REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2176 OF 2020

Kotak Mahindra Bank Limited ….Appellant

VERSUS

Kew Precision Parts Private

Limited & Ors. ...Respondents

J U D G M E N T

INDIRA BANERJEE, J.

This appeal filed by the Appellant Financial Creditor, Kotak

Mahindra Bank Limited under Section 62 of the Insolvency and

Bankruptcy Code, 2016, hereinafter referred to as the ‘IBC’, is

against the judgment and order dated 8

th

January, 2020 of the

National Company Law Appellate Tribunal, New Delhi (NCLAT)

allowing Company Appeal (AT) Insolvency No. 1349 of 2019 filed

by the Respondent-Corporate Debtor, against an order dated 6

th

September, 2019 passed by the Adjudicating Authority/National

Company Law Tribunal (NCLT) admitting the application being

Company Petition No.(IB) 672/ND/2019 filed by the Appellant

1

Financial Creditor under Section 7 of the IBC for initiation of the

Corporate Insolvency Resolution Process (CIRP) against the

Corporator Debtor.

2.The Corporate Debtor carries on business of manufacture of

tempo and tractor components. In or about 2012-2013, the

Corporate Debtor decided to expand its business and operations

and entered into negotiations with bankers for finance for the

proposed expansion.

3.According to the Corporate Debtor, some-time in July-

August 2012, some employees of the Appellant Financial Creditor

approached the Corporate Debtor, offering financial assistance at

lesser rate of interest than the then existing bankers of the

Corporate Debtor, and better facilities and business support.

4. The Appellant Financial Creditor has, since November 2012

sanctioned loan facilities to the Corporate Debtor from time to time. At

the meeting of the Board of Directors of the Corporate Debtor held on

29

th

November 2012 and on 15

th

March 2013, resolutions were

adopted, inter alia, authorizing Mr. Munish Kumar Bhunsali to execute

loan and security documents on behalf of the Corporate Debtor.

5.On or about 29

th

November, 2012, necessary documents

with regard to the loans/credit facilities were executed by and

between the Appellant Financial Creditor and the Corporate

2

Debtor. Between 23

rd

November, 2012 and 31

st

December, 2013,

loan amounts were disbursed.

6. The following loan and security documents were executed

between the Appellant Financial Creditor and the Corporate Debtor on

29

th

November 2012:-

(i) “Master Fund Based Facility Agreement

(ii)Deed of Hypothecation

(iii) Deed of guarantee by Muhish Kumar Bhunsali

(iv)Demand Promissory Note

(v) Take Delivery Letter for the Demand Promissory Note.

(vi)Supplementary cum Modification Agreement

(vii)End Use Undertaking”

7. On 27

th

May 2013, further loan and security documents were

executed between the Appellant Financial Creditor and the Corporate

Debtor, namely:-

(i) “Memorandum of deposit of title deeds

(ii)End Use Undertaking

(iii)Undertaking (Mortgage) by Mr. Munish Kumar Bhunsali

(iv)Power of Attorney (Mortgage) by Kew Precision Parts Pvt. Ltd.

(v) Declaration (Mortagage) by Mr. Munish Kumar Bhunsali”

8. By a Memorandum of Deposit dated 13

th

December 2013

executed by the Corporate Debtor through Mr. Munish Kumar Bhunsali,

the Corporate Debtor mortgaged its assets in favour of the Appellant

Financial Creditor.

9.By a letter of sanction dated 7

th

February 2014, the

Appellant Financial Creditor sanctioned credit/loan facilities

aggregating Rupees Rs.2036.00 Lakhs to the Corporate Debtor as

per the particulars given below:-

3

“i.Cash credit : Rs.1000.00 lakhs

ii.WCDL (Sub Limit of CC : Rs.680.00 Lakhs

iii.Invoice Finance discounting : Rs.680.00 Lakhs

(submit of CC)

iv.Term Loan – I : Rs.240 Lakhs

v.Term Loan – II : Rs.334.00 Lakhs

vi.Term Loan – III : Rs.426.00 Lakhs

iv.Conditional WCDL : Rs.200.00 Lakhs

Total Exposure : Rs. 2036 Lakhs”

10. According to the Appellant Financial Creditor, the Corporate

Debtor defaulted in making repayment of its dues to the Financial

Creditor. The Appellant Financial Creditor, therefore, declared the

Account of the Corporate Debtor as “non-performing asset” (NPA)

on 30

th

September 2015. On 9

th

October, 2015, the loan was

recalled by the Appellant Financial Creditor.

11.On 19

th

November 2017, the Appellant Financial Creditor

issued statutory notice under Section 13(2) of the Securitisation

and Reconstruction of Financial Assets and Enforcement of

Security Interest Act 2002, hereinafter referred to as the

SARFAESI Act.

12.On 12

th

December 2018, the Corporate Debtor admitted its

liability to the Appellant Financial Creditor and offered a one time

settlement for a sum of Rs.15,00,00,000/- (Rupees fifteen crores

only) to be paid within 31

st

December, 2018. On 19

th

December

2018, the Corporate Debtor again admitted its liability to the

4

Appellant Financial Creditor and offered a one time settlement for

a sum of Rs.20,00,00,000/- (Rupees twenty crores only) to be

paid within 31

st

December, 2018. On 20

th

December, 2018, the

Corporate Debtor revised its offer for one time settlement. The

Corporate Debtor offered to settle the outstanding dues at a

lumpsum amount of Rs.24,55,00,000/- (Rupees twentyfour crores

and fifty five lakhs only). The offer was accepted by the

Appellant Financial Creditor.

