The Hon'ble NCLAT, Principal Bench, New Delhi has recently held that Consent Terms filed before Debt Recovery Tribunals can be taken into consideration for calculating period of limitation for filing Applications under Section 7 of the IBC.

The observation came while hearing the Company Appeal filed by Edelweiss Asset Reconstruction Company Limited challenging the Order dated 10.08.2021 passed by the Learned NCLT, Mumbai Bench in which the application to initiate Corporate Insolvency Resolution Process against M/s. Perfect Engine Components Pvt. Ltd. was dismissed on the ground of being barred by limitation and non-occurrence of default.

Brief Facts:

The Brief facts of the case are that the Corporate Debtor took loan from State Bank of India and ultimately its accounts were declared NPA in 2009. Thereafter, in year 2014, SBI assigned the debt portfolio of the Corporate Debtor to the Financial Creditor i.e. Edelweiss Asset Reconstruction Company which in turn sanctioned a Restructuring Package. The Financial Creditor revoked the Restructuring Package and initiated SARFAESI proceedings against the assets of the Corporate Debtor. Thereafter, the Corporate Debtor, requested the Financial Creditor for rescheduling of the repayment terms. However, in the meantime, the Hon'ble Debt Recovery Tribunal, Pune decreed the O.A. No. 01 of 2014 filed by Financial Creditor.

While things stood thus, the Financial Creditor acceded to the requests of the Corporate Debtor and approved fresh restructuring of the debt of three companies in June, 2017. In July, 2017, the Hon'ble Debt Recovery Tribunal, Pune issued a Recovery Certificate. In this backdrop, both the parties filed Consent Terms before Hon'ble Debt Recovery Tribunal regarding the restructuring arrangement. Subsequently, in June 2018, the Financial Creditor revoked the restructuring arrangement and initiated SARFAESI proceedings once again. Subsequently, the Financial Creditor approached the Hon'ble NCLT, Mumbai for initiation of CIRP against the Corporate Debtor. The Corporate Debtor had acknowledged its liability in the Balance Sheets for Financial Year 2014–15, 2015–16, 2016–17, 2017–18 & 2018–19 and also various correspondence exchanged between the parties. However, the Hon'ble NCLT, Mumbai ultimately rejected the application of Financial Creditor holding that there was no "default" on the part of Corporate Debtor and further the Application was also "barred by limitation". Impugning the said Order, the Financial Creditor approached the Hon'ble NCLAT, Principal Bench, New Delhi.

Contention of the Parties

The Learned Counsel for Appellant submitted that the liability was acknowledged through Restructuring Letters, Request Letters and also in the Balance Sheets, hence despite the date of NPA the acknowledgement Letters should be taken into consideration. The Counsel also submitted that the Consent Terms amounted to 'acknowledgement of liability' as they were signed by the Director of the Corporate Debtor. The Counsel also addressed the question of 'default' by relying upon the Letters exchanged between the parties. The Counsel further relied upon the decisions of Hon'ble Supreme Court in the matter of Sesh Nath Singh & Anr.' Vs. 'Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr and Dena Bank (now Bank of Baroda)' Vs. 'C. Shivakumar Reddy & Anr.

The Learned Counsel for Respondents on the other hand argued that the Corporate Debtor has done all the compliances under second Restructuring package. He also argued that the 'letter of acknowledgements' relied upon by the Appellant could not be relied upon as they were not signed within three years from the date of declaration of NPA. The Ld. Counsel further pleaded that the Decree and Recovery Certificate were obtained in contravention to the Restructuring Package. The Counsel relied upon the various decisions of Hon'ble Supreme Court in the matters of Indus Biotech Private Limited' Vs. 'Kotak India Venture (Offshore) Funds and Reliance Asset Reconstruction Co. Ltd.' Vs. 'Hotel Pooja International (P) Ltd. among others.


The Hon'ble NCLAT reiterated that the issue of Limitation is to be decided on the touchstone of the ratio of the Hon'ble Apex Court in Dena Bank (now Bank of Baroda) Vs. 'C. Shivakumar Reddy & Anr. wherein the Hon'ble Apex Court has clearly laid down that Judgment/decree for money or Certificate of Recovery or Arbitral Award in favor of the 'Financial Creditor', constitutes an 'acknowledgement of debt' and gives rise to a fresh cause of action, provided it is within three years of the default.

The Hon'ble NCLAT further relied upon the decision of Hon'ble Apex Court in the matter of 'Laxmi Pat Surana' Vs. 'Union Bank of India & Anr and observed that:

"In the aforenoted Judgement, the Hon'ble Apex Court has clearly laid down the principle that the 'date of default' does not mean a strict interpretation that it has to be the 'date of NPA' in fact, the 'date of default' defined under Section 3(12) of the Code is to mean 'non-payment of a debt which has become 'due and payable' whether in whole or any part and is not paid by the Corporate Debtor. It is an admitted fact in the instant case that there were some Consent Terms entered into between 'Edelweiss' and the 'Corporate Debtor' in Transfer Original Application No.560/2016 filed before the DRT-I, Mumbai, which is signed by Mr. Amrish Vijay Shah the Director of the 'Corporate Debtor'. It is clearly stated in this Consent Terms in the default Clause that in case of non-compliance of any of the Terms stated in the Restructuring Letter that all liabilities as per the Original Application No.560/2016 shall be restored. It is also an admitted fact that the second Restructuring was cancelled vide Letter dated 01.06.2018 and the Reply by the 'Corporate Debtor' dated 14.06.2018 in paras (d) & (e) has admitted that they could not get the Working Capital Limits sanctioned and for various other reasons mentioned in the paras (d) & (e) the terms of the Restructuring Package could not be adhered to. This construes an 'acknowledgement of debt and default' and signed by the CEO of Mr. Amrish Shah of the Corporate Debtor."

The Hon'ble NCLAT further reiterated that the Balance Sheets could be relied upon as an 'acknowledgement of liability' and allowed the appeal with a direction to Hon'ble NCLT, Mumbai to proceed in accordance with law.

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