Asset Reconstruction Company (India) Limited vs Raigarh Properties Private Limited

"This is in regard to the term sheet dated March 21, 2013 executed between Asset Reconstruction Company (India) Limited ("ARCIL"), Mohan Jute Mills Ltd. ("MJML") & Raigarh Properties Pvt. Ltd. ("RPPL"), and our discussions in this regard. We would like to submit and request you for the following.

1)

Present outstanding dues and related payments made till date. In line with the aforesaid term sheet we were supposed to pay the following till date:

All figures in Rs. Lacs

Due Date	Interest Due	Interest Due	Interest Due	Principal Due	Principal Due	Principal Due
	MJML	RPPL	Total	MJML	RPPL	Total
30 Jun 13	144.68	39.65	184.33	-	-	-
31 Jul 13	24.78	6.79	31.57	-	-	-
31 Aug 13	24.78	6.79	31.57	-	-	-
30 Sep 13	23.98	6.57	30.55	-	-	-

Due Date	Interest Due	Interest Due	Interest Due	Principal Due	Principal Due	Principal Due
	MJML	RPPL	Total	MJML	RPPL	Total
31 Jul 15	12.39	3.40	15.79	-	-	-
31 Aug 15	12.39	3.40	15.79	-	-	-
30 Sep 15	11.99	3.29	15.28	331.54	90.87	422.41
31 Oct 15	6.19	1.70	7.89	-	-	-
30 Nov 15	5.99	1.64	7.63	-	-	-
31 Dec 15	6.21	1.73	7.94	331.54	90.86	422.40
Total	55.16	15.16	70.32	663.08	181.73	844.81

We have till date paid you R.264.78 lacs as follows:

a)

Rs.205.89 lacs to ARCIL on account of Interest Dues (Net of TDS)

b)

Rs.58.89 lacs TDS on Interest dues has been deposited till date.

The balance unpaid dues as per the above table is outstanding for payment as on date. The same is summarised as follows:

a)

Unpaid Outstanding Interest Dues - Rs. 639.77 lacs (After deducting the aforesaid payment Made directly to you and also the TDS deposits)

b)

Unpaid Outstanding Principal Dues - Rs. 844.82 lacs

2)

Future Dues as per the aforesaid term sheet

The future dues as per the aforesaid term sheet are as follows:

All figures in R. Lacs

Due Date	Interest Due	Interest Due	Interest Due	Principal Due	Principal Due	Principal Due
	MJML	RPPL	Total	MJML	RPPL	Total
31 Jul 15	12.39	3.40	15.79	-	-	-
31 Aug 15	12.39	3.40	15.79	-	-	-
30 Sep 15	11.99	3.29	15.28	331.54	90.87	422.41
31 Oct 15	6.19	1.70	7.89	-	-	-
30 Nov 15	5.99	1.64	7.63	-	-	-
31 Dec 15	6.21	1.73	7.94	331.54	90.86	422.40
Total	55.16	15.16	70.32	663.08	181.73	844.81

3)

Reasons for past delays

We would like to submit that there were instances of irregularities in our loan repayments in the past due to the reasons given below.

A) Labour Issues

- Please note that there were approx 875 workers in the erstwhile jute mill.

- We had settled their dues in line with their outstanding dues through appropriate channels including involvement of the Labour Unions and State Administration. This was the position at the time ARCIL had invested in the company.

- At that time we were confident of initiating and implementing the project development process soon.

- However, trouble started happening.

- Around 585 workers out of the total workers started claiming more amount over and above the settled amounts. They filed suits against the company for fresh settlement of their gratuity dues.

- We had to stall the project development process and had to divert our time and resources to settle this impending problem.

- We had to submit & fight our cases with the department for each labour case.

- The problems got much publicized involving labour union and also becoming a bit of a political matter.

- There were numerous hearings for each case and it took a lot of effort, time and resources from our side to settle these cases.

- However, we were successful and we started settling labour cases one by one from the beginning of 2014.