13.On the same day, i.e., 20

th

December, 2018, terms of

settlement were signed and executed by the Corporate Debtor

and the Appellant Financial Creditor in terms whereof a sum of

Rs.24,55,00,000/- (Rupees twenty four crores and fifty five lacs

only) was to be paid on or before 31

st

December, 2018.

14.The Corporate Debtor alleges that there were deficiencies in

the banking services rendered by the Appellant Financier. Be that

as it may, the Corporate Debtor availed credit facilities from the

Appellant Financial Creditor, defaulted in repayment thereof and

acknowledged liability to the Appellant Financial Creditor by

making offers of one time settlement. When an application is

filed by a Financial Creditor under Section 7 of the IBC for

initiation of CIRP, all that the Adjudicating Authority is required to

see is, whether there is a financial debt owed by the Corporate

Debtor to the Financial Creditor and whether the amount of the

5

debt exceeded Rs.1,00,000/- (Rupees one lac only) on the date of

filing of the company petition, the said amount being the

threshold limit for initiation of CIRP at the material time. The

Adjudicating Authority also has to examine if the application is

barred by limitation.

15.Pre-existing disputes, if any, between the Corporate Debtor

and the Financial Creditor are of no consequence to an

application of a Financial Creditor, under Section 7 of the IBC for

initiation of CIRP, unlike an application of an Operational Creditor

for initiation of CIRP under Section 9 of the IBC which may have

to be dismissed if there is a pre-existing dispute.

16.The proceedings initiated by the Appellant Financial Creditor

under the SARFAESI Act are not material to the issue in this

appeal, of whether the application of the Appellant Financial

Creditor before the NCLT was barred by limitation. Suffice it to

mention that in computing the period of limitation for initiation of

CIRP proceedings, the time spent in pursuing remedy under the

SARFAESI Act or any other recovery law cannot be excluded. It is

also well settled that initiation of proceedings under SARFEASI or

any other recovery law does not affect the right of a Financial

Creditor to initiate CIRP unless its debt is repaid.

6

17.The Corporate Debtor defaulted in payment of

Rs.24,55,00,000/- to the appellant Financial Creditor as agreed.

In these circumstances, the appellant Financial Creditor filed the

said application being Company Petition No. (IB) 672/MD/2019 in

the NCLT.

18.The said application was admitted by an order dated 6

th

September, 2019 of the Adjudicating Authority (NCLT). The

Adjudicating Authority found that the account of the Corporate

Debtor with the Appellant Financial Creditor had been declared

NPA on 30

th

September 2015. The Appellant Financial Creditor

was, however, relying on the proposal for one time settlement

given by the Corporate Debtor on 12

th

December, 2018 to

contend that the existence of financial debt had been admitted

by the Corporate Debtor.

19.From the order dated 6

th

September, 2019 of the

Adjudicating Authority, it appears that the Financial Creditor had

been relying on Article 62 of the Limitation Act, 1963, under

which suits relating to immoveable property to enforce payment

of money secured by a mortgage, or otherwise charged upon

immoveable property, is 12 years from the time when the money

sued for, becomes due.

20.The Adjudicating Authority found :-

7

“Given the facts and circumstances that the Corporate

Debtor vide its letter dated 12.12.2018 approached

the Financial Creditor for one time settlement of an

amount of Rs.15 Crore, thereby admitting its default,

there is a finding that there is a continuous cause of

action.

As per the averments of the petition no payment has

been made by the Corporate Debtor after the default

occurred in June, 2015 and as on dated 27.11.2018,

an amount of Rs.46,63,35,337.31 is due and

outstanding. The present petition being filed in

January 2019 is within limitation, being within three

years from the date of the cause of action. Further

even though an attempt was made on the part of the

Corporate debtor to project certain inconsistencies in

relation to claim amounts, however it is seen that the

amount in default in excess of Rs.1,00,000/- being the

minimum threshold limit fixed under IBC, 2016.”

21.The Adjudicating Authority admitted the petition and

imposed a moratorium in terms of Section 14 of the IBC and also

confirmed the appointment of Mr. Ashwani Kumar Gupta, as the

Interim Resolution Professional (IRP).

22.The suspended Directors of the Corporate Debtor filed the

appeal being Company Appeal (AT) Insolvency No. 1349 of 2019

in the NCLAT contending that the petition filed by the Appellant

Financial Creditor under Section 7 of the IBC was patently barred

by limitation.

23.The NCLAT held :-

“33. The 1

st

Respondent or Bank’s plea is that there was

continuous and recurring cause of action from both sides

i.e. the borrower and the ‘Corporate Debtor’ and the

Bank also, that if any decree is passed by any civil court

is pending or in existence of execution, it would amount

to a ‘continuous cause of action’. In fact the 1

st

8

Respondent / Bank projects the plea that the ‘continuous

cause of action’ means the ‘cause of action’ which arise

from repetition of acts or omission of the same kind is

that for which the action was brought.

34. A perusal of the application in form I part II filed by

the 1st Respondent / Bank to initiate ‘Corporate

Insolvency Resolution Process’ under ‘I&B’ shows that

the amount claimed to be default as on 17.11.2015 was

Rs. 18,65,05,035.86 and that the default took place in

June, 2015. However, as on 27.11.2018 the outstanding

balance was mentioned as Rs. 46,63,35,337.31.

xxx xxx xxx

38. It must be borne in mind and Article 62 of the

Limitation Act, 1963 relates to enforcing the payment of

money procured by mortgaged or otherwise charged

upon the immoveable property. A suit to enforce a

mortgage is governed by Article 62 and has to be filed

within 12 years from the date when the money became

due unless the limitation period prescribed was

extended under any other provision of the Limitation Act.

