Stressed Assets Stabilisations Funds (SASF) vs Sky Lead Chemicals Ltd

Dr. Ashok Kumar Mishra, Technical Member

This Company Appeal is filed against the order of the Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench) dated 12.01.2021 passed in CP (IB) No. 113/7/NCLT/AHM/2019.

The Adjudicating Authority have observed the following in para-3

As referred all related judgments of Hon’ble Apex Court some of the observations made in the impugned order are depicted below:

The Ld. Counsel for the Appellant has provided the list of dates & events depicted below:

It has been submitted by Ld. Counsel of the Appellant that it had availed a foreign currency loan of USD 1.25 from IDBI Bank million vide sanction letter dated 05.12.1997 and Foreign Currency Loan Agreement dated 31.12.1997. However, the Respondent failed to pay the principal outstanding aggregating to Rs 5 Crores 20 Lacs hence principal outstanding loan amount was converted into subscription of NCD’s vide subscription agreement dated 29.03.2001. Subsequently, the Respondent also converted the funded interest term loan aggregating to 125.61 lacs into NCD’s via letter of intent dated May 01, 2002.

As per the Appellant, IDBI Bank vide a Transfer Deed dated 30.09.2004, transferred the loan account of the Corporate Debtor to the Appellant together with all the underlying securities under the Financing Documents.

It was also stated by the Ld. Counsel for the Appellant that as the Corporate Debtor had defaulted on its payment obligations under the NCD facility, hence the Appellant was constrained to recall principal amount under the NCD’s and also the interest which was accruing under the NCD’s and hence the Appellant issued a recall notice dated 31.10.2006.

It was also pointed out by the Ld. Counsel for the Appellant that the Corporate Debtor had made a Reference under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”), to the Board of Industrial & Financial Reconstruction (“BIFR”) and after enquiry and curing some defects and same was registered with BIFR a Case No. 160/2005. Subsequently, the Corporate Debtor was declared to be a sick industrial company and IDBI was appointed as an operating agency under section 17(3) of the Sick Industrial Companies (Special Provision Act) and the Corporate Debtor continued to be under purview of BIFR and same was pending until/BIFR dissolved on 01.12.2006 when SICA was repealed (“BIFR Dissolution Date”).

The Corporate Debtor proposed a one-time settlement (OTS) to which SASF, at its meeting held on September 08, 2008 and the Appellant has approved the settlement by way of re-payments of Rs. 270 Lakhs over a period of 7 months. However, as the Corporate Debtor had failed to honour the OTS, hence the Appellant on January 23, 2009 revoked the said OTS.

In view of the ongoing default of the corporate debtor under the NCD Facility and suspension of the legal proceedings under SICA and acknowledgment made under the Balance Sheet, the Appellant initiated corporate insolvency proceedings under the Code and preferred to file a Section 7 Petition before the Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench.)

The grievance of the Appellant is that even though Section 7 Petition was within limitation as prescribed under Article 137, yet the Ld. Adjudicating Authority dismissed the Section 7 Petition filed by the Appellant on the grounds that the application was filed after a period of fifteen years from the date on which the right to sue accrued to the financial creditor. The date of default as recorded by the Adjudicating Authority was 19.04.2004 i.e. the Recall Letter. The Adjudicating Authority erroneously interpreted/relied upon B.K. Education Services Limited v Parag Gupta & Associates (“BK Educational Services Limited”).

It was brought to our notice that the Adjudicating Authority relying on BK Educational Services Limited dismissed the section 7 Petition of the Appellant without appreciating the fact that the Corporate Debtor on 23.11.2005 (“BIFR Reference Date”) was referred to BIFR under Section 15(1) of the Sick Industrial companies (Special Provisions) Act, 1985 (“SICA”), to the Board of Industrial & Financial Reconstruction (“BIFR”) being case No. 160/2005 and same was pending adjudication. The Corporate Debtor was declared to be a sick industrial company and IDBI was appointed as an operating agency under section 17(3) of the Sick Industrial Companies (Special Provision Act) and the Corporate Debtor continued to be under purview of BIFR and same was pending until BIFR dissolved on 01.12.2016 and (“BIFR Dissolution Date”). Hence the period between BIFR Reference date and the BIFR Dissolution Date amounting to 4026 days (“Excluded Limitation Period”) should be excluded for the purposes of calculating the period of limitation.

