M/s Mantena Laboratories Limited vs Edelweiss Asset Reconstruction Company Limited

M. Venugopal, (J):

The Appellant has preferred the instant Company Appeal (AT)(CH) (Ins.) No. 214/2021 being dissatisfied with the order dated 06.08.2021 in C.P. (IB) No. 682/7/HB/2018 (filed by the Respondent/Financial Creditor/Applicant) under Section 7 of Insolvency and Bankruptcy Code, 2016 (in short ‘IBC’) r/w Rule 4 of I & B (AAA) Rules, 2016 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal, Hyderabad Bench, Hyderabad).

Earlier, the ‘Adjudicating Authority’ while passing the impugned order dated 06.08.2021 in C.P. (IB) No. 682/7/HB/2018 at paragraphs 8 to 12 stated as under:

The Learned Counsel for the Appellant submits that the ‘Adjudicating Authority’ had failed to appreciate that the Application filed under Section 7 of IBC by the Respondent/Financial Creditor is not maintainable in law when the Application was filed beyond three years from the date on which the Account was classified as ‘Non Performing Assets’ (in short ‘NPA’) and a ‘Demand’ was made under Section 13(2) of SARFAESI Act, 2002.

The Learned Counsel for the Appellant brings it to the notice of this ‘Tribunal’ that the Account was classified as NPA on 30.06.2012 and that the Notice under Section 13(2) of SARFAESI Act, 2002 was issued on 04.04.2013 and the date for filing Application before the ‘Adjudicating Authority’ was on 03.10.2018.

The Learned Counsel for the Appellant contends that the ‘Adjudicating Authority’ had failed to appreciate in a proper and real perspective of the fact that the reflection of ‘Debt’ in the ‘Accounts’ relating to the period 2017-18 and the proposal of ‘One Time Settlement’ (in short ‘OTS’) in the year constitute ‘An Acknowledgment of Liability’ as per Section 18 of the Limitation Act, 1963, especially when the same was made after expiry of three years period from the date on which the ‘Demand’ was made.

According to the Learned Counsel for the Appellant, even if the Director’s Report, which was signed on 01.09.2017 is taken into account, still the Application filed by the Respondent/Financial Creditor is beyond three years of limitation. Besides this, the OTS Application indicates that the same was signed on 28.02.2018 beyond four years and therefore, these documents cannot be relied upon to come to a conclusion that there was ‘Acknowledgment of Liability’ within three years w.e.f. 04.04.2013 and the Notice under Section 13(2) of SARFAESI Act, 2002 was issued and the Account was classified as ‘NPA’ on 30.06.2012.

The Learned Counsel for the Appellant refers to the Judgment of the Hon’ble Supreme Court in the matter of “Dena Bank (Now Bank of Baroda) V. C. Shivakumar & Anr.” (vide Civil Appeal No. 1650 of 2020 dated 04.08.2021) wherein at paragraph it was held that the IBC 206 is designed to ensure that the business/or commercial Activities of the ‘Corporate Debtor’ are continued by Resolution Professional post imposition of Moratorium which would give the ‘Corporate Debtor’ from reprieve from coercive litigation which would drain the ‘Corporate Debtor’ of his financial resources.

The Learned Counsel for the Appellant refers to paragraph 79 of the Judgment of the Hon’ble Supreme Court in Dena Bank’s case (as mentioned supra) wherein it is observed that IBC is essentially statute which works towards a revival of the ‘Corporate Debtor’ to enable to pay its debts by appointment of Resolution Professional. The Learned Counsel for the Appellant proceeds to take a stand that the invocation of IBC, 2016 by the Respondent/Financial Creditor is nothing but an abuse of process of law.

The other contention advanced by the Learned Counsel for the Appellant is that Article 137 of Limitation Act is applicable to the facts of the present case before this Tribunal and in fact, the limitation period is three years from the date of accrual of right to apply.

The Learned Counsel for the Appellants cites the judgment of the Hon’ble Supreme Court in the matter of ‘Babulal Vardharji Gurjar V. Veer Gurjar Aluminum Industries Pvt. Ltd. & Anr.” reported in (2020) 15 SCC 1 wherein ‘debt’ of default was mentioned and the other debts of default nor acknowledgment of liability was mentioned in the Application.

The Learned Counsel for the Appellant contends that the documents which were executed beyond three do not constitute ‘An Acknowledgment of Liability’. Further, in the present case, the ‘Application’ before ‘Debt Recovery Tribunal’ is still pending and even though some recovery proceedings might have been instituted earlier, the Application under Section 7 or 9 of the IBC is time barred. Apart from that, the passing ‘Decree’/Recovery Certificate by the Debt Recovery Tribunal is a starting point of limitation, but in the instant case, the original Application before the ‘Debt Recovery Tribunal’ is pending.

