M/s. Kotak Mahindra Bank Ltd. vs M/s. Kew Precision Parts Pvt. Ltd.

In the present case, the Financial Creditor sanctioned financial facilities of exposure up to Rs. 22.46 Crores to the Corporate Debtor and the Financial Creditor lastly renewed and modified and sanctioned financial facilities on 05.03.2014. Further, from June, 2015, the Corporate Debtor started breaching to make payment and the installments become due for payment, and the Corporate Debtor was classified as NPA.

Furthermore, the Financial Creditor raised demand and issues Loan Recall Notice recalling a sum of Rs. 18,19,40,434/- as on 07.10.2015 and even the Corporate Debtor issued 10 Cheques of Rs. 19,34,00,000/- as on account payment, however the same were dishonored and the proceedings initiated under Section 138 of the NI Act, 1881 proceedings are still pending adjudication.

Thereafter, a notice was issued to the Corporate Debtor under Section 13 (2) of the SARFAESI Act for an amount of Rs. 34,79,70,950/- on 13.12.2017. On 12.12.2018, the Corporate Debtor acknowledged its default and proposed an OTS for a sum of Rs. 13 crores. On 19.12.2018, the Corporate Debtor once again proposed an OTS for an amount of Rs. 20.76 Crores and promised to pay within 15 days of acceptance by the Financial Creditor. On 20.12.2018, Corporate Debtor once again proposed an OTS for an amount of Rs. 24.55 Crores and promised to pay before 31.12.2018. Thereafter, the Financial Creditor accepted the OTS proposed by the Corporate Debtor and accepted the promise of the Corporate Debtor to pay a sum of Rs. 24.55 Crores towards the settlement of the Total Outstanding amount as on the date to be paid on or before 31.12.2018. Furthermore, both the parties signed the Acceptance in writing along with Board Resolution and complete authority.

On 02.01.2019, Financial Creditor filed the present Section 7 Petition before this Adjudicating Authority for the Corporate Debtor having failed to honor its promise to pay and the OTS proposal being accepted. On 21.05.2019, Hon’ble DRT allowed the OA and issued the Recovery Certificate. On 06.09.2019, the Adjudicating Authority admitted the Section 7 petition thereby initiating the CIRP against the Corporate Debtor. On 08.01.2020, the Hon’ble Appellate Authority set aside the admission order on the grounds of limitation. On 05.08.2022, the Hon’ble Supreme Court set aside the Hon’ble Appellate Authority order and remanded back the petition to be reconsidered and to take into account the provision of Section 25 (3) of the Contract Act. Thereafter, the Financial Creditor on 10.10.2022 filed the Application bearing IA No. 4852 of 2022 for seeking restoration and the Hon’ble AA was pleased to restore the complete company petition for reconsideration in accordance with the Hon’ble Supreme Court.

This Hon’ble Adjudicating Authority while passing Order dated 06.09.2019 had relied upon the OTS to hold that Section 7 is within limitation. Relevant Para of the Admission Order dated 06.09.2019 is reproduced herein below:

While relying on the Order dated 06.09.2019, the Hon’ble Supreme Court also observed that rigor of Section 25(3) would come into play to protect the limitation of this Company Petition. However, this issue is left open to be answered by this Hon’ble Adjudicating Authority in the present proceeding.

Section 25(3) of the Indian Contract Act, 1872 envisages that any promise made in writing by a person to pay wholly or in part a debt of which creditor might have enforced the payment but for the law of limitation. Thus such promise even though after period of limitation if made, would permit a creditor to initiate its legal action within the fresh period of limitation calculated from the date of such promise. The submissions of the Corporate Debtor that the Company Petition needs to be amended to plead the effect of Section 25(3) is erroneous since the Hon’ble Supreme Court had permitted the Financial Creditor to press upon Section 25(3) in support of this plea of limitation by filing additional affidavit and documents.

Hence, it is thus submitted that the OTS Proposal dated 20.12.2018 made by the Corporate Debtor and thereafter Letter dated 20.12.2018 issued by the Financial Creditor accepting the OTS proposal and duly singed and acknowledged by both the parties is nothing short of an acknowledgement of the outstanding due & payable Financial Debt as also an implied promise to pay reduced into writing and accepted by both the parties and is a valid contract dated 20.12.2018 entered into between the parties for the payment of the outstanding financial debt. And as established hereinabove, under Section 25(3) of the Indian Contract Act, 1872, a promise in writing to pay in whole or in part, a time barred debt is not void.