Article 137 of the Limitation Act constitutes the residuary

article as regards the application. To put it succinctly,

Article 113 pertains to the ‘Suits’, the Article 137 relates

to ‘Applications’. The language of Article 137 clearly

postulates that the applicability of the said article will be

restricted to the applications not mentioned in the 3rd

division of the schedule to the Limitation Act, 1963.

xxx xxx xxx

41. In so far as Section 18 of the Limitation Act 1963

pertaining to the effect of acknowledgement in writing

under Limitation Act is concerned, it is to be taken note

of that an acknowledgement of liability must be in

writing and also to be signed by a party against whom

the property or right is claimed and that too, the same

must be within the Limitation period. It cannot be

gainsaid that an acknowledgement given after the expiry

of the usual period is not sufficient to keep the ‘debt’

alive. If a claim is barred, the fact that there was an

acknowledgement of liability will not resuscitate a barred

claim because of the reason that in any Law, there can

only be an acknowledgement of an existing / subsisting

liability.

42. In law, the onus is always on the Creditor to establish

that an acknowledgement was made within time.

Further, the acknowledgement does not create any new

right and it only extends the limitation period as per

decision P.Sreedevi Vs. P.Appu AIR 1991 Ker page – 76.

9

43. It may not be out of place for this Tribunal to make

pertinent mention that when a party claiming benefit of

Section 14 of the Limitation Act, 1963 failed to secure

relief in earlier proceeding not because of any defect in

jurisdiction or some other cause of like nature, he cannot

derive the benefit u/s 14 of the Limitation Act as per

decision Z.Khan Vs. Board of Revenue, 1984 ALL LJ.

However, in the decision ‘Ajob Enterprises’ V. Jayant

Vegoiles & Chemicals AIR 1991, Bombay at page 35 it is

held that the time taken to prosecute suit against the

Company for recovery of debt, such proceedings cannot

be excluded in calculating the limitation period because

the matter in issue in suit and winding up proceedings is

not the same.

xxx xxx xxx

45. In the present case, the 1st Respondent /

Bank/Financial Creditor was given the liberty in SA

250/2016 (filed by the ‘Corporate Debtor’ by the Debt

Recovery Tribunal, Lucknow and another) Appellants on

10/04/2017 to recover the dues from the Appellants by

proceeding afresh under the provisions of SARFAESI Act,

2002 and the Rules made thereunder. Later the 1st

Respondent/Bank filed OA 576 before the Debt Recovery

Tribunal, Delhi against the ‘Corporate Debtor’ and others

and obtained decree on 2.05.2019. Therefore, it is not

open to the 1st Respondent/Bank to turn around and

seek exclusion of time as per Section 14 of the

Limitation Act. Undoubtedly, the 1st Respondent / Bank

had invoked the right Forum viz. Debt Recovery Tribunal,

Delhi for recovery of its dues and ‘Corporate Debtor’ etc.

xxx xxx xxx

47. In regard to the plea of the 1st Respondent/Bank that

on 26.03.2016, a complaint was made by the ‘Corporate

Debtor’ against the Bank for not rejecting their debts

and in the said letter there was an admission of debt

liability, it is to be pointed out that the same cannot

come to the rescue of the Bank because of the fact that

the debt of non-payment of dues by the ‘Corporate

Debtor’ took place in June, 2015 and Section 7

application was filed by the 1st Respondent / Bank

before the Adjudicating Authority on 30.01.2019 which is

beyond the period of limitation as enshrined in Article

137 of the Limitation Act. Also that in the decision

Kalpana Trading Co. Vs. Executive Officer Town

Panchayat AIR 1999 Mad37, it is observed that just

sending a letter to the higher authorities to settle the

issues does not amount to an ‘Acknowledgement’.”

10

24.The operative part of the judgment and order is set out

hereinbelow :

“54. In the result, the ‘Corporate Debtor’ ‘M/s Kew

Precision Parts Pvt. Ltd.’ is released from the rigour of

the ‘Corporate Insolvency Resolution Process’. All actions

taken by the ‘Interim Resolution Professional’ /

‘Resolution Professional’ and ‘Committee of Creditors’, if

any, are declared illegal and set aside. The ‘Resolution

Professional’ is directed to hand over the records and

assets of the ‘Corporate Debtor’ to the

promoter/Directors of the ‘Corporate Debtor’ forthwith.

55. The matter is remitted to Adjudicating Authority

(‘National Company Law Tribunal’) New Delhi Bench to

determine the ‘Fee and Cost’ of ‘Corporate Insolvency

Resolution Professional’ as incurred by him, which is to

be borne and paid by 1st Respondent / Bank(‘Financial

Creditor’). Before parting with the case, it is made

crystal clear that the dismissal of the application filed by

the 1st Respondent / Bank before the Adjudicating

Authority will not preclude it from pursuing / seeking

appropriate remedy before the Competent Forum for

redressal of its grievances, if it so desires/advised.

The Appeal is allowed with aforestated observations and

directions. No Costs. Connected IA No. 3842/19 and IA

No. 3843/19 are closed. However, the Appellants are

directed to file certified copy of the impugned order of

the Adjudicating Authority (‘NCLT’), New Delhi within one

week from today.”

25.In this appeal, it is contended that cheques given by the

Corporate Debtor to the Financial Creditor bounced up to

February 2017. Paragraph 2(vii) of the petition of appeal filed by

the Corporate Debtor is extracted hereinbelow :-

“vii)That cheques given towards repayment of loan

were presented for encashment and the said cheque

bounced due to reason “funds insufficient” up to

February, 2017 against which complaint u/s. 138 of the

Negotiable Instruments Act, is pending before Court.”

