Case Analysis: Dena Bank vs. C. Shivakumar Reddy
Updated: Aug 10, 2021
FORUM: Supreme Court of India.
CASE DETAILS: Dena Bank (Now Bank of Baroda) vs. C. Shivakumar Reddy; Civil Appeal No. 1650 OF 2020.
CORAM: Justices Indira Banerjee and V. Ramsubramanian.
DATE OF DECISION: 4th August 2021.
The instant case was filed as an appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016. The appeal was filed against the judgment passed by the National Company Law Appellate Tribunal (NCLAT) wherein the NCLAT held that the Petition of the Appellant Bank under Section 7 of the IBC, was barred by limitation. The verdict passed by the Hon'ble Supreme Court goes on to resolve issues regarding what can and cannot be accepted as an acknowledgment of debt by the Corporate Debtor, the period of limitation, and whether belated filing of additional documents be done at a later stage under IBC.
In 2011, the Appellant Bank had sanctioned a Term Loan and Letter of Credit Cum Buyers’ Credit in favour of the Corporate Debtor. Subsequently, the Loan Account of the Corporate Debtor was declared as Non-Performing Asset (NPA) because the Corporate Debtor defaulted in repayment of its dues to the Appellant Bank. Requests for restructuring of the term loan was made by the Corporate Debtor but weren’t accepted by the Appellant Bank.
Thus, in December 2014, the Appellant Bank issued a legal notice to the Respondents calling upon them to make payment of Rs. 52.12 crores, claimed to be due from the Corporate Debtor as on 22nd December 2014. The Corporate Debtor did not make the said payment.
Further, the Appellant Bank filed an application under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 before the Debt Recovery Tribunal, Bangalore for the recovery of its outstanding dues from the Corporate Debtor.
The Debt Recovery Tribunal passed the final judgment against the Corporate Debtor for recovery of Rs.52,12,49,438.60 with future interest at the rate of 16.55% per annum, from the date of filing the application till the date of realization. The DRT also issued a Recovery Certificate in favour of the Appellant Bank.
In October 2018, the Appellant Bank filed the Petition before the Adjudicating Authority (NCLT) under Section 7 of the IBC. Further, in 2019 the Appellant Bank filed an application under Rule 11 of the NCLT Rules, 2016 read with Rule 4 of the said rules for permission to place on record the final judgment of the DRT and the Recovery Certificate that was issued, and this application was allowed by the Adjudicating Authority. In March 2019, a similar application was filed again this time to take permission to place on record additional documents, including the letter dated 03.03.2017 of the Corporate Debtor to the Appellant Bank proposing a One Time Settlement, the Annual Report of the Corporate Debtor for the years 2016-2017, the Financial Statement of the Corporate Debtor for the period from 1st April 2016 to 31st March 2017 and the Financial Statement of the Corporate Debtor, for the period from 1st April 2017 to 31st March 2018, and this application was allowed too.
Further in February 2019, the Corporate Debtor filed its preliminary objections to the Petition filed by the Appellant Bank under Section 7 of the IBC, inter alia, contending that the said Petition was barred by limitation. This objection was rejected by the Adjudicating Authority, and the petition filed by the appellant bank was allowed and an Interim Resolution Professional was appointed in March 2019. Against the said order passed by the Adjudicating Authority, the Corporate Debtor filed an appeal before the NCLAT under Section 61 of the IBC. The NCLAT allowed the appeal and set aside the earlier judgment passed by the NCLT stating that the petition filed by the Appellant Bank under Section 7 of the IBC was barred by limitation.
Following three issues were carved out by the Court in the instant appeal -
Whether a Petition under Section 7 of the IBC would be barred by limitation, on the sole ground that it had been filed beyond a period of 3 years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the Appellant Bank, within a period of three years prior to the date of filing of the Petition under Section 7 of the IBC, by making a proposal for a One Time Settlement, or by acknowledging the debt in its statutory Balance Sheets and Books of Accounts.
Whether a final judgment and decree of the DRT in favour of the Financial Creditor, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action to the Financial Creditor to initiate proceedings under Section 7 of the IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the Certificate of Recovery.
Whether there is any bar in law to the amendment of pleadings, in a Petition under Section 7 of the IBC, or to the filing of additional documents, apart from those filed initially, along with the Petition under Section 7 of the IBC in Form-1.
1. It was contended that the Corporate Debtor had, in its Annual Reports for the financial years 2016-2017 and 2017-2018, acknowledged its liability in respect of the loan taken by it from the Appellant Bank.
