IDBI Bank Limited vs M/s HIL (India) Limited

PARTIES

BRIEF FACTS

Submissions of the Ld. Counsel appearing for the Corporate Debtor:

Analysis and Findings

ISSUE-1

Whether the present application filed under Section 7 of the Code is time barred under the provision of IBC, 2016 read with Limitation Act, 1963?

Section 6. Where any corporate debtor commits a 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 under this Chapter

Section7. (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.

Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt 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.

(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;

(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.

(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)

(5)

Where the Adjudicating Authority is satisfied that—

(a)

a 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-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application:

136.

A final judgment and order/decree is binding on the judgment debtor. Once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of recovery is also issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the recovery certificate.

140.

To sum up, in our considered opinion an application 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 of limitation of three years, in which case the period of limitation would get extended by a further period of three years.

141.

Moreover, a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other tribunal or court, o r the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor, to initiate proceedings under Section 7 IBC for initiation of the corporate insolvency resolution process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid. Further in Kotak Mahindra Bank Ltd. v. A. Balakrishnan, (2022) 9 SCC 186, one of the issue before the Hon’ble Supreme Court was as to whether the issuance of Recovery Certificate in favor of the FC would give rise to fresh cause of action to initiate proceedings under Section 7 of the Code. It was held as under:

26.

Though all these issues have been elaborately considered by this Court in Dena Bank , we would only be concerned with the issue, as to whether the issuance of the recovery certificate in favour of the “financial creditor” would give rise to a fresh cause of action to initiate proceedings under Section 7 IBC. ….

86.

To conclude, we hold that a liability in respect of a claim arising out of a recovery certificate would be a “financial debt” within the meaning of clause (8) of Section 5 IBC. Consequently, the holder of the recovery certificate would be a financial creditor within the meaning of clause (7) of Section 5 IBC. As such, the holder of such certificate would be entitled to initiate CIRP, if initiated within a period of three years from the date of issuance of the recovery certificate. The dictum laid down in Kotak Mahindra Bank Limited (Supra) was followed in Virigineni Anjaiah v. Pridhvi Asset Reconstruction & Securitization Co. Ltd., 2024 SCC OnLine NCLAT 568:

Points of Determination:

14.

In view of the discussions above following points arise for our consideration:

a. Whether the NCLT has erred in holding that the liability arising out of the decree obtained in DRT-I, Hyderabad on 19.02.2019 and the consequent Recovery Certificate issued on 09.07.2019 is a financial debt within the meaning of section 5(8) of IBC, 2016?

b. Whether the FC/Respondent being the holder of such a decree and such Recovery Certificate, is entitled to initiate CIRP under section 7 of IBC, 2016 as on 24.10.2021 the date on which he filed the Application under section 7 of IBC, 2016 before NCLT, Hyderabad?

c. Whether such Application is barred by limitation as laid down under section 238 of IBC r/w Article 137 of Limitation Act, 1963?

Analysis:

15.

With regard to point in 12(a)(b), the appellant has cited 3 Judgments of NCLAT, namely Judgment dated 05.02.2021 in the matter of Ashok Agarwal v. Amitex Polymers in CA(AT) (Ins) No. 608/2020, Judgment dated 12.03.2020 in the matter of Ishrat Ali v. Cosmos Cooperative Bank Ltd. in CA (AT) (Ins) 1121 of 2019 and Judgment dated 14.08.2020. In the matter of Sushil Ansal v. Ashok Tripathy in CA(AT) (Ins) No. 452/2020. In all these Judgments, NCLAT has taken the view that a Financial Creditor does not include the Decree holder within the definition of section 5(7) of IBC, 2016 and that the claimed amount is an adjudicated amount under a decree and not against a debt disbursed. The Respondent has countered the same by stating that matter has reached a finality with the decision of the 3-Judge bench the Hon'ble Supreme Court in the case of Kotak Mahindra Bank Limited v. A. Balakrishnan, (2022) 9 SCC 186. In the said Judgment Hon'ble Supreme Court has held that Kotak Mahindra Bank Limited (Supra):

“84.

To conclude, we hold that a liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within the meaning of clause (8) of section 5 of the IBC. Consequently, the holder of the Recovery Certificate would be a financial creditor within the meaning of clause (7) of Section 5 of the IBC. As such, the holder of such certificate would be entitled to initiate the CIRP, if initiated within a period of three years from the date of issuance of the Recovery Certificate.

