principal amount of Rs.35,43,72,852/- and interest
of Rs.149,91,24,581/- on the basis of the settlement agreement
dated 28.02.2011 which was later revoked by the Appellant on
H
1124 SUPREME COURT REPORTS [2022] 5 S.C.R.
A 17.06.2013. The amount of principal claimed in the Application
under Section 7 of the IBC is at complete variance with the
principal amount claimed in the statutory Notice under Section
13(2) of the SARFAESI Act.
(vii) By an order dated 19.10.2018, passed in relation to
B proceedings between the Appellant and the Corporate Debtor in
the Debt Recovery Tribunal, the High Court had held that the
Appellant was not entitled to claim 22% interest since it had
revoked the settlement agreement on the basis of which such
interest had been claimed.
C (viii) The High Court had, by its aforesaid order dated 19.10.2018,
directed DRT to determine the interest payable by the Corporate
Debtor to the Appellant. Since no determination has been done by
the DRT, the interest amount has not become due and payable.
(ix) The Appellant could not have appropriated the amounts paid
by the Corporate Debtor towards interest.
D
(x) The principal having been paid and the interest not being due,
there is no financial debt payable by the Corporate Debtor to the
Appellant.
(xi) The Application of the Appellant under Section 7 of the IBC
E is hopelessly barred by limitation, the same having been filed about
eight/nine years after the account of the Corporate Debtor was
declared NPA on 01.12.2008.
(xii) Even assuming the Corporate Debtor had acknowledged
liability, the last letter of acknowledgment was written in April
2013. The period of limitation still expired in April 2016.
F
(xiii) The Corporate Debtor has not acknowledged any debt in its
financial statements.
(xiv) The Corporate Debtor and/or its Promoters have paid its
entire Principal dues to the CoC (Committee of Creditors)
G consisting of the Appellant and Pegasus.
32. The NCLAT held:
“23. In the present case, ‘Asset Reconstruction Company
(India) Ltd.’- (‘Financial Creditor’) has failed to bring on
record any acknowledgment in writing by the ‘Corporate
H Debtor’ or its authorised person acknowledging the liability
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1125
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
in respect of debt. The Books of Account cannot be treated as A
an acknowledgement of liability in respect of debt payable to
the ‘Asset Reconstruction Company (India) Ltd.’- (‘Financial
Creditor’) signed by the ‘Corporate Debtor’ or its authorised
signatory.
**** B
25. In fact, the case of ‘Asset Reconstruction Company (India)
Ltd.’- (‘Financial Creditor’) is covered by its own decision in
“Gaurav Hargovindbhai Dave v. Asset Reconstruction
Company (India) Ltd. And Another” (supra)
26. The Adjudicating Authority having failed to appreciate C
the aforesaid fact, the impugned order dated 1 st May, 2019
rejecting the objections of the ‘Corporate Debtor’ and the
impugned order dated 31 st May, 2019 passed by the
Adjudicating Authority admitting the application under
Section 7 are set aside. ‘V. Hotels Limited’- (‘Corporate
D
Debtor’) is released from all the rigours of law and is allowed
to function independently through its Board of Directors from
immediate effect. The ‘Interim Resolution Professional’/
‘Resolution Professional’ will submit its fees and costs of
‘Corporate Insolvency Resolution Process’ before the
Adjudicating Authority who will determine the same and E
amount as is payable is to be paid by ‘Asset Reconstruction
Company (India) Ltd.’ who moved application under Section
7 which was not maintainable. The ‘Interim Resolution
Professional’ will hand over the management, assets and
records to the Board of Directors.
F
Both the appeals are allowed. No costs.”
33. Citing Asset Reconstruction Company (India) Limited. v.
Bishal Jaiswal and Anr 1 Mr. Nakul Dewan, Senior Advocate argued
that all financial statements issued by a company would not amount to
acknowledgment for the purpose of Section 18 of the Limitation Act and G
thereby extend the period of limitation under the Code.
34. In Bishal Jaiswal (supra) this Court:
“21. Importantly, this judgment in Bengal Silk Mills [Bengal
Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine
1
(2021) 6 SCC 366 H
1126 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Cal 128 : AIR 1962 Cal 115] holds that though the filing of a
balance sheet is by compulsion of law, the acknowledgment
of a debt is not necessarily so. In fact, it is not uncommon to
have an entry in a balance sheet with notes annexed to or
forming part of such balance sheet, or in the auditor’s report,
which must be read along with the balance sheet, indicating
B
that such entry would not amount to an acknowledgment of
debt for reasons given in the said note.
***
35. A perusal of the aforesaid sections would show that there
C is no doubt that the filing of a balance sheet in accordance
with the provisions of the Companies Act is mandatory, any
transgression of the same being punishable by law. However,
what is of importance is that notes that are annexed to or
forming part of such financial statements are expressly
recognised by Section 134(7). Equally, the auditor’s report
D may also enter caveats with regard to acknowledgments made
in the books of accounts including the balance sheet. A
perusal of the aforesaid would show that the statement of law
contained in Bengal Silk Mills [Bengal Silk Mills Co. v. Ismail
Golam Hossain Ariff, 1961 SCC OnLine Cal 128 : AIR 1962
E Cal 115] , that there is a compulsion in law to prepare a
balance sheet but no compulsion to make any particular
admission, is correct in law as it would depend on the facts of
each case as to whether an entry made in a balance sheet
qua any particular creditor is unequivocal or has been entered
into with caveats, which then has to be examined on a case
F by case basis to establish whether an acknowledgment of
liability has, in fact, been made, thereby extending limitation
under Section 18 of the Limitation Act.”
35. The Respondents argued that the Appellant was relying on
the Financial Statements from 2014-15 onwards as acknowledgments
G to save limitation. It was argued that the said Financial Statements would
not constitute acknowledgement for the reasons as demonstrated in the
Written Notes of submissions of the Corporate Debtor reproduced
hereinbelow:
(i) Financial Statement for 2014-15 (Pages 6-18 of IA 125766)
H wherein:
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1127
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
(a) At page 8 of IA 125776, it is stated that ‘indebtness’ is to be A
read with Note No.5 in the notes of Accounts.
(b) At page 15-16 of IA, in the Notes of Accounts, the Respondent
No.3 has clearly stated that pursuant to the Orders of this Court,
the parties entered into a Settlement which was unilaterally revoked
by the Appellant on 17.06.2013 and thus the Respondent No.3 B
had been legally advised that the interest for the loans cannot be
22% as stated in the revoked settlement but 12.85% and that the
rate of interest will be subject to the decision of the DRT, Mumbai.
(ii) Financial Statement for 2015-2016 (Pages 19-30 of IA 125766),
wherein similar disputes are raised in the notes (at page 21, 29-30 of C
IA).
(iii) Financial Statement for 2016-17 (pages 31-42 of IA 125766)
where a similar statement is made as stated above in the Notes to the
Financial Statement for 2015-16 (at page 33, 41-42 of IA).
36. Counsel argued that a perusal of the above Statements from D
2014-2015 to 2016-2017 shows that the Corporate Debtor has not made
any unequivocal acknowledgment of debt and has further questioned
the interest sought to be recovered by the Appellant. Thus, it is submitted
that the present case falls within the category provided in the judgment
in Bishal Jaiswal (supra), where this Court noted that “it would depend
on the facts of each case as to whether an entry made in a balance E
sheet qua any particular creditor is unequivocal or has been entered
into with caveats, which then has to be examined on a case by case
basis to establish whether an acknowledgment of liability has, in
fact, been made, thereby extending limitation under Section 18 of
the Limitation Act.” F
37. It was also argued that contrary to the claims of the Appellant,
the recovery in the present case is not of “public monies”. Nor is the
recovery beneficial to the public. There is no public funding in the form
of holdings by any Public Sector Banks in the subject transaction. Such
arguments are irrelevant to the issue in this appeal of whether the G
Application of the Appellant Financial Creditor under Section 7 of the
IBC should have been rejected, and that too on the sole ground of the
same being barred by limitation.
38. For the purpose of computing limitation, the most relevant
balance-sheet is the balance-sheet for the financial year 2014-15, which,
H
1128 SUPREME COURT REPORTS [2022] 5 S.C.R.
A as pointed out by Mr. Kaul, was signed on 14.5.2015. The balance-sheet
acknowledged the continuance of the jural relationship of debtor and
creditor between the Appellant and the Corporate Debtor and the existence
of financial liability of the Corporate Debtor to the Appellant. The only
remark made by the Corporate Debtor related to the rate of interest
which, according to the Corporate Debtor, would be 12.85% and not
B
22% in view of the revocation of the Settlement Agreement by the
Appellant. The application of the Appellant under Section 7 of the IBC
was filed on 3.4.2018, well within three years from 14.5.2015, being the
date on which the balance-sheet was signed. Similarly, the balance-sheet
for the following financial year signed on 29.8.2016 also acknowledged
C the existence of jural relationship of debtor and creditor between the
Appellant and the Corporate Debtor and the existence of financial liability
of the Corporate Debtor to the Appellant. The balance-sheet only
contained a similar additional remark with regard to the rate of interest.
39. As held by this Court in Innoventive Industries Ltd. v. ICICI
D Bank and Anr2., the Adjudicating Authority, considering an application
under Section 7 of the IBC, is only required to see if there is the existence
of a debt and default. Any dispute with regard to the quantum of debt is
immaterial. The relevant part of the judgment of this Court in Innoventive
Industries Ltd. (supra) is set out hereinbelow:-
E “29. The scheme of Section 7 stands in contrast with the scheme
under Section 8 where an operational creditor is, on the
occurrence of a default, to first deliver a demand notice of
the unpaid debt to the operational debtor in the manner
provided in Section 8(1) of the Code. Under Section 8(2), the
corporate debtor can, within a period of 10 days of receipt
F of the demand notice or copy of the invoice mentioned in
sub-section (1), bring to the notice of the operational creditor
the existence of a dispute or the record of the pendency of a
suit or arbitration proceedings, which is pre-existing—i.e.
before such notice or invoice was received by the corporate
G debtor. The moment there is existence of such a dispute, the
operational creditor gets out of the clutches of the Code.