Hence the present Company Petition filed in January, 2019 against the default being committed by the Corporate Debtor in the repayment of the Financial Debt which is due & payable by the Corporate Debtor to the Financial Creditor is well within limitation and hence the Company Petition should be allowed and the CIRP should be initiated against the Corporate Debtor having defaulted in payment of Rs. 62,47,43,978/- of the public monies sanctioned by the FC calculated as on 18.11.2019.

Copy of Sanction Letter dated 11.03.2013, 07.02.2014, 05.03.2014.

Copy of Statement of account

Copy of Recall Notice dated 09.10.2015

Copy of One Time Settlement of Term Loan dated 12.12.2018, 19.12.2018 and 20.12.2018.

It is submitted that the Respondent has been a pioneer in the automobile segment having one of the largest integrated plant of its kind for manufacturing auto and tractor components in North India spread over an area of 12000 sq. metres at Noida. The Petitioner sanctioned several credit facilities to the Respondent for an aggregate amount of Rs. 2036 Lakhs between the year 2012 to 2014. Thereafter, the Petitioner illegally classified loan account as NPA and on 19.11.2015, the Petitioner issued a Demand Notice under Section 13 (2) of SARFAESI Act, 2002.

In the year 2016, the Respondent assailed the enforcement measures by the Petitioner in S.A. No.250/2016 before the Hon'ble DRT, Lucknow. The Petitioner also filed an Original Application bearing' O.A. No. 576/2016 against the Respondent herein. The Hon’ble DRT, Lucknow on 10.04.2017 allowed S.A. No. 250/2016 and quashed the entire SARFAESI measures taken by the Petitioner against the Respondent. Further, the Petitioner was directed to handover the possession of the secured asset to the Respondent within one month from 10.04.2017.

Furthermore, on 13.12.2017 a fresh Demand Notice under Section 13 (2) of SARFAESI Act, 2002 for an amount of Rs.34,79,70,950- as on 07.12.2017 was issued to the Corporate Debtor. On 12.12.2018, the Corporate Debtor acknowledged its default and proposed and OTS for a sum of Rs. 13 crores. On 19.12.2018, the Corporate Debtor once again proposed an OTS for an amount of Rs. 20.76 Crores and promised to pay within 15 days of acceptance by the Financial Creditor. On 20.12.2018, Corporate Debtor once again proposed an OTS for an amount of Rs. 24.55 Crores and promised to pay before 31.12.2018. Thereafter, the captioned petition was filed by the Petitioner seeking initiation of CIRP of the Respondent. A perusal of Form I Part II of the Petition reveals that the Petitioner is claiming Rs. 46,63,35,337.31 as on 27.11.2018 which is premised on an alleged default that took place in June, 2015.

Furthermore, The Hon’ble DRT, Delhi on 21.05.2019, allowed O.A. No. 576/2016 for a sum of Rs. 16,13,40,574.89/- together with pendent lite and future interest @ 13% p.a. compounded at monthly rests plus levy of penalty @ 3% p.m. from date of fling the O.A till realization. On 06.09.2019, the Adjudicating Authority admitted the Section 7 petition thereby initiating the CIRP against the Corporate Debtor. The Respondent filed an appeal bearing Company Appeal (AT) (Insolvency) No.1349/2019 against order dated 06.09.2019. The Hon'ble NCLAT, vide judgment dated 08.01.2020, '. set aside, the order dated 06:09.2019, whereby this Adjudicating Authority initiated the CIRP of the Respondent.

The Petitioner filed a Civil Appeal bearing Civil Appeal No. 2176/2020 against judgment dated 08.01.2020 passed by the Hon'ble NCLAT, Delhi. Vide judgment dated O5.08.2022, the Hon'ble Supreme Court allowed the appeal to the extent that the CIRP proceeding was closed. While holding that the captioned Petition is barred by limitation, the Hon'ble Supreme Court directed this Hon'ble Adjudicating Authority to consider the Petition afresh, in light of observations made by the Hon’ble Apex Court, after giving the parties opportunity to file additional affidavits disclosing documents.

