State Bank of India vs Hardrock Attachment Pvt. Ltd.

31.10.2022: Heard Learned Counsel for the Appellant and Learned Counsel appearing for the Respondent.

This appeal has been filed against the order dated 18.05.2022 passed by Adjudicating Authority (National Company Law Tribunal, Kolkata Bench) in CP (IB) No. 409/KB/2021 by which Section 7 application filed by the Appellant has been rejected. Brief facts of the case necessary for deciding this appeal are:

The Appellant extended various financial facilities to the Corporate Debtor ‘Hardrock Attachment Pvt. Ltd.’ on account of non-payment of the dues the account of respondent was classified as NPA on 28.12.2013. Thereafter recall notice was issued and proceeding under Section 13 sub Section 2 of SARFAESI Act, 2002 was initiated on 08.11.2016.

Decree was passed by the Debt Recovery Tribunal on 23.02.2018 and recovery certificate was issued by DRT in O.A. No. 14 of 2017. Thereafter, the Bank has initiated proceeding for recovery of the amount in pursuance of the recovery certificate. A request of one-time settlement was made by the Corporate Debtor on 15.04.2019 which was accepted on 30.08.2019.

However, the said OTS proposal was defaulted, the Bank filed the application under Section 7 on 05.12.2021 for debt due on the Corporate Debtor amounting to Rs. 64,55,80,125.70.

Subsequent to filing of the application further steps were taken before the Debt Recovery Tribunal. Again an OTS proposal was submitted on 22.02.2022 by the Corporate Debtor which was not accepted.

The Corporate Debtor appeared before the Adjudicating Authority and filed its reply raising various submissions including the submission that application is barred by time.

It was further contended that the Bank is proceeding with recovery before the Debt Recovery Tribunal and the application under Section 7 has been filed as a recovery mechanism. The Corporate Debtor bonafide gave OTS proposal on 22.02.2022 which was not accepted asking the Corporate Debtor to withdraw the appeal pending before the Presiding Officer DRT.

Adjudicating Authority after hearing the parties rejected the Section 7 application. In the analysis and findings in para 8 & 9 of the Judgment following has been stated:

Learned Counsel for the Appellant challenging the order contends that the finding of the Adjudicating Authority that application is barred by time is erroneous.

Learned Counsel for the Appellant submitted that in the appeal the Appellant has brought on record along with the Additional Affidavit the one-time proposal which was submitted by Corporate Debtor on 15.04.2019 which proposal was also accepted on 30.08.2019.

Learned Counsel for the Appellant has also referred to Revival letter dated 18.05.2016 which was issued by the Corporate Debtor which has been brought at Page 195 of the Appeal which contains an acknowledgment for extension of limitation under Section 18 of the Limitation Act, 1963 and from the aforesaid acknowledgment it is submitted that within three years the one time OTS proposal was submitted by the Corporate Debtor which shall further extends the period of limitation.

It is submitted that the proceedings before the DRT are no bar for initiating the Section 7 application.

Learned Counsel for the Respondent opposing the submission of the Learned Counsel for the Appellant contends that before the Adjudicating Authority the Appellant had relied only on the balance sheet for contending that application is not barred. The OTS letter dated 15.04.2019 was not brought before the Adjudicating Authority.

It is submitted that even after filing of the application under Section 7 the Appellant proceeded to sell the properties which indicates that the application filed under Section 7 was not bonafide filed and was only a part of the recovery mechanism.

We have considered the submissions of counsel for the parties and perused the record.

We may first consider submission of the Learned Counsel for the parties with regard to the question of limitation.

The account of NPA was declared on 28.12.2013. The revival letter dated 18.05.2016 which was filed before the Adjudicating Authority clearly contains an acknowledgment within meaning of Section 18 which was signed on 18.05.2016 by the Corporate Debtor.

The recovery certificate was issued on 23.02.2018 by the DRT in the DRT proceedings. The Letter which has been filed along with the appeal dated 15.04.2019 is the proposal of OTS which was submitted. The additional documents have been filed by the appellant with of I.A No. 3120/2020 praying for seeking the additional documents on the record i.e. the OTS letter of 2017 & 2019 as mentioned in prayer A & B:

The Learned Counsel for the Respondent submitted that these documents were not before the Adjudicating Authority but veracity of the documents is not disputed.

It is further relevant to notice that in pursuance of the OTS proposal dated 15.04.2019 which was accepted on 30.08.2019 payments were made by the Corporate Debtor which was reflected in the statement of account which was filed along with Section 7 application at page 52 of Volume 1 of the Reply filed by the Respondent.

After the acceptance of one-time settlement the payments have been made on 31.08.2019 and 30.09.2022 and subsequent dates which payments are part of Section 7 application.

We are satisfied that one time settlement was also implemented, hence, we deem it fit and proper to accept the said additional documents on record.

The one-time settlement which was submitted on 15.04.2019 contains an acknowledgment under Section 18 of the Limitation Act, 1963 and the application under Section 7 which was filed within 3 years from the said date cannot be said to be barred by time. 25. Adjudicating Authority has referred to balance sheet as on 31.03.2018 for holding the application as barred by time.

With the aforesaid discussion we are satisfied that the application under Section 7 was not barred by time and the Adjudicating Authority committed error in rejecting the application as barred by time.

Now coming to the submission of Learned Counsel for the Respondent that application under Section 7 was nothing but the recovery mechanism resorted by the bank and cannot be said to be a bonafide application. Suffice it to say that that bank after declaration of account NPA taking steps for recovery of dues by invoking the provisions of SARFAESI Act, 2002 even after decree passed by the Debt Recovery Tribunal steps has been taken.

The IBC provides a forum for financial creditor to take steps for initiating insolvency resolution process. It is not the case that all the properties of the Corporate Debtor have been sold in the proceedings before the DRT.

The question as to whether there is any possibility to revive the Corporate Debtor is question which needs to be considered in the CIRP process. It is pre-mature to hold that it was not possible to revive the Corporate Debtor, and the application under Section 7 is to be rejected on this ground.

We thus are of the view that the submission of Learned Counsel for the Respondent that application was not bonafide cannot be accepted.

In view of the foregoing discussion we allow this appeal and set aside the impugned order dated 18.05.2022.

We direct the Adjudicating Authority to pass an order of the admission and all consequential orders within the period of one month from the date of copy of the order is produced.

We make it clear that the admission of Section 7 application shall not preclude the Corporate Debtor to submit any fresh proposal for OTS.