11

26.If, as contended by the Appellant Financial Creditor, any

cheque had been issued in February, 2017, the application of the

Appellant Financial Creditor under Section 7 for initiation of CIRP

filed on 2

nd

January, 2019 would clearly be within limitation.

However, there are no details of the payment disclosed by the

Appellant Financial Creditor either in the proceedings before the

NCLT or NCLAT or before this court. However, if no payment had

been made, after the account of the Corporate Debtor had been

declared NPA in September, 2015, acknowledgment made on 12

th

December, 2018 or later, after expiry of over three years from

the date on which the default occurred, would not save limitation.

27.It is the case of the Appellant Financial Creditor that on 12

th

December 2018 the Corporate Debtor made an offer of one time

settlement at Rs.15 Crores. This offer was not accepted. On 19

th

December 2018, the Corporate Debtor revised its offer to Rs.20

Crores for one time settlement. This offer was also not accepted.

On 20

th

December 2018, the Corporate Debtor again revised its

offer for one time settlement. This time the Corporate Debtor

offered to settle the outstanding dues of the Financial Creditor

upon payment of Rs. 24,55,00,000/- to be paid within 31

st

December 2018. This offer was accepted, and terms of

settlement were signed.

12

28.Section 25 of the Indian Contract Act provides as follows :-

“25. Agreement without consideration, void, unless it is in

writing and registered or is a promise to compensate for

something done or is a promise to pay a debt barred by

limitation law.—An agreement made without consideration

is void, unless—An agreement made without consideration

is void, unless—"

(1) It is expressed in writing and registered under the

law for the time being in force for the registration of

documents, and is made on account of natural love and

affection between parties standing in a near relation to

each other; or unless

(2) It is a promise to compensate, wholly or in part, a

person who has already voluntarily done something for the

promisor, or something which the promisor was legally

compellable to do; or unless.

(3) It is a promise, made in writing and signed by the

person to be charged therewith, or by his agent generally

or specially authorized in that behalf, to pay wholly or in

part a debt of which the creditor might have enforced

payment but for the law for the limitation of suits. In any of

these cases, such an agreement is a contract.

Explanation 1.—Nothing in this section shall affect the

validity, as between the donor and donee, of any gift

actually made.

Explanation 2.—An Agreement to which the consent of the

promisor is freely given is not void merely because the

consideration is inadequate; but the inadequacy of the

consideration may be taken into account by the Court in

determining the question whether the consent of the

promisor was freely given.

Illustrations

(a) A promises, for no consideration, to give to B Rs.

1,000. This is a void agreement.

(b) A, for natural love and affection, promises to give his

son, B, Rs. 1,000. A puts his promise to B into writing

and registers it. This is a contract.

(c) A finds B’s purse and gives it to him. B promises to

give A Rs. 50. This is a contract.

(d) A supports B’s infant son. B promises to pay A’s

expenses in so doing. This is a contract.

13

(e) A owes B Rs. 1,000, but the debt is barred by the

Limitation Act. A signs a written promise to pay B Rs.

500 on account of the debt. This is a contract.

(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10.

A’s consent to the agreement was freely given. The

agreement is a contract notwithstanding the

inadequacy of the consideration.

(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A

denies that his consent to the agreement was freely

given." The inadequacy of the consideration is a fact

which the Court should take into account in

considering whether or not A’s consent was freely

given.

29.From the above, it is clear that 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 agreement. It appears

that Section 25(3) of the Indian Contract Act was not brought to

the notice of the NCLAT. The NCLAT also did not consider the

aforesaid Section.

30.In this appeal, it is contended that the last offer of 20

th

December, 2018 was followed by an agreement. Whether there

was such agreement or not would have to be considered by the

Adjudicating Authority. To invoke Section 25(3), the following

conditions must be satisfied:-

(i)It must refer to a debt, which the creditor, but for the

period of limitation, might have enforced;

(ii)There must be a distinct promise to pay such debt, fully

or in part;

(iii)The promise must be in writing, and signed by the

debtor or his duly appointed agent.

14

31.Under Section 25(3), a debtor can enter into an agreement

in writing, to pay the whole or part of a debt, which the creditor

might have enforced, but for the limitation of a suit in law. A

written promise to pay the barred debt is a valid contract. Such a

promise constitutes novation and can form the basis of a suit

independent of the original debt, for it is well settled that the

debt is not extinguished, the remedy gets barred by passage of

time as held by this Court in Bombay Dyeing and

Manufacturing Company Limited vs. State of Bombay

1

.

32.Section 25(3) applies only where the debt is one which

would be enforceable against the defendants, but for the law of

limitation. Where a debt is not binding on the defendant for

other reasons, and consequentially not enforceable against him,

there is no question of applicability of Section 25(3).

33.There is a distinction between acknowledgment under

Section 18 of the Limitation Act, 1963 and a promise within the

meaning of Section 25 of the Contract Act. Both promise and

acknowledgment in writing, signed by a party or its agent

authorised in that behalf, have the effect of creating a fresh

starting of limitation. The difference is that an acknowledgment

under Section 18 of the Limitation Act has to be made within the

1 AIR 1958 SC 328

15

period of limitation and need not be accompanied by any promise

to pay. If an acknowledgment shows existence of jural

relationship, it may extend limitation even though there may be a

denial to pay. On the other hand, Section 25(3) is only attracted

when there is an express promise to pay a debt that is time

barred or any part thereof. Promise to pay can be inferred on

scrutinising the document. Only the promise should be clear and

unconditional.