30. On the other hand, as we have seen, in the case of a
corporate debtor who commits a default of a financial debt,
the adjudicating authority has merely to see the records of
2
H (2018) 1 SCC 407
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1129
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
the information utility or other evidence produced by the A
financial creditor to satisfy itself that a default has occurred.
It is of no matter that the debt is disputed so long as the debt
is “due” i.e. payable unless interdicted by some law or has
not yet become due in the sense that it is payable at some
future date. It is only when this is proved to the satisfaction of
B
the adjudicating authority that the adjudicating authority may
reject an application and not otherwise.”
40. As argued by Mr. Kaul appearing on behalf of the Appellant,
any part payments made by the Respondent would first be appropriated
towards the interest amount due, as held by this Court in Industrial
Credit & Development Syndicate Now Called I.C.D.S. Ltd. v. C
Smithaben H. Patel (Smt.) and Others3.
41. In Industrial Credit & Development Syndicate (supra), this
Court held :-
6. In Venkatadri Appa Row v. Parthasarathi Appa
D
Row [(1920-21) 48 IA 150 : AIR 1922 PC 233] the Judicial
Committee of the Privy Council had held that upon taking an
account of principal and interest due, the ordinary rule with
regard to payments by the debtor unappropriated either to
principal or interest is that they are first to be applied to the
discharge of the interest. This Court in Meghraj v. Bayabai E
[(1969) 2 SCC 274: (1970) 1 SCR 523] reiterated the position
of law and held that the normal rule was that in the case of a
debt due with interest, any payment made by the debtor was
in the first instance to be applied towards satisfaction of
interest and thereafter to the principal. It was for the debtor
F
to plead and prove the agreement, if any, that the amounts
paid or deposited in the Court by him were accepted by the
creditor/decree-holder subject to the condition imposed by
him. …”
42. Even otherwise, in this case, the quantum of debt was well in
excess of Rs. 1 crore and many times in excess of Rs.1 lakh, being the G
threshold amount under the IBC for initiation of CIRP proceedings at
the material time. Subsequently, in 2020, the threshold limit was enhanced
to Rs.1 crore.
3
(1999) 3 SCC 80 H
1130 SUPREME COURT REPORTS [2022] 5 S.C.R.
A 43. In our view, the NCLAT erred in law in holding that the Books
of Account of a company could not be treated as acknowledgement of
liability in respect of debt payable to a financial creditor.
44. Under the scheme of the IBC, the Insolvency Resolution
Process begins, when a default takes place, in the sense that a debt
B becomes due and is not paid. Some of the relevant provisions of the
IBC, are set out hereinbelow for convenience:-
“3 Definitions..—In this Code, unless the context otherwise
requires,—
...
C (6) “claim” means—
(a)a right to payment, whether or not such right is reduced
to judgment, fixed, disputed, undisputed, legal,
equitable, secured or unsecured;
(b)right to remedy for breach of contract under any law
D
for the time being in force, if such breach gives rise to
a right to payment, whether or not such right is reduced
to judgment, fixed, matured, unmatured, disputed,
undisputed, secured or unsecured;
(7) “corporate person” means a company as defined in clause
E (20) of Section 2 of the Companies Act, 2013 (18 of 2013), a
limited liability partnership, as defined in clause (n) of sub-
section (1) of Section 2 of the Limited Liability Partnership
Act, 2008 (6 of 2009), or any other person incorporated with
limited liability under any law for the time being in force but
F shall not include any financial service provider;
(8) “corporate debtor” means a corporate person who owes
a debt to any person;
…..
(10) “creditor” means any person to whom a debt is owed
G and includes a financial creditor, an operational creditor, a
secured creditor, an unsecured creditor and a decree-holder;
(11) “debt” means a liability or obligation in respect of a
claim which is due from any person and includes a financial
debt and operational debt;
H
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1131
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
(12) “default” means non-payment of debt when whole or A
any part or instalment of the amount of debt has become due
and payable and is not paid by the debtor or the corporate
debtor, as the case may be;
4. Application of this Part.—(1) This Part shall apply to
matters relating to the insolvency and liquidation of corporate B
debtors where the minimum amount of the default is one lakh
rupees:
Provided that the Central Government may, by notification,
specify the minimum amount of default of higher value which
shall not be more than one crore rupees. C
5. Definitions.—In this Part, unless the context otherwise
requires—
...
(7) “financial creditor” means any person to whom a financial
debt is owed and includes a person to whom such debt has D
been legally assigned or transferred to;
(8) “financial debt” means a debt along with interest, if any,
which is disbursed against the consideration for the time value
of money and includes—
(a) money borrowed against the payment of interest; E
(b) any amount raised by acceptance under any acceptance
credit facility or its dematerialised equivalent;
(c) any amount raised pursuant to any note purchase
facility or the issue of bonds, notes, debentures, loan stock
F
or any similar instrument;
(d) the amount of any liability in respect of any lease or
hire-purchase contract which is deemed as a finance or
capital lease under the Indian Accounting Standards or
such other accounting standards as may be prescribed;
G
(e) receivables sold or discounted other than any
receivables sold on non-recourse basis;
(f) any amount raised under any other transaction,
including any forward sale or purchase agreement, having
the commercial effect of a borrowing;
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1132 SUPREME COURT REPORTS [2022] 5 S.C.R.
A (g) any derivative transaction entered into in connection
with protection against or benefit from fluctuation in any
rate or price and for calculating the value of any derivative
transaction, only the market value of such transaction shall
be taken into account;
B (h) any counter-indemnity obligation in respect of a
guarantee, indemnity, bond, documentary letter of credit
or any other instrument issued by a bank or financial
institution;
(i) the amount of any liability in respect of any of the
C guarantee or indemnity for any of the items referred to in
sub-clauses (a) to (h) of this clause;
6. Persons who may initiate corporate insolvency resolution
process.—Where any corporate debtor commits a default,
a financial creditor, an operational creditor or the
corporate debtor itself may initiate corporate insolvency
D
resolution process in respect of such corporate debtor in
the manner as provided under this Chapter.
7. Initiation of corporate insolvency resolution process by
financial creditor.—(1) A financial creditor either by itself
or jointly with other financial creditors, or any other
E person on behalf of the financial creditor, as may be
notified by the Central Government, may file an application
for initiating corporate insolvency resolution process
against a corporate debtor before the Adjudicating
Authority when a default has occurred.
F Provided that for the financial creditors, referred to in
clauses (a) and (b) of sub-section (6-A) of Section 21, an
application for initiating corporate insolvency resolution
process against the corporate debtor shall be filed jointly
by not less than one hundred of such creditors in the same
G class or not less than ten per cent. of the total number of
such creditors in the same class, whichever is less:
Provided further that for financial creditors who are
allottees under a real estate project, an application for
initiating corporate insolvency resolution process against
the corporate debtor shall be filed jointly by not less than
H
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1133
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
one hundred of such allottees under the same real estate A
project or not less than ten per cent. of the total number of
such allottees under the same real estate project, whichever
is less:
Provided also that where an application for initiating the
corporate insolvency resolution process against a B
corporate debtor has been filed by a financial creditor
referred to in the first and second provisos and has not
been admitted by the Adjudicating Authority before the
commencement of the Insolvency and Bankruptcy Code
(Amendment) Act, 2020, such application shall be modified
to comply with the requirements of the first or second C
proviso within thirty days of the commencement of the said
Act, failing which the application shall be deemed to be
withdrawn before its admission.
Explanation.—For the purposes of this sub-section, a
default includes a default in respect of a financial debt D
owed not only to the applicant financial creditor but to
any other financial creditor of the corporate debtor.
(2) The financial creditor shall make an application under
sub-section (1) in such form and manner and accompanied
with such fee as may be prescribed. E
(3) The financial creditor shall, along with the application
furnish—
(a) record of the default recorded with the information
utility or such other record or evidence of default as
may be specified; F
(b) the name of the resolution professional proposed to
act as an interim resolution professional; and
(c) any other information as may be specified by the
Board.
G
(4) The Adjudicating Authority shall, within fourteen days of
the receipt of the application under sub-section (2), ascertain
the existence of a default from the records of an information
utility or on the basis of other evidence furnished by the
financial creditor under sub-section (3):
H
1134 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Provided that if the Adjudicating Authority has not ascertained
the existence of default and passed an order under sub-section
(5) within such time, it shall record its reasons in writing for
the same.]
(5) Where the Adjudicating Authority is satisfied that—(a) a
B default has occurred and the application under sub-section
(2) is complete, and there is no disciplinary proceedings
pending against the proposed resolution professional, it may,
by order, admit such application; or
(b) default has not occurred or the application under sub-
C section (2) is incomplete or any disciplinary
proceeding is pending against the proposed resolution
professional, it may, by order, reject such application:
Provided that the Adjudicating Authority shall, before
rejecting the application under clause (b) of sub-section (5),
give a notice to the applicant to rectify the defect in his
D
application within seven days of receipt of such notice from
the Adjudicating Authority.
(6) The corporate insolvency resolution process shall
commence from the date of admission of the application under
sub-section (5).
E
(7) The Adjudicating Authority shall communicate—
(a) the order under clause (a) of sub-section (5) to the
financial creditor and the corporate debtor;
(b) the order under clause (b) of sub-section (5) to the
F financial creditor, within seven days of admission or
rejection of such application, as the case may be.
***
12. Time-limit for completion of insolvency resolution
process.—(1) Subject to sub-section (2), the corporate
G insolvency resolution process shall be completed within a
period of one hundred and eighty days from the date of
admission of the application to initiate such process.
