Recently, the National Company Law Appellate Tribunal (NCLAT), in Jagdish Prasad Sarada v. Allahabad Bank 2020 SCC OnLine NCLAT 621,1 has allowed the appeal filed by the Managing Director of the Corporate Debtor and set aside the order of admission passed by the NCLT, Hyderabad by holding that the insolvency petition filed by the financial creditor under Section 7 of the Code was barred by limitation.
Brief facts are that the Appellant was granted the cash credit facility of Rs. 20 Crore, Term Loan of Rs. 14 crore and Letter of Credit of Rs. 65 Crores by way of a Common Sanction Letter dated 31.05.2012. Appellant became irregular in repayment and consequently the account was declared NPA on 30.09.2015. The bank initiated SARFAESI action and it further realized Rs. 49,50,000/- on 19.02.2016 by way of cash as reflected in the ledger of Corporate Debtor maintained with the Bank.
It was contended on behalf of the Bank that by operation of Section 19 of the Limitation Act, 1963 read with Article 137 of the Schedule to the said Act, a fresh period of limitation of 3 years commenced from 19.02.2016 when a part of the debt/interest was repaid. The Respondent Bank had also averred that they have filed under Section 7 Application of I&B Code, 2016 on 31.12.2018 which is within 3 years from 19.02.2016. In support, the bank had relied upon Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd., (2019) 10 SCC 572, Ishrat Ali v. Cosmos Cooperative Bank Ltd (Company Appeal (AT) (Ins) No. 1121 of 2019) (NCLAT) and Kamla Devi v. Pt. Mani Lal Tiwari, (1976) 4 SCC 818.
On the other hand, the Appellant had averred that even after the alleged payment of 19.02.2016 made by them the account of the Corporate Debtor remained to be an NPA and was not regularized by the Respondent Bank and date of default continued to be mentioned as the date of NPA.
The NCLAT, while referring to decisions of the Supreme Court in B.K. Educational Services Pvt. Ltd v. Parag Gupta and Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd, observed that the limitation period commences from the date of default and is extendable only by application of Section 5 of Limitation Act, 1963 if any case for condonation of delay is made out. The relevant observations of the NCLAT are given below:
"10. The Hon'ble Supreme Court has already observed in Civil Appeal No. 439, 436, 3137, 4979, 5819 & 7289 of 2018 in B.K. Educational Services Pvt. Ltd v. Parag Gupta and Associates dated 11.10.2019 that the limitation period for application under section 7 of the Code is 3 years as provided by Article 137 of the Limitation Act, 1963 which commences from the date of default and is extendable only by application of section 5 of Limitation Act, 1963 if any case for condonation of delay is made out. The view taken by the Hon'ble Apex Court in 'B.K. Educational Services Private Limited v. Parag Gupta and Associates' that the limitation period for application under Section 7 of the I&B Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of The Limitation Act, 1963 if any case for condonation of delay is carved out, has again been reiterated in the latest pronouncement of Hon'ble Apex Court in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. (Civil Appeal No. 6347 of 2019) decided on 14th August, 2020. It is therefore manifestly clear that date of default will be the date of declaration of account as NPA and such date of default would not shift.
11. We are of the firm view that the determining factor is the three years period from date of default/NPA. This Appellate Tribunal has also observed in Rajendra Kumar Tekriwal v. Bank of Baroda in Company Appeal(AT) (Ins) No. 225 of 2020 dated 13.08.2020 that the period of three years from the date of the Account of Corporate Debtor is classified as NPA then it becomes impermissible to proceed with Section 7 Application as observed in the para 11 of the Judgment.
12. All these leads to reiterate that the provisions of The Limitation Act, 1963 vide Section 238A of the I&B Code, 2016 will be applicable to all NPA cases provided they meet the criteria of Article 137 of the Schedule to The Limitation Act, 1963. The extension for the period of Limitation can only be done by way of application of Section 5 of The Limitation Act, 1963, if any case for the condonation of delay is made out."
While allowing the appeal, the orders passed by the Adjudicating Authority (NCLT) appointing IRP/RP, declaring moratorium, freezing of account etc. and all consequential action taken by IRP/RP including advertisement publication etc. all such orders and actions were declared illegal and set aside.
The case can be viewed from two perspectives. First, it affirms the date of declaration of account as NPA by the banks as the date of default for the purpose of calculating the period of limitation. Second, it does not allow the financial creditor the benefit of part-payment under Section 19 of the Limitation Act due to non-filing of an application for condonation of delay under Section 5 of the Limitation Act. This interpretation seems unjust especially when other creditors can claim benefit of Section 19 of the Limitation Act (in case of part-payment made by the debtor) for the purpose of calculating the period of limitation. Merely because an account is declared NPA, should the financial creditor/bank not be entitled to avail the benefit under Section 19 if there is a part-payment by the borrower post such NPA declaration? Would an application under Section 5 of the Limitation Act for condoning delay be needed in such a case? As the law evolves, we hope to see the Courts giving a clearer picture on the issue.
1 Company Appeal (AT) (Insolvency) No. 183 of 2020, Decided on August 28, 2020.
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