34.The scheme of the IBC is to ensure that when a default takes

place, in the sense that a debt becomes due and is not paid, the

Corporate Insolvency Resolution Process begins. Where any corporate

debtor commits 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 in Chapter II of the IBC.

35.The provisions of the IBC are designed to ensure that the

business and/or commercial activities of the Corporate Debtor are

continued by a Resolution Professional, post imposition of a

moratorium, which would give the Corporate Debtor some reprieve

from coercive litigation, which could drain the Corporate Debtor of its

financial resources. This is to enable the Corporate Debtor to improve

its financial health and at the same time repay the dues of its

creditors.

16

36.Under Section 7(2) of the IBC, read with the Statutory 2016

Adjudicating Authority Rules, made in exercise of powers conferred,

inter alia, by clauses (c) (d) (e) and (f) of sub-section (1) of Section

239 read with Sections 7, 8, 9 and 10 of the IBC, a financial creditor is

required to apply in the prescribed Form 1 for initiation of the

Corporate Insolvency Resolution Process, against a Corporate Debtor

under Section 7 of the IBC, accompanied with documents and records

required therein, and as specified in the Insolvency and Bankruptcy

Board of India (Insolvency Resolution Process for Corporate Persons)

Regulations, 2016, hereinafter referred to as the 2016 IB Board of India

Regulations.

37.Statutory Form 1 under Rule 4(1) of the 2016 Adjudicating

Authority Rules comprises Parts I to V, of which Part I pertains to

particulars of the Applicant, Part II pertains to particulars of the

Corporate Debtor and Part III pertains to particulars of the proposed

Interim Resolution Professional. Parts IV and V which require

particulars of Financial Debt with Documents, Records and Evidence of

default, is extracted hereinbelow:-

PART IV

PARTICULARS OF FINANCIAL DEBT

1 TOTAL AMOUNT OF DEBT GRANTED DATE(S) OF

DISBURSEMENT

2 AMOUNT CLAIMED TO BE IN DEFAULT AND THE

DATE ON WHICH THE DEFAULT OCCURRED

(ATTACH THE WORKINGS FOR COMPUTATION OF

AMOUNT AND DAYS OF DEFAULT IN TABULAR

FORM)

PART V

17

PARTICULARS OF FINANCIAL DEBT [DOCUMENTS, RECORDS AND EVIDENCE OF

DEFAULT]

1 PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF ITS CREATION, ITS

ESTIMATED VALUE AS PER THE CREDITOR.

ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY THE

REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS A COMPANY)

2 PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR ARBITRAL PANEL

ADJUDICATING ON THE DEFAULT, IF ANY

(ATTACH A COPY OF THE ORDER)

3 RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY (ATTACH A COPY OF

SUCH RECORD)

4 DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF A WILL, OR LETTER OF

ADMINISTRATION, OR COURT DECREE (AS MAY BE APPLICABLE), UNDER THE INDIAN

SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH A COPY)

5 THE LATEST AND COMPLETE COPY OF THE FINANCIAL CONTRACT REFLECTING ALL

AMENDMENTS AND WAIVERS TO DATE

(ATTACH A COPY)

6 A RECORD OF DEFAULT AS AVAILABLE WITH ANY CREDIT INFORMATION COMPANY

(ATTACH A COPY)

7 COPIES OF ENTRIES IN A BANKERS BOOK IN ACCORDANCE WITH THE BANKERS

BOOKS EVIDENCE ACT, 1891 (18 OF 1891)

(ATTACH A COPY)

8 LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE

THE EXISTENCE OF FINANCIAL, DEBT, THE AMOUNT AND DATE OF DEFAULT

38. Section 7(3) requires a financial creditor making an application

under Section 7(1) to furnish records of the default recorded with the

information utility or such other record or evidence of default as may

be specified; the name of the resolution professional proposed to act

as an Interim Resolution Professional and any other information as may

be specified by the Insolvency and Bankruptcy Board of India.

39.Section 7(4) of the IBC casts an obligation on the Adjudicating

Authority to ascertain the existence of a default from the records of an

18

information utility, or on the basis of other evidence furnished by the

financial creditor, within fourteen days of the receipt of the application

under Section 7. As per the proviso to Section 7(4) of the IBC, inserted

by amendment, by Act 26 of 2019, if the Adjudicating Authority has not

ascertained the existence of default and passed an order within the

stipulated period of time of fourteen days, it shall record its reasons for

the same in writing. The application does not lapse for non-

compliance of the time schedule. Nor is the Adjudicating Authority

obliged to dismiss the application. On the other hand, the application

cannot be dismissed, without compliance with the requisites of the

Proviso to Section 7(5) of the IBC.

40.Section 7(5)(a) provides that when the Adjudicating Authority is

satisfied that a default has occurred, and the application under sub-

section (2) of Section 7 is complete and there is no disciplinary

proceeding pending against the proposed resolution professional, it

may by order admit such application. As per Section 7(5)(b), if the

Adjudicating Authority is satisfied that default has not occurred or the

application under sub-Section (2) of Section 7 is incomplete or any

disciplinary proceeding is pending against the proposed resolution

professional, it may, by order, reject such application, provided that

the Adjudicating Authority shall, before rejecting the application under

sub-section (b) of Section 5, give notice to the applicant, to rectify the

defects in his application, within 7 days of receipt of such notice from

the Adjudicating Authority.

19

41.The Corporate Insolvency Resolution Process commences on the

date of admission of the application under sub-section (5) of Section 7

of the IBC. Section 7(7) casts an obligation on the Adjudicating

Authority to communicate an order under clause (a) of sub-section (5)

of Section 7 to the financial creditor and the corporate debtor and to

communicate an order under clause (b) of sub-section (5) of Section 7

to the financial creditor within seven days of admission or rejection of

such application, as the case may be. Sections 8 and 9 of IBC pertain

to Insolvency Resolution by an operational creditor and are not

attracted in the facts and circumstances of this case. Section 10

pertains to initiation of Corporate Insolvency Resolution Process by the

Corporate Debtor itself, and is also not attracted in the facts and

circumstances of the case.