(2) The resolution professional shall file an application to
the Adjudicating Authority to extend the period of the
H corporate insolvency resolution process beyond one hundred
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1135
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
and eighty days, if instructed to do so by a resolution passed A
at a meeting of the committee of creditors by a vote of sixty-
six per cent of the voting shares.
(3) On receipt of an application under sub-section (2), if the
Adjudicating Authority is satisfied that the subject-matter of
the case is such that corporate insolvency resolution process B
cannot be completed within one hundred and eighty days, it
may by order extend the duration of such process beyond
one hundred and eighty days by such further period as it
thinks fit, but not exceeding ninety days:
Provided that any extension of the period of corporate C
insolvency resolution process under this section shall not be
granted more than once:
Provided further that the corporate insolvency resolution
process shall mandatorily be completed within a period of
three hundred and thirty days from the insolvency
D
commencement date, including any extension of the period
of corporate insolvency resolution process granted under this
section and the time taken in legal proceedings in relation to
such resolution process of the corporate debtor:
Provided also that where the insolvency resolution process of
a corporate debtor is pending and has not been completed E
within the period referred to in the second proviso, such
resolution process shall be completed within a period of ninety
days from the date of commencement of the Insolvency and
Bankruptcy Code (Amendment) Act, 2019.
12-A. Withdrawal of application admitted under Section 7, 9 F
or 10.—The Adjudicating Authority may allow the withdrawal
of application admitted under Section 7 or Section 9 or
Section 10, on an application made by the applicant with the
approval of ninety per cent. voting share of the committee of
creditors, in such manner as may be specified. G
13. Declaration of moratorium and public announcement.—
(1) The Adjudicating Authority, after admission of the
application under Section 7 or Section 9 or Section 10, shall,
by an order—
H
1136 SUPREME COURT REPORTS [2022] 5 S.C.R.
A (a) declare a moratorium for the purposes referred to in
Section 14;
(b) cause a public announcement of the initiation of
corporate insolvency resolution process and call for the
submission of claims under Section 15; and
B (c) appoint an interim resolution professional in the manner
as laid down in Section 16.
(2) The public announcement referred to in clause (b) of sub-
section (1) shall be made immediately after the appointment
of the interim resolution professional.
C 14. Moratorium.—(1) Subject to provisions of sub-sections
(2) and (3), on the insolvency commencement date, the
Adjudicating Authority shall by order declare moratorium for
prohibiting all of the following, namely—
(a) the institution of suits or continuation of pending suits
D or proceedings against the corporate debtor including
execution of any judgment, decree or order in any court
of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of
by the corporate debtor any of its assets or any legal right
E or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security
interest created by the corporate debtor in respect of its
property including any action under the Securitisation and
Reconstruction of Financial Assets and Enforcement of
F Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the possession of
the corporate debtor.
Explanation.—For the purposes of this sub-section, it is hereby
G clarified that notwithstanding anything contained in any other
law for the time being in force, a license, permit, registration,
quota, concession, clearances or a similar grant or right given
by the Central Government, State Government, local authority,
sectoral regulator or any other authority constituted under
any other law for the time being in force, shall not be
H
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1137
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
suspended or terminated on the grounds of insolvency, subject A
to the condition that there is no default in payment of current
dues arising for the use or continuation of the license, permit,
registration, quota, concession, clearances or a similar grant
or right during the moratorium period.
(2) The supply of essential goods or services to the corporate B
debtor as may be specified shall not be terminated or
suspended or interrupted during moratorium period.
(2-A) Where the interim resolution professional or resolution
professional, as the case may be, considers the supply of goods
or services critical to protect and preserve the value of the C
corporate debtor and manage the operations of such
corporate debtor as a going concern, then the supply of such
goods or services shall not be terminated, suspended or
interrupted during the period of moratorium, except where
such corporate debtor has not paid dues arising from such
supply during the moratorium period or in such circumstances D
as may be specified.
(3) The provisions of sub-section (1) shall not apply to—
(a) such transactions, agreements or other arrangements as
may be notified by the Central Government in consultation
with any financial sector regulator or any other authority; E
(b) a surety in a contract of guarantee to a corporate debtor.
(4) The order of moratorium shall have effect from the date
of such order till the completion of the corporate insolvency
resolution process:
F
Provided that where at any time during the corporate
insolvency resolution process period, if the Adjudicating
Authority approves the resolution plan under sub-section (1)
of Section 31 or passes an order for liquidation of corporate
debtor under Section 33, the moratorium shall cease to have
effect from the date of such approval or liquidation order, as G
the case may be.
...
16. Appointment and tenure of interim resolution
professional.—(1) The Adjudicating Authority shall appoint
H
1138 SUPREME COURT REPORTS [2022] 5 S.C.R.
A an interim resolution professional on the insolvency
commencement date.
(2) Where the application for corporate insolvency resolution
process is made by a financial creditor or the corporate debtor,
as the case may be, the resolution professional, as proposed
B respectively in the application under Section 7 or Section 10,
shall be appointed as the interim resolution professional, if
no disciplinary proceedings are pending against him.
(3) Where the application for corporate insolvency resolution
process is made by an operational creditor and—
C (a) no proposal for an interim resolution professional is
made, the Adjudicating Authority shall make a reference
to the Board for the recommendation of an insolvency
professional who may act as an interim resolution
professional;
D (b) a proposal for an interim resolution professional is made
under sub-section (4) of Section 9, the resolution
professional as proposed, shall be appointed as the interim
resolution professional, if no disciplinary proceedings are
pending against him.
E (4) The Board shall, within ten days of the receipt of a
reference from the Adjudicating Authority under sub-
section (3), recommend the name of an insolvency
professional to the Adjudicating Authority against whom
no disciplinary proceedings are pending.
(5) The term of the interim resolution professional shall
F
continue till the date of appointment of the resolution
professional under Section 22.
17. Management of affairs of corporate debtor by interim
resolution professional.—(1) From the date of appointment of
the interim resolution professional,—
G
(a) the management of the affairs of the corporate debtor
shall vest in the interim resolution professional;
(b) the powers of the board of directors or the partners of
the corporate debtor, as the case may be, shall stand
suspended and be exercised by the interim resolution
H professional;
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1139
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
(c) the officers and managers of the corporate debtor shall A
report to the interim resolution professional and provide
access to such documents and records of the corporate
debtor as may be required by the interim resolution
professional;
(d) the financial institutions maintaining accounts of the B
corporate debtor shall act on the instructions of the interim
resolution professional in relation to such accounts and
furnish all information relating to the corporate debtor
available with them to the interim resolution professional.
18. Duties of interim resolution professional.—(1) The interim C
resolution professional shall perform the following duties,
namely—
(a) collect all information relating to the assets, finances and
operations of the corporate debtor for determining the
financial position of the corporate debtor, including
D
information relating to—
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous
two years;
(iii) list of assets and liabilities as on the initiation date; E
and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by creditors to
him, pursuant to the public announcement made under
Sections 13 and 15; F
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and manage its
operations until a resolution professional is appointed by the
committee of creditors;
G
(e) file information collected with the information utility, if
necessary; and
(f) take control and custody of any asset over which the
corporate debtor has ownership rights as recorded in the
balance sheet of the corporate debtor, or with information
H
1140 SUPREME COURT REPORTS [2022] 5 S.C.R.
A utility or the depository of securities or any other registry
that records the ownership of assets including—
(i) assets over which the corporate debtor has ownership
rights which may be located in a foreign country;
(ii) assets that may or may not be in possession of the
B corporate debtor;
(iii) tangible assets, whether movable or immovable;
(iv) intangible assets including intellectual property;
(v) securities including shares held in any subsidiary of
C the corporate debtor, financial instruments, insurance
policies;
(vi) assets subject to the determination of ownership by a
court or authority;
(g) to perform such other duties as may be specified by the
D Board.
Explanation.— For the purposes of this section, the term
“assets” shall not include the following, namely—
(a) assets owned by a third party in possession of the
corporate debtor held under trust or under contractual
E arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the
corporate debtor; and
(c) such other assets as may be notified by the Central
Government in consultation with any financial sector
F regulator.
20. Management of operations of corporate debtor as going
concern.—(1) The interim resolution professional shall make
every endeavour to protect and preserve the value of the
property of the corporate debtor and manage the operations
G of the corporate debtor as a going concern.
21. Committee of creditors.—(1) The interim resolution
professional shall after collation of all claims received against
the corporate debtor and determination of the financial
position of the corporate debtor, constitute a committee of
H creditors.
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(2) The committee of creditors shall comprise all financial A
creditors of the corporate debtor:
Provided that a financial creditor or the authorised
representative of the financial creditor referred to in sub-
section (6) or sub-section (6-A) or sub-section (5) of Section
24, if it is a related party of the corporate debtor, shall not B
have any right of representation, participation or voting in a
meeting of the committee of creditors:
Provided further that the first proviso shall not apply to a
financial creditor, regulated by a financial sector regulator,
if it is a related party of the corporate debtor solely on account C
of conversion or substitution of debt into equity shares or
instruments convertible into equity shares or completion of
such transactions as may be prescribed, prior to the
insolvency commencement date.
22. Appointment of resolution professional.—(1) The first
D
meeting of the committee of creditors shall be held within seven
days of the constitution of the committee of creditors.
(2) The committee of creditors, may, in the first meeting, by a
majority vote of not less than sixty-six per cent of the voting
share of the financial creditors, either resolve to appoint the
interim resolution professional as a resolution professional E
or to replace the interim resolution professional by another
resolution professional.
(3) Where the committee of creditors resolves under sub-section
(2)—
F
(a) to continue the interim resolution professional as
resolution professional subject to a written consent from
the interim resolution professional in the specified form, it
shall communicate its decision to the interim resolution
professional, the corporate debtor and the Adjudicating
Authority; or G
(b) to replace the interim resolution professional, it shall
file an application before the Adjudicating Authority for
the appointment of the proposed resolution
professional along with a written consent from the proposed
resolution professional in the specified form. H
1142 SUPREME COURT REPORTS [2022] 5 S.C.R.
A (4) The Adjudicating Authority shall forward the name of the
resolution professional proposed under clause (b) of sub-
section (3) to the Board for its confirmation and shall make
such appointment after confirmation by the Board.