It is represented on behalf of the Appellant that an Application beyond three years from the date of declaration of ‘Non Performing Asset’ without ‘An acknowledgment of Liability, within three years from the date of declaration as ‘NPA’ is barred by limitation.

The Learned Counsel for the Appellant comes out with a plea that in the present case, the Unit is running from the year 2014 and is in possession of the Secured Creditors and that the invocation of the IBC is nothing but an abuse of the process of law.

The Learned Counsel for the Appellant projects an argument that the ‘Adjudicating Authority’ had failed to appreciate that the documents were executed beyond three years and not within three years. As such, the same do not constitute an ‘Acknowledgment of Liability’.

The Learned Counsel for the Respondent contends that the instant Appeal revolves round only one issue i.e., Limitation Period and further that as per Section 18 of the Limitation act, ‘An Acknowledgment of Liability’ may be sufficient although it omits to specify the exact nature of the property or right or averse that time for payment, delivery, performance, enjoyment, has not arrived or is accompanied to refusal to pay, deliver, perform or permit to enjoy or is coupled with claim to set off or is addressed to a person other than a person who is entitled or right.

The Learned Counsel for the Respondent submits averse to the decision of the Hon’ble Kerala High Court in ‘P.D.Pillai v. Mrs. Kaliyani Kutty Amma’ (1994 SCC Online Ker 139) wherein the full Bench of the High Court of Kerala observed and held:

The Learned Counsel for the Respondent cites the decision of the Hon’ble Supreme Court in the matter of “Asset Reconstruction Company (India) Limited V. Bishal Jaiswal and Anr” (Civil Appeal No. 323 of 2021, SLP(C) No. 1168 of 2021, (2021) 6 SCC 366 and the decision in “Sandeep Kr. Bhagat Vs. Punjab National Bank” reported in [Company Appeal (AT)(Ins) 1003 of 2019 wherein it is categorically held:

The Learned Counsel for the Respondent found out that the ‘Adjudicating Authority’ in toto took into account a ‘Balance sheet’, ‘One Time Proposal’ for the purpose of ‘Limitation’ and admitted the ‘Application’.

In this connection it is submitted on behalf of the Respondent that although the Accounts was classified as ‘NPA” in the year 2012, the ‘‘Corporate Debtor’ had acknowledged the ‘Debt’ in its Financial Statement for the year 2013-17.

It is represented on behalf of the Respondent that the ‘Corporate Debtor’ had requested the ‘IDBI Bank Ltd’, from whom the Respondent obtained ‘Assignment of Debt’ for restructuring of the outstanding dues as per letter dated 09.04.2013. In reality, it is the stand of the Respondent that the ‘Corporate Debtor’ had proposed ‘One Time Settlement’ and addressed a letter to the Respondent on 30.03.2016 which was replied by the Respondent on the same date. Besides these, the ‘Corporate Debtor’ also addressed a letter dated 19.02.2018 and in favour of the Respondent for ‘One Time settlement’ of the ‘Loan Accounts’ which was granted by the Respondent, of course subject to the terms and conditions made mention of, in the Sanction Letter dated 28.02.2018. Furthermore, the ‘Corporate Debtor’ depending upon said settlement, made an upfront payment as seen in the ‘One Time Settlement’ letter by agreeing all the terms and conditions of the sanctioned, signed the said sanctions.

The Learned Counsel for the Respondent points out that the Appellant had acknowledged its liability in a consistent manner from the year 2013 upto 2018, during which years, the Application was filed, within the limitation period as specified under Article 137 of the Limitation Act, 1963.

The Learned Counsel for the Respondent brings out to the notice of this ‘Tribunal’ that the Respondent filed O.A. No. 40 of 2015 before the Debt Recovery Tribunal No. 1, Hyderabad (in short ‘DRT’) against the Appellant towards the recovery of Rs. 24,21,74,776.21 and the same was decreed by the ‘Tribunal’ on 24.10.2018 and indeed the said decree of the DRT is to be taken into account by this Tribunal.