85.

We further find that the view taken by the two-Judge Bench of this Court in the case of Dena Bank (supra) is correct in law and we affirm the same. We further find that in the facts of the present case, the application under Section 7 of the IBC was filed within a period of three years from the date on which the Recovery Certificate was issued. As such, the application under section 7 of the IBC was within limitation and the learned NCLAT has erred in holding that it is barred by limitation.”

With this ruling it is crystal clear that a liability in respect of a claim arising out of a Recovery Certificate would be a financial debt within the meaning of section 5(8) of IBC and that the holder of such Recovery Certificate would be a financial creditor as per section 5(7) of IBC and would be entitled to initiate CIRP.

16.

With regards to point 13 (c) the Appellant vehemently argues that the debt was classified as NPA on 31.10.2015 and 3 year limitation period expired on 31.10.2018 and during this period he has not acknowledged the debt and that as per decisions of Hon'ble Supreme Court in the matter of Hargovind Bhai Dave v. Asset Reconstruction Company (India) Ltd. (Civil Appeal No. 4952/2019) and in the matter of BK Educational Services Pvt. Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633, the filing of application under section 7 of IBC on 24.10.2021 is clearly barred by limitation of 3 years. The Respondent does not dispute these proceedings: he merely states that the position with respect to limitation has evolved over time and has reached a finality with the Judgment rendered by Hon'ble Supreme Court in the matter of Dena Bank (now Bank of Baroda) v. C. Sivakumar Reddy and Kotak Mahindra Bank Ltd. v. A. Balakrishnan. It is seen that AA/NCLT has also relied on the Judgment in respect of Dena Bank v. C. Sivakumar Reddy to come to the conclusion that the section 7 application in the instant case is not barred by limitation. Hon'ble Supreme Court in the said Judgment (Dena Bank v. C. Sivakumar Reddy) Civil Appeal No. 1650/2020 has categorically held that;

“135.

The judgment and order/decree of the DRT and the Recovery Certificate gave a fresh cause of action to the Appellant Bank to initiate a petition under Section 7 of the IBC.”

“143.

Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years form the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid.” This has been affirmed by the decision of 3-member Bench of Hon'ble Supreme Court in the case of Kotak Mahindra Bank Ltd. v. A. Balakrishnan in following words: Kotak Mahindra Bank Limited (Supra):

“84.

To conclude, we hold that a liability in respect of a claim arising out of a Recovery Certificate would be a “financial debt” within the meaning of clause (B) of section 5 of the IBC. Consequently, the holder of the Recovery Certificate would be a financial creditor within the meaning of clause (7) of Section 5 of the IBC. As such, the holder of such certificate would be entitled to initiate the CIRP, if initiated within a period of three years from the date of issuance of the Recovery Certificate.

85.

We further find that the view taken by the two-Judge Bench of this Court in the case of Dena Bank (supra) is correct in law and we affirm the same. We further find that in the facts of the present case, the application under Section 7 of the IBC was filed within a period of three years from the date on which the Recovery Certificate was issued. As such, the application under section 7 of the IBC was within limitation and the learned NCLAT has erred in holding that it is barred by limitation.”

This being the correct position in law, the section 7 application of FC/Respondent is clearly not barred by limitation as date of filing is 24.10.2021 which is within the 3 years of the date of decree (19.02.2019) and of date of issue of Recovery Certificate (19.07.2019) (Emphasis Supplied)

18. Effect of acknowledgment in writing.—

(1)

Where, before the expiration of the prescribed period for a suit or application 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 his title or liability, a fresh period of limitation shall be 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 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 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.

Section 19(1) says, inter alia, that where before the expiration of the period prescribed for a suit in respect of any right, an acknowledgment 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 acknowledgment was so signed. It would be noticed that some of the relevant essential requirements of a valid acknowledgment are that it must be made before the relevant-period of limitation has expired, it must be in regard to the liability in respect of the right in question and it must be made in writing and must be signed by the party against whom such right is claimed. Section 19(2) provides that where the writing containing the acknowledgment is undated oral evidence may be given about the time when it was signed but it prescribes that subject to the provisions of the Indian Evidence Act, 1872, oral evidence of its contents shall not be received; in other words, though oral evidence may be given about the date oral evidence about the contents of the document is excluded. Explanation 1 is also relevant. It provides, inter alia, that for the purpose of s. 19 an acknowledgment 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 &.,claim to a set off, or is addressed to a person other than the person entitled to the right.