(5) Where the Board does not confirm the name of the proposed
B resolution professional within ten days of the receipt of the
name of the proposed resolution professional, the
Adjudicating Authority shall, by order, direct the interim
resolution professional to continue to function as the resolution
professional until such time as the Board confirms the
appointment of the proposed resolution professional.
C
23. Resolution professional to conduct corporate insolvency
resolution process.—(1) Subject to Section 27, the resolution
professional shall conduct the entire corporate insolvency
resolution process and manage the operations of the corporate
debtor during the corporate insolvency resolution process
D period:
Provided that the resolution professional shall continue to
manage the operations of the corporate debtor after the expiry
of the corporate insolvency resolution process period, until
an order approving the resolution plan under sub-section (1)
E of Section 31 or appointing a liquidator under Section 34 is
passed by the Adjudicating Authority.
(2) The resolution professional shall exercise powers and
perform duties as are vested or conferred on the interim
resolution professional under this Chapter.
F (3) In case of any appointment of a resolution professional
under sub-sections (4) of Section 22, the interim resolution
professional shall provide all the information, documents and
records pertaining to the corporate debtor in his possession
and knowledge to the resolution professional.
G ***
25. Duties of resolution professional.—(1) It shall be the duty
of the resolution professional to preserve and protect the assets
of the corporate debtor, including the continued business
operations of the corporate debtor.
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(2) For the purposes of sub-section (1), the resolution A
professional shall undertake the following actions, namely—
(a) take immediate custody and control of all the assets of
the corporate debtor, including the business records of the
corporate debtor;
(b) represent and act on behalf of the corporate debtor B
with third parties, exercise rights for the benefit of the
corporate debtor in judicial, quasi-judicial or arbitration
proceedings;
(c) raise interim finances subject to the approval of the
committee of creditors under Section 28; C
***
27. Replacement of resolution professional by committee of
creditors.-
(1) Where, at any time during the corporate insolvency
D
resolution process, the committee of creditors is of the
opinion that a resolution professional appointed under
Section 22 is required to be replaced, it may replace him
with another resolution professional in the manner provided
under this section.
*** E
30. Submission of resolution plan.—(1) A resolution applicant
may submit a resolution plan along with an affidavit stating
that he is eligible under Section 29-A to the resolution
professional prepared on the basis of the information
memorandum. F
(2) The resolution professional shall examine each resolution
plan received by him to confirm that each resolution plan—
(a) provides for the payment of insolvency resolution
process costs in a manner specified by the Board in priority
to the payment of other debts of the corporate debtor; G
(b) provides for the payment of debts of operational
creditors in such manner as may be specified by the Board
which shall not be less than—
H
1144 SUPREME COURT REPORTS [2022] 5 S.C.R.
A (i) the amount to be paid to such creditors in the event of a
liquidation of the corporate debtor under Section 53; or
(ii) the amount that would have been paid to such creditors,
if the amount to be distributed under the resolution plan
had been distributed in accordance with the order of
B priority in sub-section (1) of Section 53, whichever is
higher, and provides for the payment of debts of financial
creditors, who do not vote in favour of the resolution plan,
in such manner as may be specified by the Board, which
shall not be less than the amount to be paid to such
creditors in accordance with sub-section (1) of Section 53
C in the event of a liquidation of the corporate debtor.
Explanation 1.—For the removal of doubts, it is hereby
clarified that a distribution in accordance with the
provisions of this clause shall be fair and equitable to such
creditors.
D
31. Approval of resolution plan.—(1) If the Adjudicating
Authority is satisfied that the resolution plan as approved by
the committee of creditors under sub-section (4) of Section
30 meets the requirements as referred to in sub-section (2) of
Section 30, it shall by order approve the resolution plan which
E shall be binding on the corporate debtor and its employees,
members, creditors, including the Central Government, any
State Government or any local authority to whom a debt in
respect of the payment of dues arising under any law for the
time being in force, such as authorities to whom statutory
dues are owed, guarantors and other stakeholders involved
F
in the resolution plan:
Provided that the Adjudicating Authority shall, before passing
an order for approval of resolution plan under this sub-
section, satisfy that the resolution plan has provisions for its
effective implementation.
G
***
33. Initiation of liquidation.—(1) Where the Adjudicating
Authority,—
(a) before the expiry of the insolvency resolution process
H period or the maximum period permitted for completion of
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the corporate insolvency resolution process under Section A
12 or the fast track corporate insolvency resolution process
under Section 56, as the case may be, does not receive a
resolution plan under sub-section (6) of Section 30; or
(b) rejects the resolution plan under Section 31 for the
non-compliance of the requirements specified therein, B
it shall—
(i) pass an order requiring the corporate debtor to be
liquidated in the manner as laid down in this Chapter;
(ii) issue a public announcement stating that the corporate
debtor is in liquidation; and C
(iii) require such order to be sent to the authority with which
the corporate debtor is registered.
(2) Where the resolution professional, at any time during the
corporate insolvency resolution process but before
D
confirmation of resolution plan, intimates the Adjudicating
Authority of the decision of the committee of
creditors approved by not less than sixty-six per cent of the
voting share] to liquidate the corporate debtor, the
Adjudicating Authority shall pass a liquidation order as
referred to in sub-clauses (i), (ii) and (iii) of clause (b) of E
sub-section (1).
Explanation.—For the purposes of this sub-section, it is hereby
declared that the committee of creditors may take the decision
to liquidate the corporate debtor, any time after its constitution
under sub-section (1) of Section 21 and before the F
confirmation of the resolution plan, including at any time
before the preparation of the information memorandum.
(3) Where the resolution plan approved by the Adjudicating
Authority is contravened by the concerned corporate debtor,
any person other than the corporate debtor, whose interests G
are prejudicially affected by such contravention, may make
an application to the Adjudicating Authority for a liquidation
order as referred to in sub-clauses (i), (ii) and (iii) of clause
(b) of sub-section (1).
H
1146 SUPREME COURT REPORTS [2022] 5 S.C.R.
A (4) On receipt of an application under sub-section (3), if the
Adjudicating Authority determines that the corporate debtor
has contravened the provisions of the resolution plan, it shall
pass a liquidation order as referred to in sub-clauses (i), (ii)
and (iii) of clause (b) of sub-section (1).
B (5) Subject to Section 52, when a liquidation order has been
passed, no suit or other legal proceeding shall be instituted
by or against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted
by the liquidator, on behalf of the corporate debtor, with the
C prior approval of the Adjudicating Authority.”
45. Where any Corporate Debtor commits default, a Financial
Creditor, an Operational Creditor or the Corporate Debtor itself may
initiate Corporate Insolvency Resolution Process in respect of such
Corporate Debtor, in the manner as provided in Chapter II of the IBC.
D 46. The provisions of the IBC are designed to ensure that the
business and/or commercial activities of the Corporate Debtor are
continued by a Resolution Professional, upon imposition of a moratorium,
to give the Corporate Debtor some reprieve from coercive litigation,
which could drain the Corporate Debtor of its financial resources.
E 47. Under Section 7(2) of the IBC, read with the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016,
hereinafter referred to as “2016 Adjudicating Authority Rules” made in
exercise of powers conferred, inter alia, by clauses (c) (d) (e) and (f)
of sub-section (1) of Section 239 read with Sections 7, 8, 9 and 10 of the
IBC, a financial creditor is required to apply in the prescribed Form 1 for
F initiation of the Corporate Insolvency Resolution Process, against a
Corporate Debtor under Section 7 of the IBC, accompanied with
documents and records required therein, and as specified in the Insolvency
and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016, hereinafter referred to as the
G “2016 IB Board of India Regulations”.
48. Statutory Form 1 under Rule 4(1) of the 2016 Adjudicating
Authority Rules comprises Parts I to V, of which Part I pertains to
particulars of the Applicant, Part II pertains to particulars of the Corporate
Debtor and Part III pertains to particulars of the proposed Interim
Resolution Professional. Parts IV and V which require particulars of
H
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Financial Debt with Documents, Records and Evidence of default, is A
extracted hereinbelow:-
PART IV
B
C
PART V
D
E
F
G
49. Since a Financial Creditor is required to apply under Section 7
of the IBC, in Statutory Form 1, the Financial Creditor can only fill in
particulars as specified in the various columns of the Form. There is no
scope for elaborate pleadings. An application to the Adjudicating Authority H
1148 SUPREME COURT REPORTS [2022] 5 S.C.R.
A (NCLT) under Section 7 of the IBC, in the prescribed form, cannot
therefore, be compared with the plaint in a suit, and cannot be judged by
the same standards, as a plaint in a suit, or any other pleadings in a Court
of law.
50. Section 7(3) requires a financial creditor making an application
B under Section 7(1) to furnish records of the default recorded with the
information utility or such other record or evidence of default as may be
specified; the name of the resolution professional proposed to act as an
Interim Resolution Professional and any other information as may be
specified by the Insolvency and Bankruptcy Board of India.
C 51. Section 7(4) of the IBC casts an obligation on the Adjudicating
Authority to ascertain the existence of a default from the records of an
information utility or on the basis of other evidence furnished by the
financial creditor within fourteen days of the receipt of the application
under Section 7. As per the proviso to Section 7(4) of the IBC, inserted
by amendment, by Act 26 of 2019, if the Adjudicating Authority has not
D ascertained the existence of default and passed an order, within the
stipulated period of time of fourteen days, it shall record its reasons for
not doing so in writing. The application does not lapse for non-compliance
of the time schedule. Nor is the Adjudicating Authority obliged to dismiss
the application. On the other hand, the application cannot be dismissed,
E without compliance with the requisites of the Proviso to Section 7(5) of
the IBC.
