The National Company Law Appellate Tribunal, Chennai Bench ("NCLAT") on May 12, 2021, in the case of Lakshmi Narayan Sharma (“Appellant”) v. Punjab National Bank (“Respondents”), decided whether balance and security confirmation letters, issued by the corporate debtor and its guarantors, after the date of recall of facility as well as date of declaration of the facility as Non-Performing Asset ("NPA"), would serve as valid acknowledgment of debt under Section 18 of the Limitation Act, 1963 ("the Act") and thereby extend the period of limitation for the financial creditor to file an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("the Code"). .
The Appellant is the promoter/ member of suspended board of directors of Saptarishi Hotels Private Limited ("Corporate Debtor"), which was admitted into corporate insolvency resolution process ("CIRP") under the provisions of the Code on an application preferred by Punjab National Bank ("Financial Creditor"), vide impugned order dated February 18, 2021 passed by the National Company Law Tribunal, Hyderabad Bench (“NCLT”). The Corporate Debtor had been sanctioned certain facilities by the Respondent Banks, which the Corporate Debtor failed to make repayment of as per applicable terms and conditions. In the application under Section 7 of the Code preferred before the NCLT by the Financial Creditor, the 'date of default' in Part-IV of the application was mentioned as March 30, 2016. Further, the facility was declared NPA by the Respondents on June 30, 2016. The application was filed on July 18, 2019, by the Financial Creditor, which was admitted by the NCLT, as stated hereinabove.
Appellant’s submissions/ contentions:
The Appellant contended that if the period of limitation is computed from 'date of default' as mentioned in the application, the same ought to have expired on March 29 2019. Even if the period of limitation is computed as 3 (three) years from the date of declaration of NPA, the same ought to have expired on June 29, 2019. The application was only filed on July 18, 2019, i.e. well beyond the period of limitation and therefore ought to have been rejected by the NCLT.
The Appellant relied upon the Supreme Court's decision in the case of Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited, [(2020) SCCOnline SC 647], to contend that the period of limitation to file a Section 7 application is governed by Article 137 of the Act, and runs from the date of default and is only extendable by an application under Section 5 of the Act. The Appellant contended that the impugned order is a nullity as the NCLT failed to appropriately settle the question of limitation therein.
Respondent’s submissions/ contentions:
The Respondents contended that the Appellant had not filed two vital documents, viz. 'Balance and Security Confirmation Letter' dated February 20, 2018 executed by the Corporate Debtor and 'Balance Security Confirmation Letter' dated February 20, 2018, signed by the guarantors to the Corporate Debtor, in favour of the Financial Creditor. Further, the Respondent submitted that, an amount of Rs.15,262.75/- had been paid to the loan account by the Corporate Debtor on October 15, 2018. The Respondents also submitted that execution of the aforementioned balance and security confirmation letters and subsequent part-payment amounts to 'acknowledgment of debt', within the meaning of Sections 18 and 19 of the Act, and thus the application under Section 7 of the Code was filed well within the limitation period.
The Respondent relied on the judgment of the NCLAT in Yogeshkumar Jashwantlal Thakkar v. Indian Overseas Bank, [2020 SCCOnline NCLAT 636], wherein the NCLAT had held that the date of default in that case was extended by the debit confirmation letters secured by the respondent-bank from the corporate debtor. It was also pointed out that the Supreme Court, in its judgment dated April 15, 2021 in Asset Reconstruction Company (India) Limited v. Bishal Jaiswal, [2021 SCC OnLine SC 321], had set aside the Full Bench judgments of the NCLAT in V. Padmakumar v. Stressed Assets Stabilisation Fund, [Company Appeal (AT) (Insolvency) No. 57 of 2020, decided on March 12, 2020] and Bishal Jaiswal v. Asset Reconstruction Company (India) Limited, [Company Appeal (AT) (Insolvency) No. 386 of 2020, decided on October 22, 2020], wherein it had been held that the period of limitation for filing an application under Section 7 of the Code is 3 (three) years from the date of default/ declaration of NPA and the same is not extended by subsequent acknowledgments by the corporate debtor.
Findings of the Tribunal:
The NCLAT dismissed the appeal on the following grounds:
Please find attached a copy of the judgment.
This update has been contributed by Soorjya Ganguli, Equity Partner and Somdutta Bhattacharyya, Principal Associate.
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