The Learned Counsel for the Respondent/Financial Creditor relied on the decision of the Hon’ble Supreme Court in the matter of ‘Committee of Creditors of Essar Steel India Ltd. V. Satish Kr. Gupta and Ors. (vide Civil Appeal No. 8766-67 of 2019) which deals with the revival of ‘Corporate Debtor’ and also liquidation of such Debtors if revival is not possible. Apart from this, a contention is raised on behalf of the Respondent that it is incorrect to say that because of the fact that the Unit was not functioning from the year 2014, it could not be revived and contra stand by the Appellant are untenable.

The Learned Counsel for the Respondent points out that asper Section 62 of the Indian Contract Act, 1872, if the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the ‘original contract’ need not be performed. In effect, it is the plea of the Respondent/Financial Creditor that the rights and liabilities of the contract shall be governed by the terms of the new contract.

The Learned Counsel for the Respondent points out that in the present case, after considering the ‘One Time Proposal’ of the Appellant (vide its letter dated 19.02.2018), the said proposal was acceded to by the Respondent in and by which the ‘Corporate Debtor’ was required to pay Rs. 10 Crores as against its liability of Rs. 17.12 Crores as on 01.02.2015 thereby a new contract came into existence on 19.02.2018. To put it precisely, the clear cut stand of the Respondent is that the ‘Corporate Debtor’ is bound by the terms of the contract.

The Learned Counsel for the Respondent submits that under new contract, the ‘Corporate Debtor’ had paid a sum of Rs. 1 Crore till date and had defaulted an upfront a sum of Rs. 9 Crores in respect of the settlement of the loan amount and bound by the new terms that give the Respondent a new ‘Cause of Action’ for initiating Corporate Insolvency Resolution Process as per IBC. As such, the Application projected by the Financial Creditor/Applicant before the Adjudicating Authority was well within the period of limitation.

The Learned Counsel for the Respondent cites the decision of the Hon’ble Supreme Court in the matters (1) “H.R. Basavaraj v. Canara Bank” [(2010) 12 SCC 458], (2) “Sasan Power Ltd. v. North American Coal Corporation (India) Pvt. Ltd.” [(2016) 10 SCC 813] and “Delhi Development Authority & Anr. V. Joint Action Committee Allottee of SFS Flats” [(2008) 2 SCC 672] wherein it is held:

One cannot brush aside an important fact that the Respondent/Financial Creditor/Applicant in O.A. No. 40/2015 on the file of DRT, Hyderabad on 24.10.2018 had obtained a decree against the Appellant for recovery of Rs. 24,21,74,776.21 which confers a fresh ‘cause of action’ to the Respondent/Financial Creditor/Applicant to initiate CIRP against the ‘Corporate Debtor’, in which there is no impediment in law. Furthermore, the decree/order of a Tribunal will, without any hesitation, falls within the purview of Financial Debt define Section 5(8) of IBC meaning a debt along with interest, if any, which is disbursed against the contract for the time value of money and includes following: ..

While summing up, the Learned Counsel for the Respondent contends that the ‘Adjudicating Authority’, after analysing the facts and circumstances of the case, had admitted the Application filed by the Respondent/’Corporate Debtor’ by passing the Impugned Order which suffers no infirmity in law.

It is relevantly pointed out that ‘An Acknowledgment of Liability’ points out that an individual who acknowledges has some kind of interest, which is undoubtedly bound by his statement. No wonder ‘An Acknowledgment of Liability ought to involve an admission of a subsisting jural relationship between the parties and further that an intention to continue such a relationship till it comes to end in legal manner. Moreover, kind of jural relationship that should exist is that the individual making an acknowledgment should be under an existing liability to the other person as per the decision of ‘Nallathambi Nadar v. Ammal Nadachi” reported in AIR 1964 Mad. 169 at pages 171, 172 (Full Bench).

The object of Section 18(2) of the Limitation Act, 1963 is to ascertain the real date written and signed acknowledgment for the purpose of saving limitation and to exclude fraudulent testimony. Apart from that, unconditional acknowledgment is an implied promise to pay the debt, that is the logical inference, if nothing is uttered to the contrary, as opined by this Tribunal. Besides this, for the purpose of satisfying the requirement of ingredients of Section 18 of the Limitation Act, 1963, if the balance was confirmed, would suffice as per the decision of “Allahabad Bank, Rewa v. Pramod Kumar Singh” reported in AIR 2006 M.P. 10 at p. 12.

Be it noted, that a ‘Balance Sheet’ is ‘An Acknowledgment of Liability’ as per decision of “Rampur Engineering Company Ltd v. Syed Raja Ali Khan Bahadur”, 1966 ALJ 385 at Page 388.