- These individual labour cases were settled after huge legal battle through appropriate government authorities and we started paying off the additional dues of the workers in line with the appropriate government authority orders.

- You will be happy to note that till date, 492 orders out of 585 cases' orders have been passed and we have settled the same and paid substantial additional amounts.

- The dues of the balance workers also we are hopeful that we will resolve the cases and pay them soon.

- Around 290 workers have not yet responded and not made any fresh claims. In case they claim, their dues, in case arising, we will settle and pay in line with the other settled cases.

- This process involved substantial amount of our time, effort, resources and funds which had to be diverted away from the process of project development.

B) Substantial Expenses incurred to settle matters

In the past 3-4 of years, we had to spend substantial funds to settle various related matters. These include:

Labour Dues Rs. 400 lacs

Statutory Dues Rs. 90 lacs

Professional / Legal / Liaisoning Expenses Rs. 30 lacs

Site Office Admin / Other Expenses Rs.100 lacs

During these problems, we also paid you approx Rs. 265 lacs (including TDS) till date.

Promoters had to keep pumping more funds and apply more time & resources to settle these problems.

C) Recessionary market conditions

In addition to the above, there was a general economic downturn prevailing in the country - More specifically the real estate market in India was going through a severe downturn. Even in the leading metro cities of the country, huge inventory of empty space remained unoccupied for lack of customers. The situation became far worse in Tier 2 and Tier 3 cities. The market condition in Raigarh is even worse than the other parts of the country.

All the aforesaid factors, more specifically, the fresh labour problems, resulted in the delay of the project development process. The promoters had to divert substantial time, energy, resources and funds to manage these problems which would otherwise have gone into project development as also in making payment to ARCIL.

We are hopeful that most of our problems have now been resolved and the balance matters will also be settled soon in the near future.

Further, we are sure that the market conditions are going to improve by the middle of next year. We should be able to start seeing an improvement in the real estate market scenario and are quite confident that conditions are going to improve soon.

We should be then able to expedite the process of project development and also clear your outstanding dues at the earliest.

The Proposal

We would, however, need your support in the current difficult situation.

Hence we request you for the reschedulement of the outstanding dues as follows:

a)

The outstanding Interest dues upto July 31, 2015 is Rs. 655.56 lacs (Interest instalment for July 2015 of Rs. 15.79 lacs plus Unpaid Outstanding Interest Dues upto June, 2015 for Rs. 639.77 lacs). We request you to kindly capitalize the same as of July 31, 2015

b)

The outstanding principal payment (including present and future) is as follows:

Rs. Lacs

Due Date	MML	RPPL	Total
31 Mar 15	331.54	90.87	422.41
30 Jun 15	331.54	90.87	422.41
30 Sep 15	331.54	90.87	422.41
31 Dec 15	331.54	90.86	422.40
Total	1326.16	363.47	1689.63

c)

We request you for a moratorium of 18 months on the aforesaid capitalized interest and principal amount from August 1, 2015.

d)

Repayment thereafter in 6 equal quarterly installment as follows:

e)

Interest servicing regularly as per the norms prevailing currently.

We would be happy to furnish any additional information as required.

We would request you to kindly look into our request and sanction the reschedulement proposal.

We would be really grateful for your assistance. "

"15.