It is thus clear that acknowledgment as prescribed by s. 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 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 acknowledge judgment 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. In construing words used in the statements made in writing on which a plea of acknowledgment rests oral evidence has been expressly s. 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 is made one should be inferred, or where a statement was made clearly G. 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 s. 19, and there is really no substantial difference between the parties as to the true legal position in this matter.

It is often said that in deciding the question as to whether any particular writing amounts to an acknowledgment as in construing wills, for instance, it is not very useful to refer to judicial decisions on the point. 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, and so unless words used in a given document are identical with words used in a document judicially considered it would not ,serve any useful purpose to refer to judicial precedents in the matter. However, since decisions have been cited before us both by the learned Attorney-General and Mr. Viswanatha Sastri we propose to refer to them very briefly before turning to the document in question.

14.

According to Section 18 of the Limitation Act, an acknowledgement of liability made in writing in respect of any right claimed by the opposite party and signed by the party against whom such right is claimed made before the expiration of the prescribed period for a suit in respect of such right has the effect of commencing a fresh period of limitation from the date on which the acknowledgement was so signed. It is well settled that to amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act, it need not be accompanied by a promise to pay either expressly or even by implication.

15.

The statement providing foundation for a plea of acknowledgement 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. The words used in the acknowledgement must indicate the existence of jural relationship between the parties such as that of debtor and creditor. The intention to attempt such jural relationship must be apparent. However, such intention can be inferred by implication from the nature of the admission and need not be expressed in words. A clear statement containing acknowledgement of liability can imply the intention to admit jural relationship of debtor and creditor. Though oral evidence in lieu of or making a departure from the statement sought to be relied on as acknowledgement is excluded but surrounding circumstances can always be considered. Courts generally lean in favour of a liberal construction of such statements though an acknowledgement shall not be inferred where there is no admission so as to fasten liability on the maker of the statement by an involved or far-fetched process of reasoning. (See Shapoor Freedom Mazda v. Durga Prosad Chamaria [AIR 1961 SC 1236] and Lakshmirattan Cotton Mills Co. Ltd. v. Aluminium Corpn. of India Ltd. [(1971) 1 SCC 67 : (1971) 2 SCR 623] ) So long as the statement amounts to an admission, acknowledging the jural relationship and existence of liability, it is immaterial that the admission is accompanied by an assertion that nothing would be found due from the person making the admission or that on an account being taken something may be found due and payable to the person making the acknowledgement by the person to whom the statement is made.

हिल (इंडिया) लिमिटेड (पूर्व में हिन्दुस्तान इन्स्योरेक्टिव इन्स्योरेक्टिव) (भारत सरकार का उपक्रम)

HIL (INDIA) LIMITED

(Formerly Hindustan Intercogloss Limited) (A GOVERNMENT OF INDIA ENTERPRISE)

Ref No. AC-89/SPEC

Dated: 18.04.2022

To The Asstt General Manager, IDBI Bank Limited, NPA Management Group #5-9-89/1&S, Chapel Road, Hyderabad 500001

Kind Attn.: Mr Mallikarjun, AGM

Re: Offer for settlement to Guarantor under SARAL KARJ BHUGTRAN YOJNA -II (SKBY-ii) 2020-21 Southern Pesticides Corporation Ltd (SPCL) (Under Liquidation)

Dear Sir,

Please refer to your letter No. IDBI/NMG-Hyd/333/SPCL/2020-21 dated 30.12.2020 on the above subject.

Being a Government Organisation no such settlement/payment can be made without the approval of Board and Administrative Ministry. In response to your settlement offer, with the approval of Board of HIL, we have approached our Administrative Ministry i.e. Ministry of Chemicals & Fertilizers, Govt. of India for settling the matter as per clause No.IV of letter No. 52/3/2005-CH.III dated Aug.4th, 2006(copy enclosed) Ministry will provide support to HIL, in case corporate guarantee furnished by HIL are invoked by Financial Institutions who have lent funds to SPEC which had gone into liquidation.

As you are also aware that due to the COVID-19 pandemic situations, all matter dealt by Govt. or Statutory Bodies are badly effected and the above mentioned case is also one of them. Now some positive response are coming from Administrative Ministry for settlement of offer as proposed by you.

As per your settlement offer, an amount of Rs.30,90,143.28 can be paid upto 31.03.2021 and after that Rs.32,52,782.40 is payable

You are, therefore, requested to consider our request favourably and inform the settlement amount.