In fact, if before the expiry of the prescribed period for a suit in respect of any property or right, there is written acknowledgment of liability in respect of such property or right in writing against whom such right or property is claimed, then, in that event, a fresh limitation is to be calculated from the time when the acknowledgment was signed as per the decision of “Vijay Tractors Corporation v. M/s Haryana Agro Industries Corporation” reported in AIR 2006 P & H 86 at spl. Page 89.

It is relevantly pointed out that the Respondent/Financial Creditor/ Applicant before the Adjudicating Authority had filed CP(IB) No. 682/7/HDB/2018 (under Section 7 of IBC r.w. Rule 4 of the I & B (AAA) Rules, 2016) seeking to initiate Corporate Resolution Insolvency Process against the ‘Corporate Debtor’ under the Act. As a matter of fact, under Part –IV of the Application at serial No. 1, the total outstanding debt was Rs. 26,43,23,009.11 (Rupees Twenty-Six Crores, Forty-Three Lakhs, Twenty-Three Thousand and Nine and Paisa Eleven only) as on 31.03.2018 (vide Sanction Letter dated 17.02.2010) issued by IDBI Credit Facilities i.e., Cash Credit, Law of Credit and Bank Guarantee. Furthermore, as per Letter of Renewal of Credit Facility dated 16.03.2011 issued by IDBI Bank, Credit Facilities were renewed to the ‘Corporate Debtor’.

It comes to known that the ‘Debt’ in question, along with all the rights, title and interest in the underlying ‘Securities’ and Guarantees were assigned by the Lender to the Financial Creditor based on ‘Assignment Agreement’ executed between the IDBI Bank and the Financial Creditor.

In fact, the computation of the due amount payable by the ‘Corporate Debtor’ to the Respondent/Financial Creditor (acting in its capacity as Trustee of EARC Trust SC-130) is described in the Tabular Column as under:

In short, the amount claimed to be in default in Part-IV of the Application in Serial No. 2 is Rs. 26,43,25,009.11 as on 31.08.2018 with further interest therein from 01.09.2018 at contractual rates. Further, the NPA date was mentioned as 30.06.2012.

That apart, in the Application filed by the Respondent/Financial Creditor, the details of Financial Contracts were mentioned beginning from the Sanction Letter dated 17.02.2010 issued by the IDBI Bank to the ‘Corporate Debtor’ till the Assignment Letter dated 26.03.2015 executed between the IDBI Bank and the Respondent/Financial Creditor/Applicant.

It is the stand of the Appellant that the Application was filed in the month of October, 2018 and that when the loan was recalled through Notice dated 20.11.2012 and Section 13(2) Notice in SARFAESI, 2012 was dated 04.04.2013, the same was no averred in the Affidavit as regards ‘An Acknowledgement of Liability’.

The prime contention advanced by the Appellant is that the Account was classified as ‘NPA’ on 30.06.2012 giving a cause of action for the Respondent/Applicant and that the period of limitation begins to run from the said date and further three years’ period is calculated from 04.04.2013 and the same is barred by law of limitation.

Besides the above, it is the stand of the Appellant that even after the Director’s Report was signed on 01.09.2017 and the same be taken into account, still it is beyond three years of limitation period. In pith and substance, the stand of the Appellant is that the documents which were executed beyond three years do not constitute ‘An Acknowledgment of Liability’.

It is by now well settled that the pendency of the proceeding under SARFAESI Act, 2002 is not a bar in initiating ‘CIRP’ under I&B Code, 2016.

Although the Appellant in the instant case has taken plea that Section 7 Application filed by the Respondent/Financial Creditor/Applicant is barred by limitation and further that the ‘NPA’ was classified as on 30.06.2012, it cannot be lost sight of the fact the ‘Corporate Debtor’ in its Financial Statement for the period from 2013-17 had acknowledged of debt in question. Moreover, the ‘Corporate Debtor’ made a request to the IDBI Bank, from whom the Respondent/Financial Creditor/Applicant secured the ‘Assignment of Debt’ for restructuring of the balance due amount as per letter dated 09.04.2013.

It is to be borne in mind that the Respondent/Financial Creditor/ Applicant had given a ‘Reply’ on 30.03.2016 for the proposed ‘One Time Settlement’ made by ‘Corporate Debtor’. Continuing further, it is to be remembered that the Respondent/Financial Creditor had addressed Reply letter to the ‘Corporate Debtor’ dated 19.02.2018 for ‘One Time Settlement’ of the loan amount which was accepted by the Respondent based on Terms and Conditions specified in the Sanction Letter dated 28.02.2018. Apart from this, based on the said settlement, ‘Corporate Debtor’ had paid an upfront amount as seen from the ‘One Time Settlement’ letter by agreeing to abide by the Terms and Conditions of the ‘Sanction Letter’ and signed it.

