Asset Reconstruction Company (India) Ltd v. Tulip Star Hotels Ltd & Ors

Supreme Court of India | Judgment dated August 01, 2022 | Civil Appeal Nos. 84-85 of 2020

Background facts

  • V. Hotels Ltd (Corporate Debtor) had executed a Loan Agreement in March 2002 with a consortium of banks consisting of Bank of India, Punjab National Bank, Union Bank of India, Vijaya Bank, Canara Bank and Indian Bank, led by Bank of India (Consortium), pursuant to which, a loan of INR 1,29,00,00,000 was sanctioned collectively by the Consortium to the Corporate Debtor.
  • Thereafter, the Corporate Debtor entered into an agreement with Abu Dhabi Commercial Bank (ADCB) under which ADCB agreed to advance USD 29,000,000 to the Corporate Debtor for repayment of the loan taken from the Consortium. However, between August and December 2003, the Corporate Debtor repaid the sum disbursed by Bank of India under the Loan Agreement from the funds disbursed to the Corporate Debtor by ADCB.
  • Around August 2008, a bank guarantee issued by Bank of India in favour of ADCB on behalf of the Corporate Debtor, was invoked by ADCB and an amount of INR 24,49,59,208 was paid by Bank of India to ADCB under the bank guarantee. On December 01, 2008, the account of Corporate Debtor was classified as a Non-Performing Asset by Bank of India (NPA) and on December 31, 2008, an Assignment Agreement was executed by Bank of India assigning its receivables to Asset Reconstruction Company (India) Ltd (Appellant).
  • Vide a letter dated February 07, 2011, the Corporate Debtor proposed a settlement to the Appellant followed by a revised proposal on February 10, 2011. Subsequently, the parties entered into a Settlement Agreement on February 28, 2011, wherein it was agreed that the Corporate Debtor would pay the settlement amount of INR 1,50,75,83,970 along with accrued interest at 22% p.a at monthly rests from July 01, 2010 till September 30, 2011.
  • Due to its inability to mobilize funds, the Corporate Debtor continuously requested for extension of time to pay its outstanding dues while simultaneously acknowledging its outstanding liability. The said requests were acceded to by the Appellant. Ultimately, the Appellant revoked the Settlement Agreement on June 17, 2013, in terms of the default obligations set out in the Settlement Agreement. Pursuant thereto, the Corporate Debtor vide its letter dated July 01, 2013, acknowledged its obligation to repay the aggregate assigned debt inclusive of interest.
  • Due to non-payment of outstanding dues, the Appellant issued a notice under Section 13(2) of SARFAESI Act to the Corporate Debtor enforcing its security interests and a possession notice under Section 13(4) of the SARFAESI Act was also issued. The Appellant then invoked the personal guarantee of Mr. Ajit Kerkar, Managing Director of the Corporate Debtor, on May 06, 2014. It is to be noted that the Corporate Debtor also acknowledged its liabilities towards the Appellant in its financial statements from 2008-09 to 2016-17.
  • On April 03, 2018, the Appellant filed an Application under Section 7(2) of the IBC before the NCLT for initiation of CIRP against the Corporate Debtor. Thereafter, the Corporate Debtor filed a Miscellaneous Application before the NCLT seeking dismissal of the Appellant's Application. Vide Order dated May 01, 2019, NCLT dismissed the said Miscellaneous Application and vide Order dated May 31, 2019, NCLT admitted the Appellant's Application and appointed Mr. Anish Nanavaty as the IRP, who was later confirmed by the CoC as the RP of the Corporate Debtor.
  • Aggrieved by the Order dated May 01, 2019, the Corporate Debtor filed an Appeal before NCLAT. Whereas the shareholders of the Corporate Debtor namely, Tulip Star Hotels Ltd and Tulip Hotels Pvt Ltd (Respondents) filed an Appeal before NCLAT against the Order dated May 31, 2019.
  • Vide a common Judgement and final Order dated December 11, 2019 (Impugned Judgment), NCLAT allowed both the appeals and held that CIRP initiated by the Appellant against the Corporate Debtor was barred by limitation.
  • Aggrieved by the Impugned Judgment passed by the NCLAT, the Appellant filed an Appeal before the SC.

Issues at hand?

  • Whether entries in books of accounts/balance sheet of Corporate Debtor can be treated as acknowledgement of liability of debt payable to Financial Creditor?
  • Whether the Application under Section 7 of IBC was barred by limitation?

Decision of the Court

  • The SC allowed the Appeal filed by the Appellant and held that the entries in books of account/balance sheet of a company can be treated as acknowledgement of liability in respect of debt payable to a Financial Creditor.
  • While arriving at this decision, SC carefully examined relevant provisions pertaining to Financial Creditors under the IBC and highlighted the importance of such provisions to be liberally construed.
  • With respect to the issue of limitation, SC relied on its decision in the matter titled Sesh Nath Singh & Anr v. Baidyabati Sheoraphuli Cooperative Bank Ltd1 , wherein it was held that the words 'as far as may be' used in Section 238A of IBC mean that the provisions of the Limitation Act, 1963 does not apply verbatim to the proceedings in NCLT/NCLAT. SC clarified 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, i.e., the date of default.
  • Considering the averments regarding default/acknowledgment and upon placing reliance on a plethora of judgments, SC observed that even if Section 18 of the Limitation Act, 1963 and principles thereof were applicable, the same would not apply to the Application under consideration. In this regard, SC placed reliance on the Sesh Nath Singh judgment and Laxmi Pat Surana v. Union Bank of India2 , wherein it was held that there was no reason to exclude the effect of Section 18 of the Limitation Act, 1963 to proceedings initiated under the IBC.
  • SC analysed Section 18 of the Limitation Act, 1963 which provides that an acknowledgement of liability in writing has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. SC relied upon the decisions in Asset Reconstruction Company (India) Ltd v. Bishal Jaiswal & Anr3 , Bengal Silk Mills Co v. Ismail Golam Hossain Ariff4 , South Asia Industries (P) Ltd v. General Krishna Shamsher Jung Bahadur Rana5 , amongst others, wherein it was held that an acknowledgement of liability that is made in a balance sheet can amount to an acknowledgement of debt.
  • Further, by placing reliance upon Jignesh Shah & Anr v. Union of India 6 and Dena Bank (Now Bank of Baroda) v. C Shivakumar Reddy & Anr7 , SC opined that an application under Section 7 of IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years.
  • Accordingly, SC noted that since the Corporate Debtor acknowledged its liability and proposed a settlement vide its letter dated February 07, 2011 and subsequently in its communications and balance sheets, and the application under Section 7 of IBC was filed on April 03, 2018, the same falls within the extended period of limitation of three years.

HSA Viewpoint

This judgment clarifies the issue on the applicability of Limitation Act, 1963 on IBC proceedings. SC has reiterated and reimposed the largely settled proposition as held in Bishal Jaiswal judgment, where the entries in a balance sheet were held to be an acknowledgement of liability. It elucidates that the creditors, who were earlier prevented from initiating IBC proceedings despite their debts being acknowledged in the balance sheet of the corporate debtor, are now allowed to initiate proceedings under IBC by relying upon Section 18 of Limitation Act, 1963.


1 2021 SCC Online SC 244

2 (2021) 8 SCC 481

3 (2021) 6 SCC 366

4 SCC OnLine Cal 128

5 ILR (1972) 2 Del 712

6 (2019) 10 SCC 750

7 (2021) 10 SCC 330

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