Thanking you,

Yours faithfully,

(S P Mohanty)

Chairman & Managing Director

Enclo: as above

(ii)

Details of the accounts and settlement amount for Non-Fund Based Exposure: Additional amount of Rs.0/- to be deposited towards the outstanding of Rs.0/- towards Non-Fund Based facility. Any amount remaining from this after adjustment against devolvement, if any, and expiry of all the outstanding facilities would be refunded by the Bank.

(iii)

Please note that any past recovery including failed OTS will not be reckoned under the scheme. Similarly, margin money, liquid securities, subsidy received are also not to be reckoned as part of the settlement amount.

(iv)

5% of the settlement offer amount to be deposited along with the acceptance of the offer letter and additional 10% at the time of issuance of sanction letter (sanction letter shall be issued within 15 days from acceptance of offer letter). Balance 85% of settlement amount to be repaid in 4 (four) monthly installments from the date of sanction (or) June 30, 2021, whichever is earlier.

2. Other Terms and Conditions:

2.1

Since the case of SPCL is pending before Court / Lok Adalat / DRT any settlement will be subject to consent decree from the respective court (if applicable).

2.2

Since SPCL has been issued notice under the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest (SARFAESI) Act., 2002, this notice is without any prejudice to our rights to take / continue actions under the Act unless a compromise is settled under the present SKBY - II Scheme as stated above. In case sale of property through DRT (or) SARFAESI has been fixed, the same shall be kept on hold subject to deposit of at least 25% of the settlement amount (if applicable).

2.3

The offer for settlement is valid only if the accepted copy of this offer letter longwith 5% upfront payment is deposited before March 31, 2021, failing which, the offer for settlement shall automatically lapse thereafter.

Yours faithfully,

Deputy General Manager (For IDBI Bank Limited)

Accepted the offer of Settlement under SKBY – II (SKBY-II) : 2020-21

2.2

Since SPCL has been issued notice under the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest (SARFAESI) Act., 2002, this notice is without any prejudice to our rights to take I continue actions under the Act unless a compromise is settled under the present SKBY - II Scheme as stated above. In case sale of property through DRT (or) SARFAESI has been fixed, the same shall be kept on hold subject to deposit of at least 25% of the settlement amount (if applicable).

7.

That it is submitted that, as per the Financial Creditor's own admission in Part IV of the application, it is evident that on 31.03.1994, the account of the Principal Borrower, Southern Pesticides Corporation Limited, was classified as a Non-Performing Asset due to a failure in repayment. Subsequently, on 02.05.1994, the Financial Creditor issued a demand notice to both the Principal Borrower and the Corporate Debtor for repayment of the outstanding dues. Furthermore, on 01.07.1994, the Financial Creditor had invoked the corporate guarantee provided by the Corporate Debtor. However, the present application has been filed by the Financial Creditor on 13.06.2024, after more than 30 years of the date of default, with malicious intent to revive a time-barred debt.

9.

That it is submitted that the intent of the IBC is not to give a new lease of life to debts that are time-barred. The Hon'ble Supreme Court, National Company Law Appellate Tribunal and this Tribunal has time and again reiterated that the limitation period for filing an application under Section 7 of the IBC for the initiation of CIRP begins from the date of default. In the present case, the default occurred on 31.03.1994, when the account of the principal borrower was classified

“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 nonpayment 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 ensures. 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.

In the aforenoted Judgment, the Hon'ble Apex Court has clearly laid down the principle that the ‘date of default’ does not mean a strict interpretation that it has to be the ‘date of NPA’ in fact, the ‘date of default’ defined under Section 3(12) of the Code is to mean ‘non-payment of a debt which has become ‘due and payable’ whether in whole or any part and is not paid by the Corporate Debtor'.

8.