52. Section 7(5)(a) provides that when the Adjudicating Authority
is satisfied that a default has occurred, and the application under sub-
section (2) of Section 7 is complete and there is no disciplinary proceeding
pending against the proposed resolution professional, it may by order
F
admit such application. As per Section 7(5)(b), if the Adjudicating
Authority is satisfied that default has not occurred or the application
under sub-Section (2) of Section 7 is incomplete or any disciplinary
proceeding is pending against the proposed resolution professional, it
may, by order, reject such application, provided that the Adjudicating
G Authority shall, before rejecting the application under sub-section (b) of
Section 5, give notice to the applicant, to rectify the defects in his
application, within 7 days of receipt of such notice from the Adjudicating
Authority.
53. The Corporate Insolvency Resolution Process commences
H on the date of admission of the application under sub-section (5) of Section
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7 of the IBC. Section 7(7) casts an obligation on the Adjudicating Authority A
to communicate an order under clause (a) of sub-section (5) of Section
7 to the Financial Creditor and the Corporate Debtor and to communicate
an order under clause (b) of sub-section (5) of Section 7 to the financial
creditor within seven days of admission or rejection of such application,
as the case may be. Sections 8 and 9 of IBC pertain to Insolvency
B
Resolution by an Operational Creditor and are not attracted in the facts
and circumstances of this case. Section 10 pertains to initiation of
Corporate Insolvency Resolution Process by the Corporate Debtor itself,
and is also not attracted in the facts and circumstances of the case.
54. Section 12(1) of the IBC requires the Corporate Insolvency
Process to be completed within a period of 180 days from the date of C
admission of the application to initiate such process. The period of 180
days is not extendable more than once.
55. The IBC is not just a statute for recovery of debts. It is also
not a statute which only prescribes the modalities of liquidation of a
corporate body, unable to pay its debts. It is essentially a statute which D
works towards the revival of a corporate body, unable to pay its debts,
by appointment of a Resolution Professional.
56. In Swiss Ribbons Private Limited & Anr. v. Union of India
and Ors.4, authored by Nariman, J. this Court observed: -
“28. It can thus be seen that the primary focus of the E
legislation is to ensure revival and continuation of the
corporate debtor by protecting the corporate debtor from its
own management and from a corporate death by liquidation.
The Code is thus a beneficial legislation which puts the
corporate debtor back on its feet, not being a mere recovery F
legislation for creditors. The interests of the corporate debtor
have, therefore, been bifurcated and separated from that of
its promoters/those who are in management. Thus, the
resolution process is not adversarial to the corporate debtor
but, in fact, protective of its interests. The moratorium imposed
by Section 14 is in the interest of the corporate debtor itself, G
thereby preserving the assets of the corporate debtor during
the resolution process. The timelines within which the
resolution process is to take place again protects the corporate
debtor’s assets from further dilution, and also protects all its
4
(2019) 4 SCC 17 H
1150 SUPREME COURT REPORTS [2022] 5 S.C.R.
A creditors and workers by seeing that the resolution process
goes through as fast as possible so that another management
can, through its entrepreneurial skills, resuscitate the
corporate debtor to achieve all these ends.”
57. IBC has overriding effect over other laws. Section 238 of the
B IBC provides that the provisions of the IBC shall have effect,
notwithstanding anything inconsistent therewith contained in any other
law, for the time being in force, or any other instrument, having effect by
virtue of such law.
58. Unlike coercive recovery litigation, the Corporate Insolvency
C Resolution Process under the IBC is not adversarial to the interests of
the Corporate Debtor, as observed by this Court in Swiss Ribbons Private
Limited v. Union of India (supra).
59. On the other hand, the IBC is a beneficial legislation for equal
treatment of all creditors of the Corporate Debtor, as also the protection
of the livelihoods of its employees/workers, by revival of the Corporate
D
Debtor through the entrepreneurial skills of persons other than those in
its management, who failed to clear the dues of the Corporate Debtor to
its creditors. It only segregates the interests of the Corporate Debtor
from those of its promoters/persons in management.
60. Relegation of creditors to the remedy of coercive litigation
E against the Corporate Debtors could be detrimental to the interests of
the Corporate Debtor and its creditors alike. While multiple coercive
proceedings against a Corporate Debtor in different forums could impede
its commercial/business activities, deplete its cash reserves, dissipate its
assets, moveable and immoveable and precipitate its commercial death,
F such proceedings might not be economically viable for the creditors as
well, because of the length of time consumed in the litigations, the
expenses of litigation, and the uncertainties of realisation of claims even
after ultimate success in the litigation.
61. It is, therefore, imperative that the provisions of the IBC and
G the Rules and Regulations framed thereunder be construed liberally, in a
purposive manner to further the objects of enactment of the statute.
62. On a careful reading of the provisions of the IBC and in
particular the provisions of Section 7(2) to (5) of the IBC read with the
2016 Adjudicating Authority Rules, there is no bar to the filing of
H
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documents at any time until a final order either admitting or dismissing A
the application has been passed.
63. The time stipulation of fourteen days in Section 7(4) to
ascertain the existence of a default is apparently directory not mandatory.
The proviso inserted by amendment with effect from 16th August 2019
provides that if the Adjudicating Authority has not ascertained the default B
and passed an order under sub-section (5) of Section 7 of the IBC within
the aforesaid time, it shall record its reasons in writing for not doing so.
No other penalty is stipulated.
64. Furthermore, the proviso to Section 7(5)(b) of the IBC requires
the Adjudicating Authority to give notice to an applicant, to rectify the C
defect in its application within seven days of receipt of such notice from
the Adjudicating Authority, before rejecting its application under Clause
(b) of sub-section (5) of Section 7 of the IBC. When the Adjudicating
Authority calls upon the applicant to cure some defects, that defect has
to be rectified within seven days. However, in the absence of any
prescribed penalty in the IBC for inability to cure the defects in an D
application within seven days from the date of receipt of notice, in an
appropriate case, the Adjudicating Authority may accept the cured
application, even after expiry of seven days, for the ends of justice.
65. The Insolvency Committee of the Ministry of Corporate
Affairs, Government of India, in a report published in March 2018, stated E
that the intent of the IBC could not have been to give a new lease of life
to debts which were already time barred. Thereafter Section 238A was
incorporated in the IBC by the Insolvency and Bankruptcy Code (Second
Amendment) Act, 2018 (Act 26 of 2018), with effect from 6th June
2018.
F
66. Section 238A of the IBC provides as follows:-
“238A. The provisions of the Limitation Act, 1963 (36 of 1963)
shall, as far as may be, apply to the proceedings or appeals
before the Adjudicating Authority, the National Company Law
Appellate Tribunal, the Debt Recovery Tribunal or the Debt G
Recovery Appellate Tribunal, as the case may be.”
67. In Sesh Nath Singh & Anr. v. Baidyabati Sheoraphuli
Cooperative Bank Ltd.5, authored by one of us (Indira Banerjee, J.),
this Court held:-
5
2021 SCC Online SC 244 H
1152 SUPREME COURT REPORTS [2022] 5 S.C.R.
A “91. Legislature has in its wisdom chosen not to make the
provisions of the Limitation Act verbatim applicable to
proceedings in NCLT/NCLAT, but consciously used the words
‘as far as may be’. The words ‘as far as may be’ are not meant
to be otiose. Those words are to be understood in the sense in
which they best harmonise with the subject matter of the
B
legislation and the object which the Legislature has in view.
The Courts would not give an interpretation to those words
which would frustrate the purposes of making the Limitation
Act applicable to proceedings in the NCLT/NCLAT ‘as far as
may be’.
C xxx xxx xxx
94. The use of words ‘as far as may be’, occurring in Section
238A of the IBC tones down the rigour of the words ‘shall’ in
the aforesaid Section which is normally considered as
mandatory. The expression ‘as far as may be’ is indicative of
D the fact that all or any of the provisions of the Limitation Act
may not apply to proceedings before the Adjudicating
Authority (NCLT) or the Appellate authority (NCLAT) if they
are patently inconsistent with some provisions of the IBC. At
the same time, the words ‘as far as may be’ cannot be construed
E as a total exclusion of the requirements of the basic principles
of Section 14 of the Limitation Act, but permits a wider, more
liberal, contextual and purposive interpretation by necessary
modification, which is in harmony with the principles of the
said Section.”
68. There is no specific period of limitation prescribed in the
F
Limitation Act, 1963, for an application under the IBC, before the
Adjudicating Authority (NCLT). An application for which no period of
limitation is provided anywhere else in the Schedule to the Limitation
Act, is governed by Article 137 of the Schedule to the said Act. Under
Article 137 of the Schedule to the Limitation Act, the period of limitation
G prescribed for such an application is three years from the date of accrual
of the right to apply.
69. There can be no dispute with the proposition that the period of
limitation for making an application under Section 7 or 9 of the IBC is
three years from the date of accrual of the right to sue, that is, the date
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of default. In Gaurav Hargovindbhai Dave v. Asset Reconstruction A
Company (India) Ltd.6 authored by Nariman, J. this Court held:-
“6. …...The present case being “an application” which is filed
under Section 7, would fall only within the residuary Article
137.”
70. In B. K. Educational Services Private Limited v. Parag B
Gupta and Associates7, this Court speaking through Nariman, J. 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 C
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, save
and except in those cases where, in the facts of the case,
Section 5 of the Limitation Act may be applied to condone the
D
delay in filing such application.”
71. In Jignesh Shah v. Union of India8 this Court speaking
through Nariman, J. reiterated the proposition that the period of limitation
for making an application under Section 7 or 9 of the IBC was three
years from the date of accrual of the right to sue, that is, the date of
default. E
72. In Radha Exports (India) (P) Ltd. v. K.P. Jayaram 9, this
Court held:-
“32. The proposition of law which emerges from Innoventive
Industries Ltd. [Innoventive Industries Ltd. v. Icici Bank,
F
(2018) 1 SCC 407 : (2018) 1 SCC (Civ) 356] is that the
insolvency resolution process begins when a default takes
place. In other words, once a debt or even part thereof
becomes due and payable, the resolution process begins.