It is submitted by the Ld. Counsel for the Appellant that on 19.04.2004, when the Appellant recalled the NCD Facility admittedly, the BIFR Reference Case of the Corporate Debtor under the provisions of Sick Industrial Companies Act (SICA), 1985, was pending for adjudication before the learned Board for Industrial & Financial Reconstruction (BIFR). Accordingly, the Section 22 of SICA was applicable and hence the period under which the Corporate Debtor was under the purview of BIFR. Hence the Ld. Adjudicating Authority should have appreciated that the Excluded Limitation Period should have been excluded for the purposes of calculating limitation and if the said Excluded Limitation Period is excluded then the Section 7 Petition is within the prescribed limitation period.

Further, it is pertinent to mention that the Respondent continuously in all its Balance Sheets from the year ending 2004-05 till 2016-17 has disclosed and acknowledged the outstanding liability owed by the Respondent to the Appellant. Hence the admission and disclosure of liability in the Balance Sheet of the Corporate Debtor is to be treated as an acknowledgement under Section 18 of the Limitation Act, 1963 which further enlarges and extends the period of limitation and hence the order of Adjudicating Authority is grossly erroneous in this aspect that the Section 7 Petition of the Appellant is barred by limitation especially when the Corporate Debtor voluntarily disclosed and acknowledged the liability towards the appellant. As the Hon’ble Apex court in the case of A V Murthy v. B S Nagabasavanna has held that entry in sheet entry may qualify as acknowledgement for the purposes of Section 18 of the Limitation Act, 1963. In this case, which pertained to a cheque dishonour case, the Apex Court had observed as follows:

It is pertinent to note that the acknowledgment made in the balance sheet is prior to the expiry of the limitation period that is 19.04.2007(even assuming for the sake of argument that the limitation period expired on 19.04.2007 if one does not consider the Excluded Limitation Period under BIFR reference) and hence this constitutes an acknowledgment under Section 18 of the Limitation Act, 1963. Copies of the Balance Sheet of the Corporate Debtor from the year ending 2004-05 till 2016-17 is annexed with this Appeal and marked as Annexure A/7(Colly).

The Ld. Adjudicating Authority also failed to consider that Respondent is in continuous default of its payment obligations under the Recall Notice as the Appellant is entitled to recover compound interest on the outstanding amounts from the date of the recall and demand till the actual realization of the amounts due. The non-payment of interest for the year 2017-2018 is Rs.5,21,60,402/- which is over a lac, which itself on a standalone basis has entitled the Appellant to file an application under Section 7 of the Code, 2016.

In view of the above the Appellant has sought the relief as follows:

The Ld. Counsel for the Respondent has submitted as follows:

We have gone through the submissions made by the Ld. Counsels for the parties, documents available on record and related law on the subject including citations available and are having following observations:

A reference is made to Section 238 (A) of the Code which reads as follows:

We have also gone through the Balance Sheet as at 31.03.2017 of the CD wherein it is reflected in Annexure A-7 appearing from pg-201 to 237 (Reference page -225) where borrowings are reflected under the heading “Long-term borrowings” “Note no. 4” “item no. 2”. Even the Balance Sheet reflects the security created on the assets of the CD. Balance Sheets are signed by the Directors of the Corporate Debtor on 01.09.2017.

Now it is a settled law that all related provisions of the Limitation Act is applicable to the provisions of the Code. Hon’ble Apex Court vide its various Judgments has held accordingly.

B.K. Educational Services Pvt. Ltd. v. Parag Gupta (2019, 11 SCC 633) para-42.

Babulal Vardharaji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. Civil Appeal No. 6347/2019, para-37.3, 38.

Dena Bank (Now, Bank of Baroda) v. C. Shivakumar Reddy & Anr. Civil Appeal No. 1650 of 2020, para- 141,144.

All the above cases reflect that the Hon’ble Apex Court has already settled the law that Balance Sheet dues so reflected appropriately in the Balance Sheet and that too a duly audited Balance Sheet will act as an acknowledgment of debt under Section 18 of the Limitation Act, 1963 & hence initiation of CIRP is permissible under Section 7 of the “Code”.

Keeping in mind the provisions of the Code & law laid down on the subject, it is not in dispute that the dues of the CD are falling within the provisions of Section 18 of the Limitation Act and since debt and default is not in dispute & dues are payable in fact & law & is in accordance with the provisions of the Code, so Section 7 of the Code is attracted.

Hence, we are unable to sustain the views of Adjudicating Authority which is not in consonance with the provisions of the code. We are constrained to allow the Appeal. The Appeal is accordingly allowed and impugned order is hereby set aside. No order as to costs.