It is also seen from the Balance Sheets that there has been an ‘acknowledgement of liability’ upto the years 2018-2019. The contention of the Learned Counsel for the Respondent that the Restructuring Letters were sanctioned beyond three years of the date of NPA and therefore is ‘barred by Limitation’ is untenable as at the cost of repetition we hold that as per the ratio of the Hon'ble Apex Court in ‘Laxmi Pat Surana’ (Supra) the ‘date of default’ cannot be strictly construed as the date of NPA. The material on record shows that the ‘Corporate Debtor’ has been consistently acknowledging its ‘debt’ from 31.03.2010 onwards by way of letters in Restructuring Packages, and also by way of communication the Appellant/‘Financial Creditor’ for Restructuring, apart from the liability being shown in the Balance Sheets. The dictum was followed in Edelweiss Asset Reconstruction Co. Ltd. v. Perfect Engine Components (P) Ltd., 2022 SCC OnLine NCLAT 1622. Perusal of the same, it is clear that that ordinarily the Date of NPA can be considered as Date of Default but the right to apply under the Code accrues once there is a default (which is three months prior to Date of NPA). Hence, in the present case, even if we consider the Date of Default to be three month prior to the Date of NPA i.e. from 31.12.1993, the right to file the application was to be exercised within 3 years. In the present scenario, the date of NPA as mentioned is 31.03.1994. Subsequently, there is a recovery certificate dated 26.07.2018, from where the fresh cause of action starts giving a fresh lease of limitation, from where the limitation for filing the present application starts. Therefore, on a mere technical objection raised by the CD, the petition cannot be dismissed for otherwise what is a genuine claim. Even in such an eventuality, the AA can exercise power under 7(5)(a) of the code, but in the present case, the limitation has to be taken from the date of issuance of the recovery certificate, much less than what has already been admitted by the CD in its reply (as extracted above).

11.

Thus, once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7. “Default” is defined under sub-section (12) of Section 3 IBC which reads thus:

“3.

Definitions.—In this Code, unless the context otherwise requires— *** (12) “default” means 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;”

Thus, even the non-payment of a part of debt when it becomes due and payable will amount to default on the part of a corporate debtor. In such a case, an order of admission under Section 7 IBC must follow. If NCLT finds that there is a debt, but it has not become due and payable, the application under Section 7 can be rejected. Otherwise, there is no ground available to reject the application. Therefore, in the light of the above analysis, we do not find force in the arguments posed by the CD. The present petition is well within the limitation period. Thus, Issue No.1 is answered accordingly.

ISSUE-2 Whether filing of record of default is mandatory qua the guarantor under

Section7.…

(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;

(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.

(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)

215. Procedure for submission, etc. of financial information. –

(1)

Any person who intends to submit financial information to the information utility or access the information from the information utility shall pay such fee and submit information in such form and manner as may be specified by regulations.

(2)

A financial creditor shall submit financial information and information relating to assets in relation to which any security interest has been created, in such form and manner as may be specified by regulations.

(3)

An operational creditor may submit financial information to the information utility in such form and manner as may be specified.

20. Acceptance and receipt of information.

An information utility shall accept information submitted by a user in Form C of the Schedule.

[(1A) Before filing an application to initiate corporate insolvency resolution process under section 7 or 9, as the case may be, the creditor shall file the information of default, with the information utility and the information utility shall process the information for the purpose of issuing record of default in accordance with regulation 21.

(2)

On receipt of the information submitted under sub-regulation (1) [or sub regulation (1A), as the case may be], the information utility shall-

(a)

assign a unique identifier to the information, including records of debt;

(b)

acknowledge its receipt, and notify the user of- (I ) (ii) (iii)

(i)

the unique identifier of the information;

(ii)

the terms and conditions of authentication and verification of information; and

(iii)the manner in which the information may be accessed by other parties.

21. Authentication of default.

(1)

An information utility shall expeditiously undertake the process of authentication and verification of information of default as soon as it is received.

(2)

For the purpose of sub-regulation (1), the information utility shall-

(a)

deliver the information of default to the debtor seeking confirmation of the same within[seven days];

(b)

remind the debtor at least three times for confirmation of information of default, in case the debtor does not respond, allow [seven days] each time for the debtor to respond;

(c)

deliver the information of default or the reminder, as the case may be, to the debtor either by hand, post or electronic means at the postal or e-mail address of the debtor-

(i)

registered with the information utility by him, failing which,

(ii)

recorded with MCA 21 and the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) registry as repositories or any other statutory repository as approved by the Board, failing which,

[(iii) submitted in Form C of the Schedule:

(A)

by a financial creditor, which is a bank included in the second schedule of the Reserve Bank of India Act, 1934;

(B)

by any other creditor, in respect of a debtor other than the corporate debtor as defined in section 3(8) of the Code.

[(3) On completion of the process under sub-regulation (2), the information utility shall record the status of authentication of information of default as indicated in the following Tables.

2A. Record or evidence of default by financial creditor.

