Edelweiss Asset Reconstruction Co Ltd vs Chemstar Organics (India Ltd)

Written Submissions

The present Appeal has been filed under Section 61 of the IBC, 2016 against the order of the Ld. Adjudicating Authority dated 03.06.2021 (“impugned order”) in CP No. 4044/2019 titled as “Edelweiss Asset Reconstruction Company Limited vs Chemstar Organics (India) Limited” by which the Ld. Adjudicating Authority had erroneously dismissed the Section 7 Application filed by the Appellant on the ground of bar of Limitation.

Our submissions on the issue of limitation

a. The important dates for limitation purposes are being given in the table below:

Additional Written Submissions on behalf of Appellant

WRITTEN SUBMISSIONS ON BEHALF OF THE RESPONDENT

I. SUMMARY

1.

On 23 October 2019, the Appellant filed an application - C.P. (IB) 4044 of 2019 ("said Company Petition”) under Section 7 of the Insolvency & Bankruptcy Code, 2016 ('Code') seeking initiation of CIRP of the Respondent for a claim of Rs. 142,55,35,318/-(INR One Hundred and Forty Two Crore Fifty Five Lakh Thirty Five Thousand Three Hundred and Eighteen Only). The date of default as stated in Form I of the said Company Petition was May 2000 which is 19 years 5 months from the date of filing.

2.

By Impugned Order dated 3 June 2021, the Adjudicating Authority dismissed the said Company Appeal (AT)(Ins) No.707/2021 Company Petition. Although various grounds were raised by the Respondent to oppose admission, the Adjudicating Authority dismissed the said Company Petition solely on the ground of limitation holding that the Appellant has failed to produce necessary acknowledgments of liability within 3 years from the date of default which would renew the period of limitation.

3.

By the present Appeal, the Appellant has sought to assail the Impugned Order, and has also filed I.A. No. 1876 of 2021 ("said IA”) seeking to produce certain additional documents which were not produced in the said Company Petition before the Adjudicating Authority.

4.

In view of the fact that the said IA was pending adjudication, and the additional documents sought to be relied upon were not brought on record at the relevant time, the Respondent has filed its Affidavit in Reply dated 26 May 2022 opposing the appeal on the basis of documents on record before the Adjudicating Authority, and reserved its right to deal with the additional documents as and when the said IA is decided. Infact, as on date of final hearing of the present Appeal, the said IA was still pending adjudication and thus the additional documents were yet to be permitted.

5.

Accordingly, on 16 November 2022 (i.e., date of final hearing), the parties have confined their arguments to the documents produced along with pleadings before the Adjudicating Authority in the said Company Petition.

II. APPLICATION IS BARRED BY LIMITATION

i. No documents produced from 3 years from Date of Default

1.

The Appellant has admitted that the Date of Default is in May 2000. Therefore, prima facie the Application being filed on 23^rd October 2019 i.e. 19 years 5 months after the Date of Default is barred by limitation;

2.

The Applicant has failed to produce any acknowledgment of liability or prove any part payment within the prescribed period of limitation of 3 years as under Section 18 or 19 of the Limitation Act to save limitation under Article 137 of the Limitation Act. Therefore, any such document purporting to be an acknowledgment of debt or liability would be irrelevant for the purposes of Section 18 of the Limitation Act, and thus would not revive limitation. (Sesh Nath Singh vs Baidyabati Sheraphuli Co- op. Bank Ltd. - (2021) 7 SCC 313 - Para 64) & (Laxmipat Surana v Union Bank of India 2021 8 SCC 481-Para 43)

3.

Under Section 18 of the Limitation Act, a document must meet the following ingredients to qualify as an acknowledgment in writing to extent the period of imitation:

a. Acknowledgment must be made in writing;

b. Acknowledgment must be made by person against whom claim is made;

c. Acknowledgment must be made before expiration of limitation period;

4.

Therefore, acknowledgment of liability, if any, has to be prior to the expiration of period of limitation (i.e., 3 years from date of default), and any document executed after three years from date of default would not revive limitation. In Sampuran Singh vs Niranjan Kaur-(1999) 2 SCC 679) the Hon'ble Supreme Court as follows has laid down that any acknowledgment of liability has to be prior to expiration of period of limitation, and any such acknowledgment after the period of limitation would not assist the party concerned:

9.