As regard to the contention that it is time barred, both sides have cited decisions wherein opposite views have been expressed in respect of suit for recovery. Hence, in our considered view, this aspect has to be looked into in the context of IBC 2016. Further, the decision of the Hon'ble NCLAT cited by the Corporate Debtor is not applicable as in that case, the issue was not whether Form C issued by Corporate Debtor amount to acknowledgement of liability or not but the issue was whether issuance of Form "C" amounted to settlement of dispute / claim. Hence, this decision does not come to the rescue of the Corporate Debtor. We are further of the view that in Form C name of the Operational Creditor is mentioned and supply of goods by Operational Creditor and receipt of goods by Corporate Debtor is acknowledged. If the stand of the Corporate Debtor is accepted, this will amount to unjust enrichment i.e., on one side the Corporate Debtor takes benefit of reduced rate of taxes and on the other side do not want to make payment of money which is due to the supplier of goods. Further, in the absence of the books of accounts/ financial statements it cannot be said that liability to pay has not been disclosed either in financial statements or as contingent liability which should be there because Form "C"s have been issued. It has been further brought to our notice that the Operational Creditor has been awarded work subsequently as well. Hence, considering this fact that in real life situation, small entrepreneurs wait for an amicable settlement of issues so that they can continue to work with the entity of the size of Corporate Debtor as it gives them continuity of business with the said entity and on this basis they also get empanelled for work with other business entities that are as large as the Corporate Debtor and to the extent possible do not take any legal action unless compelled to do so. Considering these facts and contents of Form "C" we are of the view that the issue of Form "C" amounts to acknowledgement of debt / liability in respect of goods supplied by Operational Creditor and received by the Corporate Debtor. As regards to the nature of acknowledgement of debt in terms of explanation (a) of section 18 of Limitation Act, 1963, we reproduce the findings of the Tribunal in the case of Hari Om Transport vs MSP Metallics Ltd. CP(IB) No. 116/KB/2019 Order dated 15.10.2019 wherein the Tribunal held as under :

"8.

It is not in dispute that the Operational Creditor has supplied material during the Financial Year 2014-15. It is also not in dispute that there were agreed deduction out of the bills raised by the Operational Creditor to the tune of Rs. 12,43,281/- resulting into impugned sum remaining unpaid. It is also noteworthy that thereafter there have been no supplies or payment by the respective parties. As far as Corporate Debtor is concerned the main plea is that the debt is barred by limitation. For this purpose, the e-mail dated 19^th April, 2016 has been claimed as not a proper acknowledgement of debt under Section 18 of Limitation Act, 1963. It has been claimed so far the reason that the said e-mail was addressed to Baba Gora Transport and not to the Financial Creditor. On perusal of the records, it is noted that the said e-mail is, in fact, has been addressed to mail ID i.e. [email protected] which is not of the Financial Creditor but statement of account of Financial Creditor has been attached. To express our view about the validity of such e-mail is an acknowledgement of that we consider it necessary to reproduce Section 18 of the Limitation Act, 1963 as under:

Section 18(1):

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

Section 18(2):

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

Explanation: for the purpose of this section,-

(a)

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

(b)

The word 'signed' means signed either personally or by an agent duly authorised in this behalf; and

(c)

An application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.

"5.

We have considered submissions made by both sides and have also perused the materials on record. The question for our consideration arises is that (i) whether debt is barred by limitation or not; (ii) whether the letters dated 29/1/2018 and 30/7/2018 constitute acknowledgement as per provision of Sec.18 of the Limitation Act, 1963. It is not in dispute that these letters have been written by the corporate debtor regarding confirmation of outstanding balance of ICD as on 31/12/2017 and 30/6/2018 as per the books of account of Financial Creditor. The confirmation of outstanding balance is to be given to the statutory auditors of the corporate debtor. This exercise cannot be considered in a light manner because reliance on the accuracy of the books of account and financial statement is based upon such standard auditing practice. In the letter dated 29/1/2018 it has been clearly mentioned that such confirmation was in respect of amounts payable in respect ICD as on 31/12/2017 which by itself establishes the fact of acknowledgement of debt beyond any doubt. To deal with the contention of the corporate debtor that such emails do not constitute acknowledgement of debt within the meaning of provision of Sec.18 of the Limitation Act, 1963, we consider it necessary to reproduce the Sec.18 of the said Act as under:-

"Effect of acknowledgement in writing.

(1)

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

(2)

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

Explanation: For the purposes of this section,-

(a)

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

(b)

The word "signed" means signed either personally or by an agent duly authorised in this behalf; and

(c)

An application for the execution of a decree or order, shall not be deemed to be an application in respect of any property or right." From perusal of the explanation (a) to the said section it can safely be concluded that such letters constitute acknowledgement of debt by the corporate debtor, as it is not necessary that the letter should be written to the financial creditor only. It is further noteworthy that explanation (a) takes into its ambit the generally accepted commercial practices of communication between the parties whereby acknowledgement of debt can be inferred as no specific format has been prescribed.

