Canara Bank vs M/s. VS Realtech Pvt. Ltd.

ORAL ORDER

“3.

That the present petition is liable to be dismissed on the ground of fraud, fabrication of records and siphoning/ misappropriation of the bank loan amount, furnishing incorrect information by Mr. Vinod Kumar Sharma, Sanjeev Kumar Shanna and Ms. Anjali Bhardwaj in connivance with Canara Bank in sanctioning and disbursing of the loan in the name of M/s. Suryansh Health Care (P) Ltd for setting up a hospital of 102 beds at Moradabad Rampur Road, Moradabad. The copy of the Sanction Memorandum and Letter dated 02.05.2016 issued by the Canara bank has been annexed herein and marked as Annexure A-2.

4.

The modus operandi of the fraud of fabrication of the records and then siphoning of the bank loan by the above named persons in connivance with the bank for which M/s VS Realtech (P) Ltd has already stated in his written Statement in detail in OA No. 412 of 2016 Titled as Canara bank Versus Suryash Healthcare Private Limited and others which is well known to the Canara Bank. Despite that Bank has not disclosed all those facts of fraud, fabrication of documents, siphoning of loan by the above said persons in connivance with the bank. Copy of the Written Statement filed before the Debt Recovery Tribunal by the answering company is annexed herewith and marked as Annexure A-3.

5.

It is submitted that till 1st September, 2014, Mr. Vinod Kumar Sharma and his brother Sanjeev Kumar Sharma of one part having 50% shares holding and Mittal family of other part having 50% share holding in the answering company, were the directors in M/s V.S. Realtech (P) Ltd., meaning thereby there were four directors on the Board of the said company at the relevant time. The registered office of the company was D-45, Basement, Panchsheel Enclave, New Delhi then, Copy of the company master data available on the site of the Ministry of Corporate Affairs is annexed herewith and marked as Annexure A-4.”

“174.

Quorum for meetings of Board.—(1) The quorum for a meeting of the Board of Directors of a company shall be one-third of its total strength or two directors, whichever is higher, and the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum under this sub-section.

(2)

The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company and for no other purpose.

(3)

Where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the number of directors who are not interested directors and present at the meeting, being not less than two, shall be the quorum during such time.

Explanation.—For the purposes of this sub-section, “interested director” means a director within the meaning of sub-section (2) of section 184.

(4)

Where a meeting of the Board could not be held for want of quorum, then, unless the articles of the company otherwise provide, the meeting shall automatically stand adjourned to the same day at the same time and place in the next week or if that day is a national holiday, till the next succeeding day, which is not a national holiday, at the same time and place.

Explanation.—For the purposes of this section,—

(i)

any fraction of a number shall be rounded off as one;

(ii)

“total strength” shall not include directors whose places are vacant.”

“175.

Passing of resolution by circulation.—(1) No resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors, or members of the committee, as the case may be, at their addresses registered with the company in India by hand delivery or by post or by courier, or through such electronic means as may be prescribed and has been approved by a majority of the directors or members, who are entitled to vote on the resolution: Provided that, where not less than one-third of the total number of directors of the company for the time being require that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board.

(2)

A resolution under sub-section (1) shall be noted at a subsequent meeting of the Board or the committee thereof, as the case may be, and made part of the minutes of such meeting.”

“179.

Powers of Board.—(1) The Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do:

Provided that in exercising such power or doing such act or thing, the Board shall be subject to the provisions contained in that behalf in this Act, or in the memorandum or articles, or in any regulations not inconsistent therewith and duly made thereunder, including regulations made by the company in general meeting:

Provided further that the Board shall not exercise any power or do any act or thing which is directed or required, whether under this Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting.

(2)

No regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.

(3)

The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely:—

(a)

to make calls on shareholders in respect of money unpaid on their shares;

(b)

to authorise buy-back of securities under section 68;

(c)

to issue securities, including debentures, whether in or outside India;

(d)

to borrow monies;

(e)

to invest the funds of the company;

(f)

to grant loans or give guarantee or provide security in respect of loans;

(g)

to approve financial statement and the Board’s report;

(h)

to diversify the business of the company;

(i)

to approve amalgamation, merger or reconstruction;

(j)

to take over a company or acquire a controlling or substantial stake in another company;

(k)

any other matter which may be prescribed:

Provided that the Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing director, the manager or any other principal officer of the company or in the case of a branch office of the company, the principal officer of the branch office, the powers specified in clauses (d) to (f) on such conditions as it may specify:

Provided further that the acceptance by a banking company in the ordinary course of its business of deposits of money from the public repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise, or the placing of monies on deposit by a banking company with another banking company on such conditions as the Board may prescribe, shall not be deemed to be a borrowing of monies or, as the case may be, a making of loans by a banking company within the meaning of this section.

Explanation I.—Nothing in clause (d) shall apply to borrowings by a banking company from other banking companies or from the Reserve Bank of India, the State Bank of India or any other banks established by or under any Act.

Explanation II.—In respect of dealings between a company and its bankers, the exercise by the company of the power specified in clause (d) shall mean the arrangement made by the company with its bankers for the borrowing of money by way of overdraft or cash credit or otherwise and not the actual dayto-day operation on overdraft, cash credit or other accounts by means of which the arrangement so made is actually availed of.

(4)

Nothing in this section shall be deemed to affect the right of the company in general meeting to impose restrictions and conditions on the exercise by the Board of any of the powers specified in this section.”

“a)

That this is in reference to our detailed discussions and earlier OTS proposals dated 30.12.2020, 01.03.2021, 13.07.2021, 29.11.2021 16.12.2021, 03.02.2022, 30.04.2022, 02.07.2022 and 02.08.2022. Now as per our earlier discussion with the then Chief General Manager, Sh. Paramshivam alongwith other Senior Officials, wherein the OTS proposal was made to me around Rs. 23 Cr. as full and final OTS. In view of the same a fresh OTS letter is given to you for your sympathetic consideration.”