Section 3(11) defines “debt” as a liability or obligation in
respect of a claim and the claim means a right to payment G
even if it is disputed. The Code gets triggered the moment
6
(2019) 10 SCC 572
7
(2019) 11 SCC 633
8
(2019) 10 SCC 750
9
(2020) 10 SCC 538 H
1154 SUPREME COURT REPORTS [2022] 5 S.C.R.
A default is of Rs 1,00,000 or more. Once the adjudicating
authority is satisfied that a default has occurred, the
application must be admitted, unless it is otherwise incomplete
and not in accordance with the rules. The judgment is however,
not an authority for the proposition that a petition under
Section 7 IBC has to be admitted, even if the claim is ex facie
B
barred by limitation.
33. On the other hand, in B.K. Educational Services (P)
Ltd. v. Parag Gupta & Associates [B.K. Educational Services
(P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 :
(2018) 5 SCC (Civ) 528] , this Court held : (SCC p. 664,
C para 42)
“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,
D 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, save and except in those cases
where, in the facts of the case, Section 5 of the Limitation
E Act may be applied to condone the delay in filing such
application.”
***
35. It was for the applicant invoking the corporate insolvency
resolution process, to prima facie show the existence in his
F 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.”
73. In Babulal Vardharji Gurjar v. Veer Gurjar Aluminium
Industries (P) Ltd.10, relied upon by the Respondents, this Court, speaking
G through Dinesh Maheshwari, J., reiterated that the period of limitation
for an application seeking initiation of CIRP under Section 7 of the IBC,
was governed by Article 137 of the Limitation Act, 1963 and was,
therefore, three years from the date when the right to apply accrued,
10
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i.e., the date when default occurred. In Babulal Vardharji Gurjar A
(supra), this Court observed and held:-
“35. Apart from the above and even if it be assumed that the
principles relating to acknowledgment as per Section 18 of
the Limitation Act are applicable for extension of time for the
purpose of the application under Section 7 of the Code, in B
our view, neither the said provision and principles come in
operation in the present case nor do they enure to the benefit
of Respondent 2 for the fundamental reason that in the
application made before NCLT, Respondent 2 specifically
stated the date of default as “8-7-2011 being the date of NPA”.
It remains indisputable that neither has any other date of C
default been stated in the application nor has any suggestion
about any acknowledgment been made. As noticed, even in
Part V of the application, Respondent 2 was required to state
the particulars of financial debt with documents and evidence
on record. In the variety of descriptions which could have D
been given by the applicant in the said Part V of the
application and even in residuary Point 8 therein, nothing
was at all stated at any place about the so-called
acknowledgment or any other date of default.
35.1. Therefore, on the admitted fact situation of the present E
case, where only the date of default as “8-7-2011” has been
stated for the purpose of maintaining the application under
Section 7 of the Code, and not even a foundation is laid in
the application for suggesting any acknowledgment or any
other date of default, in our view, the submissions sought to
be developed on behalf of Respondent 2 at the later stage F
cannot be permitted. It remains trite that the question of
limitation is essentially a mixed question of law and facts and
when a party seeks application of any particular provision
for extension or enlargement of the period of limitation, the
relevant facts are required to be pleaded and requisite evidence G
is required to be adduced. Indisputably, in the present case,
Respondent 2 never came out with any pleading other than
stating the date of default as “8-7-2011” in the application.
That being the position, no case for extension of period of
limitation is available to be examined. In other words, even if
Section 18 of the Limitation Act and principles thereof were H
1156 SUPREME COURT REPORTS [2022] 5 S.C.R.
A applicable, the same would not apply to the application under
consideration in the present case, looking to the very averment
regarding default therein and for want of any other averment
in regard to acknowledgment. In this view of the matter,
reliance on the decision in Mahabir Cold Storage11 does not
advance the cause of Respondent 2.
B
***
36. The submissions made on behalf of the respondents that
the rules of limitation are not meant to destroy the rights of
the parties and reference to the decision in N. Balakrishnan 12
C are also misplaced. Application of the rules of limitation to
CIRP (by virtue of Section 238-A of the Code read with the
above referred consistent decisions of this Court) does not,
in any manner, deal with any of the rights of Respondent 2; it
only bars recourse to the particular remedy of initiation of
CIRP under the Code. Equally, the other submissions made
D on behalf of the respondents about any stringent application
of the law of limitation which was introduced to the Code
only after filing of the application by Respondent 2; or about
the so-called prejudice likely to be caused to other banks
and financial institutions are also of no substance, particularly
E in the light of the principles laid down and consistently
followed by this Court right from the decision in B.K.
Educational Services 13. These contentions have only been
noted to be rejected. Needless to add that when the application
made by Respondent 2 for CIRP is barred by limitation, no
proceedings undertaken therein after the order of admission
F could be of any effect. All such proceedings remain non est
and could only be annulled.”
74. In Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank
Ltd. & Ors.14 this Court rejected the contention that the default was a
continuing wrong and Section 23 of the Limitation Act 1963 would apply,
G relying upon Balkrishna Savalram Pujari Waghmare v. Shree
Dhyaneshwar Maharaj Sansthan15.
11
1991 Supp (1) SCC 402
12
(1998) 7 SCC 123
13
(2019) 11 SCC 633
14
(2019) 9 SCC 158
H 15
1959 Supp (2) SCR 476
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1157
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
75. To quote P.B. Gajendragadkar, J. in Balkrishna Savalram A
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 B
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 C
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. .....”
76. There can be no dispute with the proposition of law laid down D
in Babulal Vardharji Gurjar (supra) that limitation is essentially a mixed
question of law and facts and when a party seeks application of any
particular provision for extension or enlargement of the period of limitation,
the relevant facts are required to be pleaded and requisite evidence is
required to be adduced. However, as observed above, an application in E
a statutory form cannot be judged in the manner of a plaint in a suit.
Documents filed along with the application, or later, and subsequent
affidavits and applications would have to be construed as part of the
pleadings.
77. The judgment of this Court in Babulal Vardharji Gurjar
F
(supra) was rendered in the facts of the aforesaid case, where the date
of default had been mentioned as 8.7.2011 being the date of N.P.A. and
it remained undisputed that there had neither been any other date of
default stated in the application nor had any suggestion about any
acknowledgement been made.
78. In the backdrop of the aforesaid facts, this court observed G
that even if Section 18 of the Limitation Act and principles thereof were
applicable, the same would not apply to the application under consideration,
in view of the averments regarding default therein and for want of any
other averment with regard to acknowledgment.
H
1158 SUPREME COURT REPORTS [2022] 5 S.C.R.
A 79. It is well settled, that a judgment is a precedent for the issue
of law that is raised and decided and not observations made in the facts
of any particular case. To quote V. Sudhish Pai in “Constitutional
Supremacy-A Revisit”, “Judicial utterances/pronouncements are in
the setting of the facts of a particular case. To interpret words and
provisions of a statute it may become necessary for judges to embark
B
upon lengthy discussions, but such discussion is meant to explain
not define. Judges interpret statutes, their words are not to be
interpreted as statutes.” The aforesaid passage was extracted and
incorporated as part of the judgment of this Court in Sesh Nath Singh
(supra).
C 80. Babulal Vardharji Gurjar (supra) is not an authority for the
proposition that the Books of Accounts of a Corporate Debtor could not
be treated as acknowledgement of liability to a Financial Creditor. Nor
does the judgment lay down the proposition that any affidavits or
documents filed during the pendency of the proceedings cannot be taken
D into consideration.
81. In Sesh Nath Singh (supra) this Court held that the IBC does
not exclude the application of Section 14 or 18 or any other provision of
the Limitation Act. There is, therefore, no reason to suppose that Sections
14 or 18 of the Limitation Act do not apply to proceedings under Section
E 7 or Section 9 of the IBC. In Laxmi Pat Surana v. Union Bank of
India16 this Court speaking through Khanwilkar J. held that there was
no reason to exclude the effect of Section 18 of the Limitation Act to
proceedings initiated under the IBC. In Bishal Jaiswal (supra), this
Court, speaking through Nariman J. relied, inter alia, on Sesh Nath
Singh (supra) and Laxmi Pat Surana (supra) and held that the question
F of applicability of Section 18 of the Limitation Act to proceedings under
the IBC was no longer res integra.
82. Section 18 of the Limitation Act is set out hereinunder:-
“18. Effect of acknowledgment in writing.—(1) Where, before
the expiration of the prescribed period for a suit or application
G 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
16
H (2021) 8 SCC 481
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1159
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
his title or liability, a fresh period of limitation shall be A
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 B
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 C
the time for payment, delivery, performance or enjoyment has
not yet come or is accompanied by 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,
D
(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 a decree or order shall
not be deemed to be an application in respect of any property
or right.” E
83. 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
F
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.
84. In Khan Bahadur Shapoor Fredoom Mazda v. Durga
Prasad Chamaria and Others17, this Court held:-
G
“6. It is thus clear that acknowledgment as prescribed by
Section 19 merely renews debt; it does not create a new right
of action. It is a mere acknowledgment of the liability in respect
of the right in question; it need not be accompanied by a
17
AIR 1961 SC 1236 H
1160 SUPREME COURT REPORTS [2022] 5 S.C.R.
A promise to pay either expressly or even by implication. The
statement on which a plea of acknowledgment is based must
relate to a present subsisting liability though the exact nature
or the specific character of the said liability may not be
indicated in words. Words used in the acknowledgment must,
however, indicate the existence of jural relationship between
B
the parties such as that of debtor and creditor, and it must
appear that the statement is made with the intention to admit
such jural relationship. Such intention can be inferred by
implication from the nature of the admission, and need not be
expressed in words. If the statement is fairly clear then the
C intention to admit jural relationship may be implied from it.