42.The IBC is not just another statute for recovery of debts. Nor is it

a statute which merely prescribes the modalities of liquidation of a

Corporate body, unable to pay its debts. It is essentially a statute

which works towards the revival of a Corporate body, unable to pay its

debts, by appointment of a Resolution Professional.

43.In Swiss Ribbons Private Limited & Anr. v. Union of India

and Ors.

2

, authored by Nariman, J. this Court observed:-

“28. It can thus be seen that the primary focus of the legislation is to

ensure revival and continuation of the corporate debtor by protecting

the corporate debtor from its own management and from a corporate

death by liquidation. The Code is thus a beneficial legislation which

puts the corporate debtor back on its feet, not being a mere recovery

legislation for creditors. The interests of the corporate debtor have,

therefore, been bifurcated and separated from that of its

2. (2019) 4 SCC 17

20

promoters/those who are in management. Thus, the resolution

process is not adversarial to the corporate debtor but, in fact,

protective of its interests. The moratorium imposed by Section 14 is

in the interest of the corporate debtor itself, thereby preserving the

assets of the corporate debtor during the resolution process. The

timelines within which the resolution process is to take place again

protects the corporate debtor's assets from further dilution, and also

protects all its creditors and workers by seeing that the resolution

process goes through as fast as possible so that another

management can, through its entrepreneurial skills, resuscitate the

corporate debtor to achieve all these ends.”

44. IBC has overriding effect over other laws. Section 238 of the IBC

provides that the provisions of the IBC shall have effect,

notwithstanding anything inconsistent therewith contained in any

other law, for the time being in force, or any other instrument, having

effect by virtue of any such law.

45.Unlike coercive recovery litigation, the Corporate Insolvency

Resolution Process under the IBC is not adversarial to the interests of

the Corporate Debtor, as observed by this Court in Swiss Ribbons

Private Limited v. Union of India (supra).

46.On the other hand, the IBC is a beneficial legislation for equal

treatment of all creditors of the Corporate Debtor, as also the

protection of the livelihoods of its employees/workers, by revival of the

Corporate Debtor through the entrepreneurial skills of persons other

than those in its management, who failed to clear the dues of the

Corporate Debtor to its creditors. It only segregates the interests of

the Corporate Debtor from those of its promoters/persons in

management.

21

47.In construing and/or interpreting any statutory provision one

must look into the legislative intent of the statute. The intention of the

statute has to be found in the words used by the legislature itself. In

case of doubt it is always safe to look into the object and purpose of

the statute or the reason and spirit behind it. Each word, phrase or

sentence has to be construed in the light of the general purpose of the

Act itself, as observed by Mukherjea J., in Popatlal Shah v. State of

Madras

3

and a plethora of other judgments of this Court.

48.When a question arises as to the meaning of a certain provision

in a statute, the provision has to be read in its context. The statute

has to be read as a whole. The previous state of the law, the general

scope and ambit of the statute and the mischief that it was intended to

remedy are relevant factors.

49.In Dena Bank (Now Bank of Baroda) v. C. Shivakumar

Reddy and Another

4

, this Court held:-

89. On a careful reading of the provisions of the IBC and in

particular the provisions of Section 7(2) to (5) of the IBC read with

the 2016 Adjudicating Authority Rules there is no bar to the filing

of documents at any time until a final order either admitting or

dismissing the application has been passed.”

50.Section 238A of the IBC provides as follows:-

“238A. The provisions of the Limitation Act, 1963 (36 of

1963) shall, as far as may be, apply to the proceedings or

appeals before the Adjudicating Authority, the National

3 AIR 1953 SC 274

4 (2021) 10 SCC 330

22

Company Law Appellate Tribunal, the Debt Recovery Tribunal

or the Debt Recovery Appellate Tribunal, as the case may be.”

51. It is well settled by a plethora of judgments of this Court as

also different High Courts and, in particular, the judgment of this

Court in B.K. Educational Services (P) Ltd. v. Parag Gupta &

Associates

5

(2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528]

NCLT/NCLAT has the discretion to entertain an application/appeal after

the prescribed period of limitation. The condition precedent for

exercise of such discretion is the existence of sufficient cause for not

preferring the appeal and/or the application within the period

prescribed by limitation.

52. The condition precedent for condonation of the delay in filing an

application or appeal, is the existence of sufficient cause. Whether

the explanation furnished for the delay would constitute “sufficient

cause” or not would be dependent upon facts of each case.

53. Section 5 of the Limitation Act, 1963 does not speak of any

application. The section enables the court to admit an application or

appeal if the applicant or the appellant, as the case may be, satisfies

the court that he had sufficient cause for not making the application

and/or preferring the appeal, within the time prescribed. A

Court/Tribunal may exercise its discretion to condone delay, even in

the absence of a formal application.

5 (2019) 11 SCC 633

23

54.In Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli

Cooperative Bank Ltd.

6

, authored by one of us (Indira Banerjee, J.),

this Court held:-

“64. Similarly under Section 18 of the Limitation Act, an

acknowledgment of present subsisting liability, made in writing in

respect of any right claimed by the opposite party and signed by the

party against whom the right is claimed, has the effect of commencing

of a fresh period of limitation, from the date on which the

acknowledgment is signed. However, the acknowledgment must be

made before the period of limitation expires.