In his endeavour, learned counsel for the appellants, referred to Section 18 of the Limitation Act to hold that the acknowledgement by the original mortgagees to the respondents, through the said registered document dated 11th January 1960, the period of limitation is revive which would only start from that date of acknowledgement hence the suit filed in the year 1980 would be within limitation. The said submission is without any force. Section 18, sub-section (]), itself starts with the words

"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... ".

Thus, the acknowledgment, if any, has to be prior to the expiration of the prescribed period for filing the suit, in other words, if the limitation has already expired, it would not revive under this Section. It is only during subsistence of a period of limitation, if any, such document is executed, the limitation would be revived afresh from the said date of acknowledgement. In the present case, admittedly the oral mortgage deed is in March 1893. If the period of limitation for filing suit for redemption is 60 years then limitation for filing a suit would expire in the year 1953. Thus, by the execution of this document dated 11th January 1960 it cannot be held by virtue of Section 18 that the period of limitation is revived afresh from this date.

5.

Hence, the Appellant having failed to produce any acknowledgment of liability/debt within the period of three years of date of default, the claim is barred by limitation.

ii. Documents produced relate to period after three vear period

6.

As stated above, the Appellant has not produced any document within the period of three years from the date of default which would revive limitation for the Company Petition filed before the Adjudicating Authority. The documents produced by the Appellant are after the period of limitation which would not extend the limitation under Section 18 or 19 of Limitation Act, 1961.

7.

Even otherwise, such documents relied upon by the Appellant do not constitute any acknowledgment of debt, and thus would not have extended the period of limitation even if the same related to period within 3 years from date of default. The following tabular representation clearly shows that such documents produced by the Appellant do not constitute acknowledgement under Section 18 of the Limitation Act: (The table contains documents produced before the Adjudicating Authority in the Company Petition)

Year	Particulars			Comments J'
May 2000	DATE OF DEFAULT 3 year period to be reckoned from this date.
May 2003		3 YEAR PERIOD OF LIMITATION EXPIRES
04/06/2 005	Anx. A-3 (Pg. 206)			1. Not issued by the Respondent
	Demand Notice issued by Appellant's Advocate		2. Not issued within 3 years from the date of default 3. Does not constitute acknowledgment under Section 18 of the Limitation Act.
20/08/2 010	Anx -A3 (Pg_l46}		1. Not issued within 3 years from the date of default 2. Does not constitute acknowledgment under Section 18 of the Limitation Act; 3. Letter issued "WITHOUT PREJUDICE"
	OTS Letter by the Corporate Debtor
25.10.20 11	Anx: - A3 (Pg. 149)		1. Not issued by the Respondent 2. Not issued within 3 years from the date of default 3. Does not constitute acknowledgment under Section 18 of the Limitation Act.
	Letter issued by Assignor Bank
31/10/2 014	Anx - A3 (Pg. 151)		1. Not issued within 3 years from the date of default 2. Does not constitute acknowledgment under Section 18 of the Limitation Act.
	Settlement proposal by the Respondent
12/12/2 014	Anx - A3 (Pg. 153)		1. Draft Notice cannot be taken as acknowledgment 2. Issued "WITHOUT PREJUDICE" 3. Issued after the expiration of period of limitation.
	Draft OTS proposal by the Corporate Debtor via email
05/01/2 015	Anx -A3 (Pg. 156)	Appellant	1. Not issued within 3 years from the date of default 2. Does not constitute acknowledgment under Section 18 of the Limitation Act.
	OTS Letter issued by
26/09/2 017	Anx - A3 (Pg. 158)		1. Not issued by the Respondent 2. Not issued within 3 years from the date of default 3. Does not constitute acknowledgment under Section 18 of the Limitation Act.
	Revocation Letter issued by Appellant

08/10/2 018	Anx - A3 (Pg. 159)	Issued after the expiration of period of limitation.
	Settlement proposal letter by the Corporate Debtor
19/11/2 018	Anx - A3 (Pg. 168) Revised request for OTS proposal by the Corporate Debtor	Issued after the expiration of period of limitation.
10/01/2 019	Aux - A3 (Pg. 158) Acceptance of OTS proposal by the Appellant duly acknowledged by the Corporate Debtor	Issued after the expiration of period of limitation.
23/10/2 019	Application under Section 7 filed after 9 years and 5 months from the date of default

8.

In summary, the following conclusions arise from the above tabular representations:

a. None of the above letters have been issued by the Respondent within 3 years of the date of default;

b. None of the above letters would constitute acknowledgment of liability within Section 18 of Limitation Act;

c. None of the above letters would extent the period of limitation;

9.