The admission in question need not be express but must be
made in circumstances and in words from which the court
can reasonably infer that the person making the admission
intended to refer to a subsisting liability as at the date of the
statement. In construing words used in the statements made
D
in writing on which a plea of acknowledgment rests oral
evidence has been expressly excluded but surrounding
circumstances can always be considered. Stated generally
courts lean in favour of a liberal construction of such
statements though it does not mean that where no admission
E is made one should be inferred, or where a statement was
made clearly without intending to admit the existence of jural
relationship such intention could be fastened on the maker
of the statement by an involved or far-fetched process of
reasoning. Broadly stated that is the effect of the relevant
provisions contained in Section 19, and there is really no
F
substantial difference between the parties as to the true legal
position in this matter.”
85. It is well settled that entries in books of accounts and/or balance
sheets of a Corporate Debtor would amount to an acknowledgment under
Section 18 of the Limitation Act. In Bishal Jaiswal (supra) authored by
G Nariman, J. this Court quoted with approval the judgments, inter alia, of
Calcutta High Court in Bengal Silk Mills Co. v. Ismail Golam Hossain
Ariff,18 and Pandem Tea Co.19 Ltd., the judgment of the Delhi High
Court in South Asia Industries (P) Ltd. v. General Krishna Shamsher
18
1961 SCC Cal 128: AIR 1962 Cal 115
H 19
AIR 1974 Cal 170
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1161
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
Jung Bahadur Rana20 and the judgment of Karnataka High Court in A
Hegde Golay Ltd. v. State Bank of India 21 and held that an
acknowledgement of liability that is made in a balance sheet can amount
to an acknowledgement of debt.
86. In Bengal Silk Mills Co. (supra), the Calcutta High Court
held:- B
“9. ….. I am unable to agree with the reasoning of the Nagpur
decision that a balance-sheet does not save limitation because
it is drawn up under a duty to set out the claims made on the
company and not with the intention of acknowledging liability.
The balance-sheet contains admissions of liability; the agent C
of the company who makes and signs it intends to make those
admissions. The admissions do not cease to be
acknowledgements of liability merely on the ground that they
were made in discharge of a statutory duty. I notice that in
the Nagpur case the balance-sheet had been signed by a
director and had not been passed either by the Board of D
Directors or by the company at its annual general meeting
and it seems that the actual decision may be distinguished on
the ground that the balance-sheet was not made or signed by
a duly authorized agent of the company.
*** E
11. To come under section 19 an acknowledgement of a debt
need not be made to the creditor nor need it amount to a
promise to pay the debt. In England it has been held that a
balance-sheet of a company stating the amount of its
indebtedness to the creditor is a sufficient acknowledgement F
in respect of a specialty debt under section 5 of the Civil
Procedure Act, 1833 (3 and 4 Will — 4c. 42), see Re : Atlantic
and Pacific Fibre Importing and Manufacturing Co. Ltd.,
[1928] Ch. 836…….”
87. In Re Pandem Tea Co. Ltd. (supra), Sabyasachi Mukharji J. G
held:-
“Now the question is whether the statements, which are
contained in the profits and loss accounts and the assets and
20
ILR (1972) 2 Del 712
21
985 SCC Kar 290 : ILR 1987 Kar 2673 H
1162 SUPREME COURT REPORTS [2022] 5 S.C.R.
A liabilities side indicating the liability of the petitioning creditor
along with the statement of the Directors made to the
shareholders as Directors’ report should be read together and
if so whether reading these two statements together these
amount to an acknowledgement as contemplated under
Section 18 of the Limitation Act, 1963, or Section 19 of the
B
Limitation Act, 1908. In my opinion, both these statements
have to be read together. The balance-sheet is meant to be
presented and passed by the shareholders and is generally
accompanied by the Directors’ report to the shareholders.
Therefore, in understanding the balance-sheets and in
C explaining the statements in the balance-sheets, the balance-
sheets together with the Directors’ report must be taken
together to find out the true meaning and purport of the
statements. Counsel appearing for petitioning creditor
contended that under the statute the balance-sheet was a
separate document and as such if there was unequivocal
D
acknowledgement on the balance-sheet the statement of the
Directors’ report should not be taken into consideration. It is
true the balance-sheet is a statutory document and perhaps
is a separate document but the balance-sheet not confirmed
or passed by the shareholders cannot be accepted as correct.
E Therefore, in order to validate the balance-sheet, it must be
duly passed by the shareholders at the appropriate meeting
and in order to do so it must be accompanied by a report, if
any, made by the Directors. Therefore, even though the
balance-sheet may be a separate document these two
documents in the facts and circumstances of the case should
F
be read together and should be construed together. It was
held by the Supreme Court in the case of L.C.
Mills v. Aluminium Corpn. of India Ltd., (1971) 1 SCC 67 : AIR
1971 SC 1482, that it was clear that the statement on which
the plea of acknowledgement was founded should relate to a
G subsisting liability as the section required and it should be
made before the expiration of the period prescribed under
the Act. It need not, however, amount to a promise to pay for
an acknowledgement did not create a new right of action but
merely extended the period of limitation. The statement need
not indicate the exact nature or the specific character of the
H
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1163
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
liability. The words used in the statement in question must, A
however, relate to a present subsisting liability and indicate
the existence of a jural relationship between the parties such
as, for instance, that of a debtor and a creditor and the
intention to admit such jural relationship. Such an intention
need not, however, be in express terms and could be inferred
B
by implication from the nature of the admission and the
surrounding circumstances. Generally speaking, a liberal
construction of the statement in question should be given.
That of course did not mean that where a statement was made
without intending to admit the existence of jural relationship,
such intention should be fastened on the person making the C
statement by an involved and far-fetched reasoning. In order
to find out the intention of the document by which
acknowledgement was to be construed the document as a
whole must be read and the intention of the parties must be
found out from the total effect of the document read as a
D
whole. …”
88. In South Asia Industries (P) Ltd. v. General Krishna
Shamsher Jung Bahadur Rana (supra), the Delhi High Court observed:-
“46. Shri Rameshwar Dial argued that statements in the
balance-sheet of a company cannot amount to E
acknowledgement of liability because the balance-sheet is
made under compulsion of the provisions in the Companies
Act. There is no force in this argument. In the first place, section
18 of the Limitation Act, 1963, requires only that the
acknowledgement of liability must have been made in writing,
but it does not prescribe that the writing should be in any F
particular kind of document. So, the fact that the writing is
contained in a balance-sheet is immaterial. In the second
place, it is true that section 131 of the Companies Act, 1913
(section 210 of the Companies Act, 1956) makes it compulsory
that an annual balance sheet should be prepared and placed G
before the Company by the Directors, and section 132 (section
211 of the Companies Act, 1956) requires that the balance-
sheet should contain a summary, inter alia, of the current
liabilities of the company. But, as pointed out by Bachawat J.
in Bengal Silk Mills v. Ismail Golam Hossain Ariff, AIR 1962
H
1164 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Cal 115 although there was statutory compulsion to prepare
the annual balance-sheet, there was no compulsion to make
any particular admission, and a document is not taken out of
the purview of section 18 of the Indian Limitation Act, 1963
(section 19 of the Indian Limitation Act, 1908) merely on the
ground that it is prepared under compulsion of law or in
B
discharge of statutory duty. Reference may also be made to
the decisions in Raja of Vizianagram v. Vizianagram Mining
Co. Ltd., AIR 1952 Mad 136, Jones v. Bellgrove Properties
Ltd., (1949) 1 All ER 498; and Lahore Enamelling and
Stamping Co. v. A.K. Bhalla, AIR 1958 Punj 341, in which
C statements in balance-sheets of companies were held to amount
to acknowledgements of liability of the companies.
47. Shri Rameshwar Dial referred to the decision of the Privy
Council in Consolidated Agencies Ltd. v. Bertram Ltd., (1964)
3 All ER 282. We shall advert to this decision presently when
D we deal with another argument of Shri Rameshwar Dial, and
it is sufficient to state so far as the argument under
consideration is concerned that even in this decision of the
Privy Council it has been recognised that balance-sheets could
in certain circumstances amount to acknowledgements of
liability. It cannot, therefore, be said as a general proposition
E of law that statements in balance-sheets of a company cannot
operate at all as acknowledgements of liability as contended
by Shri Rameshwar Dial.”
89. In Hegde & Golay Limited v. State Bank of India (supra)
the Karnataka High Court held:
F
“43. The acknowledgement of liability contained in the
balance-sheet of a company furnishes a fresh starting point
of limitation. It is not necessary, as the law stands in India,
that the acknowledgement should be addressed and
communicated to the creditor.”
G 90. In Reliance Asset Reconstruction Co. Ltd. v. Hotel Poonja
International Pvt. Ltd.22, the Appellant had relied on two documents in
the Paper Book, that is, (i) the Balance Sheet of the Corporate Debtor
dated 16th August, 2017 and (ii) a letter dated 23rd April, 2019 issued by
H 22
2021 SCC Online SC 289
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1165
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
the Corporate Debtor to contend that the proceedings under Section 7 A
of the IBC were not barred by limitation, as limitation would start running
afresh for a period of three years from the respective dates of those
documents in acknowledgment of liability.
91. This Court, however, did not accept the balance sheet dated
16th August, 2017 and the letter dated 23rd April, 2019 in the special facts B
and circumstances of the case where it could not be ascertained if the
documents had been signed before the expiry of the prescribed period
of limitation. This Court also found that the two documents could not be
construed as admission that amounted to acknowledgement of the jural
relationship and the existence of liability, since the balance sheet dated
16th August, 2017 did not acknowledge or admit any liability. Rather the C
Corporate Debtor had disputed and denied its liability. Similarly, the letter
dated 23rd April, 2019 was also found not be an acknowledgment or
admission of liability. On the other hand, the language of the letter made
it absolutely clear that the liability had in fact been denied.