65. As observed above, Section 238-A IBC makes the provisions of the

Limitation Act, as far as may be, applicable to proceedings before NCLT

and Nclat. The IBC does not exclude the application of Sections 6 or 14

or 18 or any other provision of the Limitation Act to proceedings under

the IBC in NCLT/Nclat. All the provisions of the Limitation Act are

applicable to proceedings in NCLT/Nclat, to the extent feasible.

66. We see no reason why Section 14 or 18 of the Limitation Act, 1963

should not apply to proceeding under Section 7 or 9 IBC. Of course,

Section 18 of the Limitation Act is not attracted in this case, since the

impugned order [Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank

Ltd., 2019 SCC OnLine NCLAT 928] of Nclat does not proceed on the

basis of any acknowledgment.

***

89. Legislature has in its wisdom chosen not to make the provisions

of the Limitation Act verbatim applicable to proceedings in

NCLT/NCLAT, but consciously used the words ‘as far as may be’. The

words ‘as far as may be’ are not meant to be otiose. Those words are

to be understood in the sense in which they best harmonise with the

subject matter of the legislation and the object which the Legislature

has in view. The Courts would not give an interpretation to those

words which would frustrate the purposes of making the Limitation

Act applicable to proceedings in the NCLT/NCLAT ‘as far as may be’.

***

92. The use of words ‘as far as may be’, occurring in Section 238A of

the IBC tones down the rigour of the words ‘shall’ in the aforesaid

Section which is normally considered as mandatory. The expression

‘as far as may be’ is indicative of the fact that all or any of the

provisions of the Limitation Act may not apply to proceedings before

the Adjudicating Authority (NCLT) or the Appellate authority (NCLAT)

if they are patently inconsistent with some provisions of the IBC. At

the same time, the words ‘as far as may be’ cannot be construed as a

total exclusion of the requirements of the basic principles of Section

6 (2021) 7 SCC 313

24

14 of the Limitation Act, but permits a wider, more liberal, contextual

and purposive interpretation by necessary modification, which is in

harmony with the principles of the said Section.”

55.There is no specific period of limitation prescribed in the

Limitation Act, 1963, for an application under the IBC, before the

Adjudicating Authority (NCLT). An application for which no period of

limitation is provided anywhere else in the Schedule to the Limitation

Act, is governed by Article 137 of the Schedule to the said Act. Under

Article 137 of the Schedule to the Limitation Act, the period of

limitation prescribed for such an application is three years from the

date of accrual of the right to apply.

56.There can be no dispute with the proposition that the period of

limitation for making an application under Section 7 or 9 of the IBC is

three years from the date of accrual of the right to sue, that is, the

date of default. In Gaurav Hargovindbhai Dave v. Asset

Reconstruction Company (India) Ltd.

7

authored by Nariman, J.

this Court held:-

“6. …...The present case being “an application” which is filed

under Section 7, would fall only within the residuary Article 137.”

57.In B. K. Educational Services Private Limited (supra), this

Court speaking through Nariman, J. held:-

“42. It is thus clear that since the Limitation Act is applicable to

applications filed under Sections 7 and 9 of the Code from the

7 (2019) 10 SCC 572

25

inception of the Code, Article 137 of the Limitation Act gets

attracted. “The right to sue”, therefore, accrues when a default

occurs. If the default has occurred over three years prior to the

date of filing of the application, the application would be barred

under Article 137 of the Limitation Act, save and except in those

cases where, in the facts of the case, Section 5 of the Limitation

Act may be applied to condone the delay in filing such

application.”

58.In Jignesh Shah v. Union of India

8

this Court speaking through

Nariman, J. reiterated the proposition that the period of limitation for

making an application under Section 7 or 9 of the IBC was three years

from the date of accrual of the right to sue, that is, the date of default.

59.In Dena Bank (supra), this Court relied upon the dictum of

P.B. Gajendragadkar, J. in Balakrishna Savalram Pujari

Waghmare v. Shree Dhyaneshwar Maharaj Sansthan

9

, and

held:-

“31. … Section 23 refers not to a continuing right but to a

continuing wrong. It is the very essence of a continuing wrong that

it is an act which creates a continuing source of injury and renders

the doer of the act responsible and liable for the continuance of

the said injury. If the wrongful act causes an injury which is

complete, there is no continuing wrong even though the damage

resulting from the act may continue. If, however, a wrongful act is

of such a character that the injury caused by it itself continues,

then the act constitutes a continuing wrong. In this connection it is

necessary to draw a distinction between the injury caused by the

wrongful act and what may be described as the effect of the said

injury. It is only in regard to acts which can be properly

characterised as continuing wrongs that Section 23 can be

invoked.…”

8 (2019) 10 SCC 750

9 AIR 1959 SC 798

26

60.It is well settled proposition of law, as laid down in the

judgment of this Court in Babulal Vardharji Gurjar v. Veer

Gurjar Aluminium Industries (P) Ltd.

10

, that limitation is

essentially a mixed question of law and facts and when a party

seeks application of any particular provision for extension in

enlargement of the period of limitation, the relevant facts are

required to be pleaded and requisite evidence is required to be

adduced.

61.The judgment in Babulal Vardharji Gurjar (supra) was

rendered in the facts and circumstances of that case where there

were no pleadings at all. As held by this Court in Dena Bank

(supra), an application under Section 7 of the IBC in statutory

form which requires filling in of particulars cannot be judged by

the same standards as a plaint or other pleadings in a court of

law. Additional affidavits filed subsequent to the filing of the

application, by way of additional affidavits or applications would

have to be construed as pleadings, as also the documents

enclosed with or relied upon in the application made in the

statutory format. Furthermore, pleadings can be amended at any

time during the pendency of the proceedings.