8.

Having stated so, we also take into consideration the provision of Sec.238A of the Insolvency & Bankruptcy Code, 2016 which is re-produced as under:-

"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 Recovery Appellate Tribunal, as the case may be.”

9.

Before looking into the ambit and scope of this section, it is stated that this provision was incorporated in Insolvency & Bankruptcy Code, 2016 with the object that stale claims cannot be made alive through the mechanism of Insolvency & Bankruptcy Code, 2016. This is also so because Insolvency & Bankruptcy Code, 2016 is not a recovery mechanism rather a comprehensive code for insolvency resolution old and stale claims cannot be considered as a source or detecting of signs impending insolvency at an early stage. Hence, for this reason also the necessity was felt to make provision of Limitation Act, 1963 applicable to Insolvency & Bankruptcy Code, 2016. It has been settled judicially that Sec.238A is applicable since the implication of Insolvency & Bankruptcy Code, 2016. It is evident that Sec.238A the word “as far as may be” have been used which means that the provisions of Limitation Act, 1963 would apply to the extent possible and any provision of Limitation Act, 1963 being inconsistent to the provisions of Insolvency & Bankruptcy Code, 2016 will not be applicable. Further, the technicalities of Limitation Act, 1963 would not be applicable as Insolvency & Bankruptcy Code, 2016 is an economic legislation and functions on the principles of summary procedure. As discussed earlier that explanation (a) of Sec.18 of Limitation Act, 1963 provides much flexibility and takes into consideration various factors/situations for explaining as to what would constitute acknowledgement and in view of Sec.238 and 238A of the Insolvency & Bankruptcy Code, 2016, such provision has to be read further in conjunction with the wider meaning given to the term “claim” in Sec.3(6) of the Insolvency & Bankruptcy Code, 2016 which includes right to payment even on equitable ground. (Emphasis supplied).

10.

In view of above discussion, we hold that there is no merit in the claim of the corporate debtor that the said emails cannot be said to be an acknowledgement within the meaning of provision of Sec.18 of Limitation Act, 1963. Accordingly, we reject the same.”

“11.

Coming to the aspect of limitation, we are of the view if averment made before a court of law or any statutory authority cannot be constituted as an acknowledgment of debt then that would render such averment meaningless. Legally such averment bind party making them. Doctrine of estoppel applies without any restriction in commercially and legally. Accordingly, we hold that such statement constitute acknowledgment. In this regard, we further take the assistance of the provision of explanation (a) of Sec.18(1) of Limitation Act, 1963 wherein scope of acknowledgment has been given in a widest possible manner. It is also to be noted that writ petition was filed within a period of 3 years from the date of issue of recall notice and, hence, for this reason also provisions of Sec.18 of the Limitation Act, 1963 are applicable. Even otherwise, in our considered view, such averments made before the Hon'ble High Court amount to promise within the meaning of provisions of Sec.25(3) of the Indian Contract Act, 1872 and, therefore, if such promise is made after expiry of original limitation period also, the limitation period gets extended as condition of acknowledgement before expiration exists only under Sec.18 of the Limitation Act, 1963."

21.

From the perusal of the above judicial decisions, it may be noted that the explanation (a) of Sec.18 of Limitation Act, 1963 is wide in scope and has to be interpreted in the background of the current commercial environment and in accordance with the nature of proceedings of Insolvency & Bankruptcy Code, 2016".

"If Corporate Debtor has written the letter for due debt, the period of limitation stands shifted to the date on which the Corporate Debtor agreed to pay.

Bank of India moved an Application under Section 7 of the ICode, pursuant to which, by impugned order dated 26th November, 2019 the Adjudicating Authority (NCLT), Mumbai Bench initiated CIRP against RNA Corp. Pvt. Ltd. (Corporate Debtor), who was the Guarantor. The Appellant has challenged the impugned order on main ground that the Application under Section 7 of the Code was barred by limitation.