It cannot be gainsaid that the Respondent/Financial Creditor, after considering the proposal of the Appellant for ‘One Time Settlement’ through its letter dated 19.02.2018 granted said settlement in and by which the ‘Corporate Debtor’ was required to pay Rs. 2 Crores as against its liability of Rs. 17.12 Crores as on 01.12.2015. As such it is crystalline clear that the new contract had come into play on 19.02.2018 and further that the Application was filed by the Respondent/Applicant (under Section 7 of IBC) on 25.10.2018 which is within period of limitation.

There is not two opinion of the pivotal fact that under the new contract, the ‘Corporate Debtor’ had paid a sum of Rs. 1 Crore till date and committed default in respect upfront sum of Rs. 9 Crores in regard to the settlement of loan amount and without any iota of doubt, the ‘Corporate Debtor’ is bound by the new premises it had made which provided leverage to the Respondent/Financial Creditor to initiate CIRP under IBC (based on fresh cause of action).

As far as the present case is concerned, even though a plea is taken on behalf of the Appellant that the Section 7 Application filed by Respondent/ Financial Creditor/Applicant is time barred because of the fact that during October, 2018, the same being filed which is beyond three years from 20.11.2012 (recall notice) and 04.04.2013 being the date when Demand Notice was issued to the Appellant by the ‘Corporate Debtor’ [Section 13(2) SARFAESI Act, 2002] and further that OTS application was signed on 28.02.2018 was beyond four years and they cannot be relied upon to conclude that there was ‘Acknowledgment of Liability’ and that the date of default mentioned on 30.09.2013 and 31.12.2013 was the date of declaration of the Account of the ‘Corporate Debtor’ as ‘NPA’ and these were not mentioned in the Application and brought forth only by way of an amendment Application etc. the same are not accepted by this Tribunal because of the latent and patent fact that the ‘‘Corporate Debtor’’ had acknowledged the debt due to be paid by it to the Respondent/Financial Creditor/Applicant through its Annual Reports and Balance Sheet Periodical till 2017. Furthermore, the ‘Corporate Debtor’s Report for the year ending 31.03.2017 unerringly points out to an ‘Acknowledgment of Liability’ which will give a ‘new leaf of life’ to commence the Limitation Period.

In the present case, Balance Sheet for the Financial Year 2017-18 mentioned that the secured borrowings were inclusive of IDBI’s Cash Credit sum of Rs. 76,99,61,821/- and Indian Bank Cash Credit sum of Rs. 41,68,13,000/-as noted by the ‘Adjudicating Authority’ at paragraph- 10 of the ‘Impugned Order’.

In short, the ‘OTS’ proposal of the ‘Corporate Debtor’’ dated 28.02.2018 was accepted by the authorised signatory of the ‘Corporate Debtor’ to the Terms and Conditions and it is brought to the fore that through a letter dated 07.06.2018 of the Respondent/Financial Creditor/Applicant addressed to the ‘Corporate Debtor’, the ‘OTS Letter’ was revoked because of the non-payment of settlement sum by the ‘‘Corporate Debtor’’ in spite of there being loss of time. Suffice to it, to the Tribunal to point out that in the present case, as per new contract, the ‘Corporate Debtor’, apart from the fact that it paid Rs. 1 crore, committed a default in regard to the upfront payment of sum of Rs. 9 Crores in response to the settlement of loan amount and in any event, in law, the new promise had given new cause of action enabling the Respondent/’Corporate Debtor’/Applicant to initiate CIRP under IBC resulting in filing of Application under Section 7 of IBC against the ‘Corporate Debtor’, which is well within period of limitation. Viewed in that perspective, the counter plea in regard to the aspect of limitation fails.

In the light of foregoing detailed discussions, this ‘Tribunal’ also, taking into consideration of the entire facts and circumstances of the instant case in a conspectus fashion, comes to resultant conclusion that the views arrived at by the ‘Adjudicating Authority’ in the ‘Impugned Order’ dated 06.08.2021 in CP(IB) No. 682/7/HDB/2018 in admitting the Section 7 Application of the IBC filed by the Respondent/Financial Creditor/Applicant and declaring moratorium etc. are free from legal errors. Consequently, the ‘Appeal’ fails.

In fine, the instant Company Appeal(AT)(CH)(Ins) No. 214 of 2021 is dismissed. No costs. Connected pending I.A., if any, is closed.