62.As per Section 18 of Limitation Act, an acknowledgement of

present subsisting liability, made in writing in respect of any right

10 (2020) 15 SCC 1

27

claimed by the opposite party and signed by the party against whom

the right is claimed, has the effect of commencing a fresh period of

limitation from the date on which the acknowledgement is signed.

Such acknowledgement need not be accompanied by a promise to pay

expressly or even by implication. However, the acknowledgement must

be made before the relevant period of limitation has expired.

63.In Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad

Chamaria and Others

11

, this Court held:-

“6. It is thus clear that acknowledgment as prescribed by Section

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 acknowledgment 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 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 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 Section 19, and there is really no

substantial difference between the parties as to the true legal

position in this matter.”

11 AIR 1961 SC 1236

28

64. It is well settled that even entries in books of accounts and/or

balance sheets of a Corporate Debtor would amount to an

acknowledgment under Section 18 of the Limitation Act. In Asset

Reconstruction Company (India) Limited v. Bishal Jaiswal and

Anr.

12

(supra) authored by Nariman, J. this Court quoted with approval

the judgments, inter alia, of Bengal Silk Mills Co. v. Ismail Golam

Hossain Arif,

13

and in Re Pandem Tea Co.

14

Ltd., the judgment of

the Delhi High Court in South Asia Industries (P) Ltd. v. General

Krishna Shamsher Jung Bahadur Rana

15

and the judgment of

Karnataka High Court in Hegde Golay Ltd. v. State Bank of India

16

and held that an acknowledgement of liability that is made in a

balance sheet can amount to an acknowledgement of debt. In this

Case, the Appellant Financial Creditor has not relied on any books of

accounts or Balance Sheets of the Corporate Debtor.

65. Section 18 of the Limitation Act speaks of an acknowledgment in

writing of liability, signed by the party against whom such property or

right is claimed. Even if the writing containing the acknowledgment is

undated, evidence might be given of the time when it was signed. The

explanation clarifies that an acknowledgment may be sufficient even

though it is accompanied by refusal to pay, deliver, perform or permit

to enjoy or is coupled with claim to set off, or is addressed to a person

12 AIR 2021 SC 5249

13 AIR 1962 Cal 115

14 AIR 1974 Cal 170

15 ILR (1972) 2 Del 712

16 ILR 1987 Kar 2673

29

other than a person entitled to the property or right. “Signed” is to be

construed to mean signed personally or by an authorised agent.

66.An acknowledgement made in writing within the period of

limitation extends the period of limitation. In this case, there was no

acknowledgement of debt within three years from the period on which

the account of the Corporate Debtor was declared NPA or within three

years from the date on which the loan facilities were recalled.

67.The Adjudicating Authority proceeded on the basis that the offer

of settlement made by the Corporate Debtor on 12

th

December 2018

and rejection thereof by the appellate showed the Corporate Debtor

had conceded that there was a continuous cause of action. It is,

however, the case of the Appellant Financial Creditor in this appeal

that terms of settlement were executed on 20th December 2018

whereby the Corporate Debtor agreed to repay the amount of

Rs.24,55,00,000/- within 31

st

December 2018. The Adjudicating

Authority, however, did not refer to any settlement. Nor did it address

the question of whether any agreement for repayment of debt came

into existence in December 2018 and, if so, whether the agreement

would attract Section 25(3) of the Contract Act.

68.The Appellate Tribunal (NCLAT) found that there was no

acknowledgement of debt within the period of limitation of three years.

Holding the application of the Appellant Financial Creditor, under

Section 7 of the IBC, to be barred by limitation, the Appellate Authority

(NCLAT) allowed the appeal.

30

69.The Appellate Tribunal (NCLAT) also did not notice the terms of

settlement stated to have been executed on 20

th

December 2018,

possibly because the attention of the NCLAT was not drawn to any

terms of the settlement. The Appellate Tribunal (NCLAT) did not,

therefore, have the occasion to consider whether Section 25(3) of the

Contract Act would be attracted. The Appellate Tribunal (NCLAT), as

observed above, proceeded on the basis that the CIRP proceedings

were barred by limitation in the absence of any acknowledgement of

debt within the period of limitation, and closed the CIRP proceedings in

the NCLT, without considering the question of applicability of Section 5

of the Limitation Act for condonation of delay, to proceedings under

Section 7 of the IBC.

70.This Court is of the view that the Appellate Tribunal (NCLAT erred

in closing the CIRP proceedings without giving the Appellant Financial

Creditor the opportunity to explain if there was sufficient cause for the

delay in approaching the NCLT. An appeal being the continuation of

original proceedings, the provision of Section 7(5)(b) of the IBC, of

notifying the Financial Creditor before rejection of a claim, would be

attracted. If notified of the proposal to close the proceedings, the

Appellant Financial Creditor might have got the opportunity to rectify

the defects in its application under Section 7 by filing additional

pleadings and/or documents. As held in Dena Bank (supra),

documents can be filed at any time until the application for CIRP is

finally dismissed.

31

71.The appeal is, therefore, allowed. The impugned judgment and

order of the NCLAT is set aside to the extent that the CIRP proceedings

have been closed. The Adjudicating Authority shall consider the

application for CIRP afresh, in accordance with law, in the light of the

observations made above, after giving the Appellant and the

Respondent opportunity to file additional affidavits disclosing

documents/additional affidavit in response.

….……………………………………. J.

[INDIRA BANERJEE]

………..……………………………… J.

[J.K. MAHESHWARI]

NEW DELHI;

AUGUST 05, 2021

32