For the purposes of clause (a) of sub-section (3) of section 7 of the Code, the financial creditor may furnish any of the following record or evidence of default, namely:-

(a)

certified copy of entries in the relevant account in the bankers’ book as defined in clause (3) of section 2 of the Bankers’ Books Evidence Act, 1891 (18 of 1891);

(b)an order of a court or tribunal that has adjudicated upon the non-payment of a debt, where the period of appeal against such order has expired.] Perusal of the same, postulates that for a Section 7 application, the creditor can furnish and rely upon other records or evidence of default as well. Regulation 20(1A) cannot be read to mean that an application filed under Section 7 which is not supported by information of default of information utility is to be rejected. If the FC has filed other evidence to prove default which is contemplated by the AA Rules, 2016 and the CIRP, Regulations 2016, the said application has to be considered. Reliance is placed on Vijay Kumar Singhania Vs Bank of Baroda and Ors. Company Appeal (AT) (Insolvency) No.1058 of 2023:

28.

Regulation 20 of the IBBI (Information Utilities) Regulations, 2017 as amended w.e.f 14.06.2022 i.e. Regulation 20(1A) requires Financial Creditor before filing an application to initiate corporate insolvency resolution process under section 7 or 9, as the case may be, the creditor shall file the information of default, with the information utility and the information utility shall process the information for the purpose of issuing record of default in accordance with regulation 21. The submission is that after insertion of the above sub-regulation (1A) in Regulation 20, now no application can be filed under Sections 7 and 9 if it is not accompanied by record of default issued by Information utility as contemplated by Regulations 20 and 21. Regulation 20 although has been amended w.e.f 14.06.2022 but there is no amendment either in Section 7 of the IBC which empowers Financial Creditor to file record of the default recorded in the information utility or such other record and default as may be specified or in Rules 2016 or CIRP Regulations 2016. The statutory scheme, thus, contemplates furnishing record of default by the financial creditor as recorded with the information utility or such other record or evidence of default as may be specified. We have already noticed that the record of default for purposes of Section 7(3)(a) has been specified by Regulation 2A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Thus, record of default recorded with the information utility is not the only document which hasto be furnished by financial creditor. Financial creditor is at liberty to submit such other record of default as may be specified which is a statutory provision contained in Section 7. Further Regulation 2A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 clearly refers to provide for record or evidence of default by financial creditor. We have also noticed that the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which are Rules framed by the Central Government provides for filing of the application under Section 7 in Form-1 and under Form-1, Part-V under ‘particulars of financial debt (documents, records and evidence of default)’, it is not only the record of default with information utility but other record of default has also been contemplated. We have noticed that Regulations framed by the Board as per Section 240(1) has to be consistent with provisions of the Code and the Rules. If Regulation 20(1A) is to be read as Regulation now mandating the Financial Creditor to file only the record of default in the information utility, the said Regulation will not be consistent with provision of Section 7(3) of the Code and Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which provides that what documents have to be filed by the Financial Creditor. Sub-rule (1) of Rule 4 provides for documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Thus, CIRP Regulations 2016 are referred to in Rule 4 sub-rule (1)hence, the interpretation of Regulation 20(1A) as put by the Counsel for theAppellant shall also not be consistent with Rule 4. When Section 240 itself provides that regulations have to be consistent with provision of Code and Rules, no regulation can be implemented or enforced which is not in consonance with the Code and the Rules.

29.

From the above examination of statutory scheme, Rules and Regulations, it is clear that Regulation 20(1A) cannot be read to mean that after the said amendment brought in regulation w.e.f 14.06.2022 an application filed under Section 7 which is not supported by information of default from an information utility is to be rejected and if the Financial Creditor has filed other evidence to prove default which is contemplated by the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the said application has not to be considered. We, thus, are of the considered view that even after amendment of Regulation 20 by insertion of Regulation 20(1A) w.e.f 14.06.2022, Financial Creditor is entitled to file evidence of record of default as contemplated by Regulation 2A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 r/w Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. We, thus, do not find any substance in the submission of the Appellant that since Financial Creditor has not filed the record of default from an information utility, Section 7 deserves to be rejected.

31.

Thus, we are of the view that the Adjudicating Authority has correctly repelled the contention of the Appellant that in absence of a record of default recorded by information utility, the application filed under Section 7 may not be admitted. (Emphasis Supplied)

Issue No.3

To Summarize

ORDER