The Appellant has failed to produce a chain of acknowledgments from May 2000 which will prove that the claim is not barred from limitation. Instead, the documents relied upon bv the Appellant are much after the expiry of period of limitation. and thus would not aid the Appellant in saving the present Application from being barred by limitation.

10.

In addition to the aforesaid, the letters of OTS offers relied upon by the Appellant do not constitute acknowledgment of debt in terms of Section 18 of the Limitation Act, as the said offers were rejected by the Appellant as held by this Hon'ble Appellate Authority in the case of Bimalkumar Manubhai Savalia v. Bank of India & Anr. [Company Appeal (AT) Ins. No. 1166/2019 dated 5th March 2020 - para 9).

11.

Furthermore, the reliance upon orders passed by DRT is also misplaced as filing of any recovery proceedings (within limitation) does not have any bearing on the period of limitation for proceedings under the Insolvency and Bankruptcy Code, 2016 as held by the Hon'ble Supreme Court of India in the case of (Jignesh Shah vs Union of lndia (2019) 10 SCC 750 (Para 21).

12.

Therefore, the Company Petition filed by the Appellant is clearly barred by the law of limitation as I applicable to the Code. Therefore, it is submitted that this Hon'ble Appellate Tribunal be pleased to dismiss the present Appeal with cost.

III. RELIANCE ON WRITTEN SUBMISSIONS BEFORE ADJUDICATING AUTHORITY

i. Additional documents produced in written submissions before Adjudicating Authority

13.

At the outset, the submissions and documents being relied upon in the written submissions were neither pleaded nor argued before the Adjudicating Authority, and were produced for the first time in the written submissions after the closure of arguments. In this regard, this Hon'ble Appellate Tribunal in Central Bank of India v Himmat Steel Foundry Limited [Company Appeal (AT) (Insolvency) No. 286 of2022 (Para 16)] has held that arguments having no foundation in application under Section 7 of the Code must be disregarded. Even the Hon'ble Supreme Court in the case of Bachhaj Nahar v Nilima Mandal (2008) 17 SCC 491 (Para 10) has laid down the importance of pleadings and its effect as thus:

10.

The High Court, in this case, in its obvious zeal to cut delay and hardship that may ensue by relegating the plaintiffs to one more round of litigation, has rendered a judgment which violates several fundamental rules of civil procedure. The rules breached are :

(i)

No amount of evidence can be looked into, upon a plea which was never put forward in the pleadings. A question which did arise from the pleadings and which was not the subject matter of an issue, cannot be decided by the court.

(ii)

A Court cannot make out a case not pleaded. The court should confine its decision to the question raised in pleadings. Nor can it grant a relief which is not claimed and which does not flow from the facts and the cause of action alleged in the plaint.

(iii)

A factual issue cannot be raised or considered for the first time in a second appeal.

14.

In view of the above, the attempt of the Appellant to fill the inherent defects and lacunae of limitation by relying upon the Written Submissions filed by it before the Adjudicating Authority (Anx A21 - Page 328) must be disregarded from consideration.

Para 3(d) & (e) Page 333 of Appeal

(d)

On 30^th June 2003, the Corporate Debtor has confirmed, admitted and acknowledged that the liability by passing resolution for execution of LAD. (Please see Exhibit K-3 at para 5.32 of OA at Pages 270 (Vol II) of the Company Petition)

(e)

On 13^th March 2006, the Corporate Debtor submitted a letter inter alia showing their willingness to settle dues of the Financial Creditor. (Please see Exhibit K-3 at para 5.39 of the OA at Page 271 (Vol II) of the Company Petition)

ii. Applicability of Section 22(5) of SICA

22. Suspension of legal proceedings, contracts, etc.-

(5)

In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded.

IV. REMAND IS THE APPROPRIATE COURSE - ADDITIONAL DOCUMENTS AND SAID IA

6.

It appears from the perusal of the record that the respondent applicant, in appeal against the aforesaid order of the NCLT. moved an application (I.A. No. 2685 of 2020) before the Appellate Tribunal and thereby, sought permission to produce the exchanges of e-mails from 03.11.2017 to 11.01.2019 with respect to the propositions for settlement of dues. Admittedly, the said documents were not on record before the NCLT.

9.