Further, this Petition under Section 7 of the Code is barred by limitation as it is a settled law that the period of limitation to prefer a petition for commencement of process of Resolution of Insolvency is three years which is to be reckoned from the date of the classification of credit facilities as NPA and that the Code does not apply to debts and causes that had already become barred by time, in terms of Section 3 read with Article 137 of the Limitation Act, 1963. On an interpretation of the provisions of the Code, the date of default under the Code is the date on which the account of the Corporate Debtor is declared as NPA. Since the debts against which the Creditors are empowered to proceed against the Corporate Debtors is the debt which is declared NPA, the cause of action has to necessarily commence from the date of such classification as NPA.

Moreover, it is the case of the Petitioner that the cause of action accrued on 30.09.2015. Further, the Petitioner, through the Additional Affidavit, has averred that the cause of action was extended by the Respondent by issuance' of 'communications w.r.t, OTS dated 12.12.2018, 19.12.2018 and 20.12.2018. However, the communications dated 12.12.2018, 19.12.2018 and 20.12.2018 have been issued solely with the intention of bringing the disputes between the parties to a quietus and do not in any way or manner acknowledge any debt. Firstly, there are no-such assertions or pleadings set forth in the entire Petition filed under Section 7 as to any purported extendable limitation from 17.11.2015 in view of any OTS or communications relating thereto. The statutory form and Petition make no such pleadings. There is also no amendment sought even seeing to incorporate any such facts or pleadings. Pertinently, the said communications took place after the period of limitation had already 'expired. 'It is a settled law that an acknowledgment given after the expiry of period of limitation cannot resuscitate a barred claim. Further the burden was upon the Petitioner to prove that the alleged acknowledgments were made within the period of limitation; which burden the Petitioner has failed to discharge. Thus, the OTS proposals having not been made during the limitation period of three years and, therefore, the provision of Section 18 of the Limitation Act, 1963 are not attracted in the facts of the instant case.

Further, without prejudice, it is an admitted fact that no payments have been made, after classification of the loan account as NPA on 30.09.2015. Thus, the alleged acknowledgment made on 12.12.2018 or later i.e., after the expiry of over three years from 30.09.2015, would not save limitation. Without prejudice, it is a settled law that mere communications sent to higher authorities to settle the issue does not amount to acknowledgement. Further, without prejudice, the One-Time Settlement communications/negotiations cannot be relied upon by the Petitioner as the same constitutes a privileged communication and cannot be read in or considered as evidence in a court proceeding.

Further, before the Hon'ble Apex Court, it was argued for the first time by the Petitioner that there was a settlement between the parties on 20.12.2018 for an amount of Rs.24.55 Crore. Thus, while holding that the captioned Petition is barred by limitation, the Hon'ble Supreme Court vide judgment dated 05.08.2022 remanded the matter back to this Hon'ble Tribunal to determine. whether any agreement for repayment came into existence in 2018 and, if so, whether the said agreement would attract Section 25(3) of the Indian Contract Act, 1872 or not. As per Section 25(3) of the Indian Contract Act, 1872, any agreement to pay a time barred debt, would be enforceable in law, within three years from the due date of payment, in terms of such an agreement. However, there must be a written promise to pay the time barred debt in order to attract Section 25(3) of the Indian ContractAct,1872. For application of Section 25(3) of Contract Act, the promise must be express and unequivocal. In the instant case, no such promise to pay the time barred debt was made by the Respondent, rather the Respondent merely submitted to pay a settlement amount of Rs. 24.55 Crore with the sole intention of bringing the disputes to a quietus. Thus, Section 25(3) of the Indian Contract Act, 1872 is not attracted in the facts of the instant matter.

In law, there is a distinction between acknowledgment under Section 18 of the Limitation Act,1963 and a promise to pay a time barred debt under Section 25(3). If at all, a promise under Section 25(3) will constitute novation and can form the basis of a suit independent of the original debt but the remedy under Section 7 of the Code, 2016 shall still be barred by law of limitation. It is not even the case of the Petitioner that it is approaching this Hon'ble Tribunal to recover the default of the OTS amount of Rs. 24.55 Crore. The captioned Petition has instead been filed from claims arising from the alleged liability in 2015 itself. As pointed out above, the pleaded date of default in the Petition and statutory form is 17.11.2015. Therefore, looking at it from any angle, the instant Petition is liable to be dismissed.