In the present case, the Corporate Debtor by its letter dated 18.03.2016/20.03.2019 has specifically stated that it will make an effort in reducing their outstanding dues and raise other funding to save their Bank account from getting NPA. The last three paragraphs of the aforesaid letter show that to save the Bank Account from getting NPA and citing the good reputation and goodwill, the 'Corporate Debtor' agreed to pay the amount and acknowledged the dues.

In view of the letter dated 18th March, 2016 written to the Bank, NCLAT has held that the period of limitation stands shifted to the date on which the Corporate Debtor agreed to pay and thus, held that the Application under Section 7 of the Code was not barred by limitation."

"20.

Section 18 of the Limitation Act, 1963 deals with effect of acknowledgement in writing. Sub-section (1) thereof provides that where, before the expiration of the prescribed period for a suit or application in respect of any right, an acknowledgement of liability in respect of such right has been made in writing signed by the party against whom such right is claimed, a fresh period of limitation shall be computed from the time when the acknowledgement was also signed. The explanation to the section provides that an acknowledgement may be sufficient though it omits to specify the exact nature of the 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 set off, or is addressed to a person other than a person entitled to the right. Interpreting Section 19 of the Limitation Act, 1908 (corresponding to Section 18 of the Limitation Act, 1963) this Court in Shapoor Freedom Mazda v. Durga Prosad Chamaria [AIR 1961 SC 1236] held: (AIR p. 1238, paras 6-7).

6.

... acknowledgement as prescribed by Section 19 merely renews debt; it does not create a new right of action. It is a mere acknowledgement of the liability in respect of the right in question; it need not be accompanied by a promise to pay either expressly or even by implication. The statement on which a plea of acknowledgement 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 acknowledgement must, however, indicate the existence of jural relationship between 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 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. ... Stated generally courts lean in favour of a liberal construction of such statements though it does not mean that where no admission 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 fa-fetched process of reasoning. ... in construing words used in the statements made in writing on which a plea of acknowledgement rests oral evidence has been expressly excluded but surrounding circumstances can always be considered.

7.

... The effect of the words used in a particular document must inevitably depend upon the context in which the words are used and would always be conditioned by the tenor of the said document. ..."

... "Letter of Undertaking "Without Prejudice"

"35.

Much was sought to be made of the words "without prejudice" in the letter containing the undertaking that if the debt was not paid, the creditor could take over the secured assets. The submission on behalf of the debtor that the letter of undertaking was given in the course of negotiations and cannot be held to be an evidence of the acknowledgement of liability of the debtor, apart from being untenable in law, reiterates the attempt to evade liability and must be rejected. The submission that the letter was written without prejudice to the legal rights and remedies available under any law and therefore the acknowledgement or the undertaking has no legal effect must likewise be rejected. This letter is reminiscent of a letter that feel for consideration in Spencer's case as pointed out by Mr. Harish Salve, "as a rule the debtor who writes such letters has no intention to bind himself further than is bound already, no intention of paying so long as he can avoid payment, and nothing before his mind but a desire, somehow or other, to gain time and avert pressure."

It was argued in a subsequent case that an acknowledgement made “without prejudice” in the case of negotiations cannot be used as evidence of anything expressly or impliedly admitted. The House of Lords observed as follows:

“But when a statement is used as acknowledgement for the purpose of s. 29 (5), it is not being used as evidence of anything. The statement is not an evidence of an acknowledgement. It is the acknowledgement.”

Therefore, the without prejudice rule could have no application. It said: “Here, the respondent, Mr. Rashid was not offering any concession. On the contrary, he was seeking one in respect of an undisputed debt. Neither an offer of payment nor actual payment.” We, thus, find that the mere introduction of the words “without prejudice” have no significance and the debtor clearly acknowledged the debt even after action was initiated under the Act and even after payment of a smaller sum, the debtor has consistently refused to pay up.” In view of the above findings, we do not find any force in this contention of the corporate debtor.

ORDER