92. Significantly, in Reliance Asset Reconstruction (supra), the D
loan had been sanctioned by Vijaya Bank in May 1986. The loan amount
was declared NPA on 1st April 1993, an original application moved under
the Debt Recovery Act was compromised in 2001 and the DRT had
issued a Recovery Certificate in May 2003. Vijaya Bank assigned its
Reliance Asset Reconstruction in May 2011 after which amended E
Recovery Certificate was issued in December 2012. The petition under
Section 7 of the IBC was, however filed on 27th July 2018.
93. Section 18 of the Limitation Act speaks of an Acknowledgment
in writing of liability, signed by the party against whom such property or
right is claimed. Even if the writing containing the acknowledgment is
F
undated, evidence might be given of the time when it was signed. The
explanation clarifies that an acknowledgment may be sufficient even
though it is accompanied by refusal to pay, deliver, perform or permit to
enjoy or is coupled with claim to set off, or is addressed to a person
other than a person entitled to the property or right. ‘Signed’ is to be
construed to mean signed personally or by an authorised agent. G
94. In Lakshmirattan Cotton Mills Co. Ltd. v. Aluminium Corpn.
of India Ltd.23, this Court held:-
23
(1971) 1 SCC 67 H
1166 SUPREME COURT REPORTS [2022] 5 S.C.R.
A “8. Section 19(1) of the Limitation Act, 1908, provides that
where, before the expiration of the period prescribed for a
suit 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, a fresh period of limitation shall be computed
B
from the time when the acknowledgment was so signed. The
expression ‘signed’ here means not only signed personally by
such a party, but also by an agent duly authorised in that
behalf. Explanation 1 to the section then provides that an
acknowledgment would be sufficient though it omits to specify
C the exact nature of the property or right, or avers that the
time for payment has not yet come, or is accompanied by a
refusal to pay or is coupled with a claim to a set-off, or is
addressed to a person other than the person entitled to the
property or right. The new Act of 1963, contains in Section
18 substantially similar provisions.
D
9. It is clear that the statement on which the plea of
acknowledgment is founded must relate to a subsisting liability
as the section requires that it must be made before the
expiration of the period prescribed under the Act. It need
not, however, amount to a promise to pay, for, an
E acknowledgment does not create a new right of action but
merely extends the period of limitation. The statement need
not indicate the exact nature or the specific character of the
liability. The words used in the statement in question, however,
must relate to a present subsisting liability and indicate the
F existence of jural relationship between the parties, such as,
for instance, that of a debtor and a creditor and the intention
to admit such jural relationship. Such an intention need not
be in express terms and can be inferred by implication from
the nature of the admission and the surrounding
circumstances. Generally speaking, a liberal construction of
G the statement in question should be given. That of course does
not mean that where a statement is made without intending to
admit the existence of jural relationship, such intention should
be fastened on the person making the statement by an involved
and far-fetched reasoning. (See Khan Bahadur Shapoor
H Fredoom Mazda v. Durga Prasad Chamaria [1962 (1) SCR
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1167
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
140] and Tilak Ram v. Nathu [AIR 1967 SC 935 at 938, 939] A
). As Fry, L.J., Green v. Humphreys [(1884) 26 Ch D 474 at
481] said “an acknowledgment is an admission by the writer
that there is a debt owing by him, either to the receiver of the
letter or to some other person on whose behalf the letter is
received but it is not enough that he refers to a debt as being
B
due from somebody. In order to take the case out of the statute
there must upon the fair construction of the letter, read in the
light of the surrounding circumstances, be an admission that
the writer owes the debt”. As already stated, the person making
the acknowledgment can be both the debtor himself as also a
person duly authorised by him to make the admission. In Khan C
Bahadur Shapoor Fredoom Mazda case the Court accepted
a statement in a letter by a mortgagor to a second mortgagee
to save the mortgaged property from being sold away at a
cheap price at the instance of the prior mortgagee by himself
purchasing it as one amounting to an admission of the jural
D
relationship of a mortgagor and mortgagee, and therefore,
to an acknowledgment within Section 19. Also, an agreement
of reference to arbitration containing an unqualified
admission that whoever on account should be proved to be
the debtor would pay to the other has been held to amount to
an acknowledgment. Such an admission is not subject to the E
condition that before the agreement should operate as an
acknowledgment, the liability must be ascertained by the
arbitrator. The acknowledgment operates whether the
arbitrator acts or not. (See Tejpal Saraogi v. Lallanjee Jain [
CA No. 766 of 1962, decided on February, 8, 1965] ,
F
approving Abdul Rahim Oosman & Co. v. Ojamshee
Prushottamdas & Co. [1928 ILR 56 Cal 639].”
95. In Jignesh Shah and Another v. Union of India (supra),
this Court relied upon a judgment of the Patna High Court in Ferro
Alloys Corporation Limited v. Rajhans Steel Limited24, and held in
effect that an application under Section 7 or 9 of the IBC may be time G
barred, even though some other recovery proceedings might have been
instituted earlier, well within the period of limitation, in respect of the
same debt. However, it would be a different matter, if the applicant had
24
(1999) SCC Online Pat 1196 H
1168 SUPREME COURT REPORTS [2022] 5 S.C.R.
A approached the Adjudicating Authority after obtaining a final order and/
or decree in the recovery proceedings, if the decree remained unsatisfied.
This Court held that a decree and/or final adjudication would give rise to
a fresh period of limitation for initiation of the Corporate Insolvency
Resolution Process.
B 96. In Dena Bank (Now Bank of Baroda) v. C. Shivakumar
Reddy and Another25, this Court held:-
“138. While it is true that default in payment of a debt triggers
the right to initiate the corporate resolution process, and a
petition under Section 7 or 9 IBC is required to be filed within
C the period of limitation prescribed by law, which in this case
would be three years from the date of default by virtue of
Section 238-A IBC read with Article 137 of the Schedule to
the Limitation Act, the delay in filing a petition in the NCLT is
condonable under Section 5 of the Limitation Act unlike delay
in filing a suit. Furthermore, as observed above Sections 14
D and 18 of the Limitation Act are also applicable to proceedings
under the IBC.
139. Section 18 of the Limitation Act cannot also be construed
with pedantic rigidity in relation to proceedings under the
IBC. This Court sees no reason why an offer of one-time
E settlement of a live claim, made within the period of limitation,
should not also be construed as an acknowledgment to attract
Section 18 of the Limitation Act. In Gaurav Hargovindbhai
Dave [Gaurav Hargovindbhai Dave v. Asset Reconstruction
Co. (India) Ltd., (2019) 10 SCC 572 : (2020) 1 SCC (Civ) 1]
cited by Mr Shivshankar, this Court had no occasion to
F
consider any proposal for one-time settlement. Be that as it
may, the balance sheets and financial statements of the
corporate debtor for 2016-2017, as observed above,
constitute acknowledgment of liability which extended the
limitation by three years, apart from the fact that a certificate
G of recovery was issued in favour of the appellant Bank in
May 2017. The NCLT rightly admitted the application by its
order dated 21-3-2019 [Dena Bank v. Kavveri Telecom
Infrastructure Ltd., 2019 SCC OnLine NCLT 7881] .
25
H (2021) 10 SCC 330
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. 1169
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
140. To sum up, in our considered opinion an application A
under Section 7 IBC would not be barred by limitation, on
the ground that it had been filed beyond a period of three
years from the date of declaration of the loan account of the
corporate debtor as NPA, if there were an acknowledgment
of the debt by the corporate debtor before expiry of the period
B
of limitation of three years, in which case the period of
limitation would get extended by a further period of three
years.
142. There is no bar in law to the amendment of pleadings in
an application under Section 7 IBC, or to the filing of
additional documents, apart from those initially filed along C
with application under Section 7 IBC in Form 1. In the
absence of any express provision which either prohibits or
sets a time-limit for filing of additional documents, it cannot
be said that the adjudicating authority committed any illegality
or error in permitting the appellant Bank to file additional D
documents. Needless however, to mention that depending on
the facts and circumstances of the case, when there is
inordinate delay, the adjudicating authority might, at its
discretion, decline the request of an applicant to file additional
pleadings and/or documents, and proceed to pass a final
order. In our considered view, the decision of the adjudicating E
authority to entertain and/or to allow the request of the
appellant Bank for the filing of additional documents with
supporting pleadings, and to consider such documents and
pleadings did not call for interference in appeal.”
97. To sum up, in our considered opinion an application under F
Section 7 of the IBC would not be barred by limitation, on the ground
that it had been filed beyond a period of three years from the date of
declaration of the loan account of the Corporate Debtor as NPA, if
there were an acknowledgement of the debt by the Corporate Debtor
before expiry of the period of limitation of three years, in which case the
period of limitation would get extended by a further period of three years. G
98. In this case, the amount of the Corporate Debtor was declared
NPA on 1st December 2008. By a letter dated 7th February, 2011, written
well within three years, the Corporate Debtor acknowledged its liability
and proposed a settlement. This was followed by several requests of
extension of time to make payment and revised settlements. On 6th April, H
1170 SUPREME COURT REPORTS [2022] 5 S.C.R.
A 2013, the Corporate Debtor sought extension of time to pay
Rs.239,88,27,673 outstanding as on 31st March 2013. On 19th April, 2013,
the Corporate Debtor made payment of Rs.17,50,00,000/-. On 1 st July,
2013, the Corporate Debtor acknowledged its liability – this was after
the Appellant Financial Creditor revoked the settlement invoking the
default clause. The Corporate Debtor acknowledged its liabilities in its
B financial statements from 2008-09 till 2016-17. The application under
Section 7(2) of the IBC was filed on 3rd April 2018, well within the
extended period of limitation.
99. For the reasons discussed above, the impugned judgment and
order is unsustainable in law and facts. The appeals are, accordingly
C allowed, and the impugned judgment and order of the NCLAT is set
aside.
Ankit Gyan Appeals allowed.
(Assisted by : Rahul Rathi, LCRA)
D
E
F
G
H
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