For what has been discussed and observed hereinabove, in our view, the appropriate course in this matter would be to set aside the impugned order dated 15.12.2021 passed by NCLAT to the extent it has allowed the application under Section 9 of the Code filed by the applicant-respondent but while retaining the other part of the impugned order taking the documents filed with I.A. No. 2685 of 7020 on record. After taking the said documents on record, for the appropriate process of adjudication in the matter, it is also considered just and proper that the order dated 06.10.2020 passed by NCLT be also set .aside and the NCLT be directed to re-consider the application under Section 9 of the Code as filed by the applicant- respondent while taking into consideration the additional documents now taken on record and at the same time, while extending an ad'equate opportunity of hearing to the corporate debtor.

10.

Taking aid from the facts disclosed in the written submissions he submits that the default in the present case had taken place in the month of May, 2000. However, first so called demand notice was issued by the Advocate of Bank of Baroda on 04.06.2005. Meaning thereby that 1^st demand notice itself was issued beyond the period of limitation. He submits that once the claim of the appellant was barred by limitation by any subsequent act there was no reason to presume that the period of limitation was extended. Besides this he submits that even so called acceptance of OTS proposed by the appellant and duly acknowledged by the CD had occurred on 10.01.2019 which was obviously much after the expiry of the period of limitation and as such in any event the limitation was not required to be condoned and rightly learned Adjudicating Authority has rejected the application.

11.

Besides hearing learned counsel for the parties we have also examined the materials available on record. In the present case besides filing Notes of written submissions the Respondent has filed reply and rejoinder was also filed on behalf of the appellant.

12.

On examination of the tabular chart which has been noticed by the Learned Adjudicating Authority we are of the considered opinion that the learned Adjudicating Authority has committed no error in dismissing the petition filed under Section 7 of the IBC, by impugned order primarily on the ground of limitation. Of course before this Appellate Tribunal the appellant through tabular chart has tried to persuade the Court that from time to time the period of limitation was extended, on examination of the same it is evident that no such information/documents were brought to the notice of the Adjudicating Authority either by filing application under Section 7 of the IBC or by way of filing any supplementary affidavit. In the tabular chart which has been detailed in additional written submission filed on 09.12.2022 on behalf of the appellant, it is evident that the appellant himself has admitted that number of such documents and information were not available before the Adjudicating Authority. The fact regarding execution of letter of acknowledgement dated 05.10.2000 in pursuance to its Board Resolution dated 29.09.2000 which is at Sr.No.3 in the tabular chart in Column 3 the appellant has admitted “the copies of said Board Resolution dated 29.09.2000 and LAD dated 05.10.2000 were not before the learned Adjudicating Authority and the same has been filed before the Hon’ble Appellate Tribunal as Annexure alongwith IA No.1876 of 2021.” Similarly in Sr. No.4 in Column No.1 date has been mentioned as 04.07.2003 and 2^nd column it has been mentioned that Respondent executed as many as 8 letters of acknowledgement in respect of different credit facilities. By these letters inter alia the Respondent has admitted its liability about the outstanding as on 24.05.2003 in respect of term loan/cash credit/book debt/cash credit hypothecation of stock/DP/BD/FBP/FCD/Packing credit/term loan (two facilities). However, in the 3^rd column the appellant admits that copies of letters of acknowledgement dated 04.07.2003 were not before the learned Adjudicating Authority and same have been filed before this Hon’ble Tribunal as Annexures alongwith IA No.1876 of 2021. Again in tabular chart which is at running page 3 of the Additional written submissions in Sr. No.2 dated 29.06.2005 in Column No.2 reply of Respondent to demand notice has been mentioned. However, in 3^rd column the appellant admits that those documents were not before the Adjudicating Authority. It has been filed alongwith IA No.1876/2021. Even the fact relating to acceptance of OTS by Bank which is at Sr. No.4 dated 20.03.2006 at running page 3 of the Additional written submission in Column 3 the appellant admits that copy of letter dated 20.03.2006 was not before the Adjudicating Authority and same has been filed before this Appellate Tribunal alongwith IA No.1876/2021. Even notice issued under Section 13(2) of SARFAESI Act which is reflected at running page 4 of additional written submission in Column 2 date is mentioned as 05.06.2006. However, in Column No.3 the appellant has admitted that the said letter dated 05.06.2006 was not before the Adjudicating Authority and has been filed before this Appellate Tribunal alongwith IA No.1876/2021.