Without prejudice to the aforesaid, the Petitioner has neither as stated above sought any amendment nor even filed an application seeking condonation of delay in filing the captioned Petition. It is a settled law that the delay is to be condoned only if the Petitioner is able to show sufficient cause for not filing the Petition within the period of limitation. In the instant case, the Petitioner has neither filed an application seeking prayer to condone the delay nor has it provided any sufficient cause to seek condonation of delay. In light of the above itself, the captioned Petition is liable to be dismissed being barred by limitation. It is a settled law that onus is cast upon a court/tribunal to examine the issue of limitation and, under Section 3 of Limitation Act, 1963, there is a mandate upon the court/tribunal to dismiss any suit which is barred by the law of limitation even though it has not been set up as a defence.

Further, it is submitted that the Petitioner has been proceedings against the alleged mortgaged property belonging to the Respondent under provisions of SARFAESI. Act 2002. However, vide judgment dated 10.04.2017, the Hon'ble DRT, Lucknow dismissed the entire measures of Petitioner under SARFAESI Act, 2002 and directed it to give back the possession of the property to the Respondent. Further, the Petitioner has also procured a Recovery-Certificate from the Hon'ble DRT, Delhi and the execution proceedings are pending before the Learned Recovery Officer, DRT, Delhi. At the instant of the Petitioner, the Learned Recovery Officer has, on several occasions, put the alleged mortgaged property on auction sale. However, the said auction sale(s) have failed. Clearly, the Petitioner having proceeded in execution of a Recovery Certificate issued in its favour and participating in the execution proceedings throughout cannot be permitted to take recourse to proceedings under Section 7 of the Code. The settled law is that proceedings under the Code are not enforcement/recovery proceedings, they are for legitimate resolution of the Corporate Debtor. However, clearly in this case, the Petitioner is seeking to invoke proceedings under the Code not for legitimate resolution but as an enforcement/ recovery proceeding, which is, impermissible in law.

Thereafter, having failed to proceed against the property of the Respondent under the provisions of SARFAESI Act, 2002 and Recovery of Debts, and Bankruptcy Act, 1993, the Petitioner is now using the provisions of the Insolvency and Bankruptcy Code, 2016 ("Code") merely as recovery proceedings to proceed against the property, of the Respondent. In fact, the instant Petition is merely attempted to circumvent the execution proceedings pending before the Learned Recovery Officer at DRT, Delhi and proceedings pending before the Hon'ble High Court relating to the Commercial Tax Department, Noida. Thus, the Petitioner is trying to do indirectly, what it was unable to do directly.

Merely because the auction proceedings have not culminated into the ultimate sale of the property, the Petitioner cannot be permitted to use the process under the Code only to recover money as the intention of the Petitioner is not for resolution of the Corporate Debtor, as envisaged under the Code. There are numerous decisions which hold that the proceedings under the Code are not recovery proceedings. Therefore, the captioned Petition is liable to be rejected on this ground alone. In light of the above, it is prayed that this Hon'ble Adjudicating Authority may exercise its discretion in not admitting the Petition under Section 7 of the Code.

I. Whether the Section 7 application has been filed within 3 years of date of default as applicable under Article 137 of the Limitation Act, 1963?

II. If the answer to the Question I is in the negative, whether there has been an acknowledgement of debt or part payment of debt by the Corporate Debtor in terms of Section 18 or 19 of the Limitation Act, 1963, within the original period of Limitation, so as to extend the Limitation from the date of such acknowledgement or part payment?

III. If the answer to Question II is also in the negative, whether there has been a promise to pay under Section 25(3) of the Indian Contract Act, 1872, albeit after expiry of the original period of Limitation of 3 years?

IV. If the answer to the Question III is in the affirmative, whether the Application filed in Form I is based on the debt amount promised to be paid by the Corporate Debtor under Section 25(3) of the Contract Act but defaulted in such payment?