2. That NCLAT reversed the initial judgment of the Adjudicating Authority and held that the petition was barred by limitation on the basis of the fact that there was nothing on record that suggested that the Corporate Debtor had acknowledged its debt to the Appellant Bank, thereby ignoring the documents filed by the Appellant Bank which were allowed by the Adjudicating Authority.
3. Petition under Section 7 of the IBC was filed well within three years from the date of such acknowledgment.
4. Further, placing reliance on Sesh Nath Singh and Anr. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. And Ors., Laxmi Pat Surana v. Union Bank of India and Ors. and Asset Reconstruction Company (India) Limited. v. Bishal Jaiswal and Ors. it was argued that Section 18 of the Limitation Act applied to proceedings under the IBC.
1. That under the scheme of the IBC, NCLAT is the final forum for determination of facts and the factual determination by the NCLAT is that records reveal no acknowledgment of debt for the purpose of extending limitation. Since, this appeal has been filed on the basis of documents that were brought on record before the Adjudicating Authority (NCLT) at a belated stage, thus, in a manner contrary to the provisions of IBC and the law laid down by this court.
2. That Appellant Bank filed its Petition under Section 7 of the IBC on 12th October 2018, about five years after the date of default, and was thus well beyond the period of limitation of three years, under Article 137 of the Schedule to the Limitation Act.
3. That under Section 7(3) of the IBC, a Financial creditor is required to furnish “record of the default recorded with the information utility or record of evidence of default as may be specified” and “any other information as may be specified by the Board”.
4. That as per Section 7(4) of the IBC, the NCLT was required to “ascertain the existence of default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3)” within “fourteen days of the receipt of the application” and that under Section 7(5) of the IBC, it was open to the NCLT to allow seven days to the financial creditor to rectify any defect in its application but the Adjudicating Authority (NCLT), instead of proceeding in the manner expressly stipulated in the IBC and without adhering to the "timelines" stipulated therein, delayed the adjudication of the question of admissibility of the petition under Section 7 of the IBC by four months and allowed the Appellant Bank to introduce documents at a belated stage and these documents were considered by the NCLT despite vehement objections by the Respondents.
6. Section 62 of the IBC, under which the instant appeal has been filed, is restricted to questions of law, unlike an appeal to the NCLAT from an order of the Adjudicating Authority (NCLT), which is an appeal both on facts and in law.
7. Further it was contended that the foundation for a plea of extension of limitation by virtue of acknowledgment of debt should be in the pleadings and cannot be developed at a later stage.
8. Lastly, that the Petition under Section 7 of the IBC was not based on the Recovery Certificate issued by the DRT or the judgment and order of the DRT. Therefore, there could be no question of reckoning limitation from the date of failure to make payment in terms of the Recovery Certificate.
The court made the following observations-
1. An application to the Adjudicating Authority (NCLT) under Section 7 of the IBC in the prescribed form, cannot be compared with the plaint in a suit.
2. 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.
3. 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.
4. 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.
5. There is no penalty prescribed for inability to cure the defects in an application within seven days from the date of receipt of notice, and in an appropriate case, the Adjudicating Authority may accept the cured application, even after expiry of seven days, for the ends of justice.
1. The Court while placing reliance on Asset Reconstruction Company (India) Limited v. Bishal Jaiswal and Anr., Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff and Re Pandem Tea Co. Ltd. held that an acknowledgment of liability that is made in a balance sheet can amount to an acknowledgment of debt. Thus, 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. Such acknowledgment need not be accompanied by a promise to pay expressly or even by implication as long as the acknowledgment is made within the period of limitation.
2. Referring to observations made in Ferro Alloys Corporation Limited v. Rajhans Steel Limited, the Court held that order/decree of the DRT and the Recovery Certificate gave a fresh cause of action to the Appellant Bank to initiate a petition under Section 7 of the IBC.
3. Further the Court also held that an offer of One Time Settlement of a live claim, made within the period of limitation, can be construed as an acknowledgment to attract Section 18 of the Limitation Act.
4. Lastly, the court held that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with the application under Section 7 of the IBC in Form-1. In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents. Needless however, to mention that depending on the facts and circumstances of the case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.
 AIR 2021 SC 2637.
 AIR 2021 SC 1707.
 2021 SCC Online SC 321.
 (2019) 4 SCC 17.
 Supra at 3.
 AIR 1974 Cal 170.
 (1999) SCC Online Pat 1196.
Author: Ayushi Srivastava, Paralegal, S&D Legal Associates.