“43.

Ordinarily, upon declaration of the loan account/debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 IBC. However, Section 7 comes into play when the corporate debtor commits “default”. Section 7, consciously uses the expression “default” — not the date of notifying the loan account of the corporate person as NPA. Further, the expression “default” has been defined in Section 3(12) to mean non-payment of “debt” when whole or 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. In cases where the corporate person had offered guarantee in respect of loan transaction, the right of the financial creditor to initiate action against such entity being a corporate debtor (corporate guarantor), would get triggered the moment the principal borrower commits default due to non-payment of debt. Thus, when the principal borrower and/or the (corporate) guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of three years therefrom including the fresh period of limitation due to (successive) acknowledgments, it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act. Section 18 of the Limitation Act gets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate resolution process under Section 7 IBC enures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgment, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgment of the debt, from time to time, for institution of the proceedings under Section 7 IBC. Further, the acknowledgment must be of a liability in respect of which the financial creditor can initiate action under Section 7 IBC.”

“7.

The commencement of a fresh period of limitation from the time of acknowledgement of the debt is part of the statutory scheme. Section 238A of the Code extends the applicability of the provisions of the Limitation Act to the proceedings under the Code. With the extension of Limitation Act to the provisions of the Code, the benefit of Section 18 of the Limitation Act dealing with the effect of acknowledgement of a debt in writing applies. Considering the same issue in Laxmi Pat Surana v. Union Bank of India, the Court observed: […]

8.

In view of the above referred principles, we will now consider the nuanced arguments advanced by Mr. Balbir Singh that there is no unequivocal, unambiguous and specific acknowledgement of debt owed to UCO Bank in the balance sheet entries of Corporate Debtor for the years 2017 and 2019. In the absence of clear demarcation as to what the Corporate Debtor owes to the UCO Bank, the said entries cannot be relied on for the purpose of extending the period of limitation in terms of Section 18 of the Limitation Act. Mr. Balbir Singh further argues that even if said entry is taken to be an acknowledgment of debt, the same cannot aid respondent No.1’s case since it fails to mention the name of financial creditor.

8.1

Mr. Partha Sil, counsel on behalf of respondent No. 1-Bank submitted that the Balance Sheets of a company are prepared in the prescribed statutory format as per Section 129, read with Schedule III of the Companies Act 2013, which does not provide for giving specific names of each and every Secured and Unsecured creditor. In support of his submission, Mr. Partha Sil referred to the judgment in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal where it was observed that there was no compulsion for Companies to make any particular admissions in the balance sheet, except for what is prescribed.

9.

A three Judge Bench of this Court in Bishal Jaiswal (Supra) has addressed and clarified this issue by holding that;

“35.

A perusal of the aforesaid sections would show that there 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 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 Co. v. Ismail Golam Hossain Ariff , 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 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.”

10.

Having considered the specific facts and circumstances of this case, the Adjudicating Authority as well as the NCLAT have concurrently held that the entries in the balance sheets amount to clear acknowledgment of debt. We agree with the findings. Further, Note 3.4 appended to said balance sheet entry dated 31.03.2017 mentions that “company has made certain defaults in the repayment of term loans and interest.” It further mentions of a continuing default. The entry also mentions long-term borrowings. The conclusions of NCLT and NCLAT that there is acknowledgment of debt are unimpeachable.

10.1

Following the principles as expounded in the case of Bishal Jaiswal (Supra), the Adjudicating Authority as well as the NCLAT have examined the case in detail and have come to the conclusion that the entry made in the balance sheet coupled with the note of the auditor of the appellant clearly amounts to acknowledgement of the liability. We see no reason whatsoever to take a different view of the matter. Their findings are fortified when we examine the matter from another perspective.

11.

Adjudicating Authority and NCLAT have also considered the Corporate Debtor’s proposal of One Time Settlement (OTS) to UCO Bank. The proposal made by letter dated 07.06.2016 acknowledges that there were prior debts owed to UCO Bank. To substantiate the argument that such OTS constituted acknowledgment of debt since it relates to present and subsisting liability and indicates existence of a jural relationship between the parties, UCO Bank relied on judgment of this Court in Lakshmirattan Cotton Mills Co. Ltd. and Messrs Behari Lal Ram Charan v. Aluminium Corporation of India Limited. The implication of a statement about a present and subsisting debt of a Corporate Debtor is articulated by this Court in the following manner;

“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 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 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 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 farfetched reasoning…” (emphasis supplied)

11.1

It is also relevant to refer to judgment in Dena Bank (Supra) which held as follows:

“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 onetime 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…” (emphasis supplied)

“[…] Whereas the Guarantor has requested the Bank to grant financial assistance to the Borrower by way of facilities including guarantees subject to the specific condition that the Guarantor shall unconditionally and irrevocably guarantee the repayment of all amounts advanced and all liabilities guaranteed by the Bank as also all amounts which may be advanced and all guarantees which may be issued by the Bank from this day. And whereas in consideration of the Bank’s agreeing to do so and in consideration of the Bank’s agreeing at the request of the Guarantor not to require immediate payment of any amount now due from the Borrower to the Bank and in consideration of any sums which may hereafter be advanced by the Bank to the Borrower, and in consideration also of the Bank’s hereafter granting financial accommodation to the Borrower by way of renewal of facilities from time to time at the discretion of the Bank without previous intimation to the Guarantor of such renewal the guarantor has agreed to guarantee payments of all amounts due by the Borrower to the Bank subject to the terms and conditions hereinafter set forth, and whereas the Bank has agreed thereto. […]”