Delhi NCLAT Dismisses SBI Application states 'Right to sue under IBC Occurs Only When Default Occurs'

Delhi NCLAT Dismisses SBI Application states 'Right to sue under IBC Occurs Only When Default Occurs'

The New Delhi, National Company Law Appellate Tribunal on 14th October, 2020 bench comprising of three judges, Hon'ble Justice Venugopal M. Member (Judicial), V.P. Singh Member (Technical), Dr. Alok Srivastava Member (Technical) dismissed the application filed by State Bank of India against the M/s. Metal Closures Pvt Ltd under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2006) and releasing the Appellant 'Corporate Debtor' from all the rigours of 'Moratorium'.

The appeal emanates from an Impugned Order dated 14th December 2018 passed by the Adjudicating Authority/National Company Law Company Tribunal, Bengaluru Bench, Bengaluru in a Company Petition, whereby the Adjudicating Authority had admitted the Application filed under Section 7 of the IBC, 2006.

The State Bank of India, Assets Management Branch, Bangalore(Respondent No.1) on behalf of Consortium Banks filed an Application under Section 7 of the IBC, 2006 for initiation of Corporate Insolvency Resolution Process (CIRP) against M/s. Metal Closures Pvt Ltd ('Corporate Debtor'), having admitted the application by the NCLT, Bengaluru on 14th December 2018, it was now challenged by the ex-director of the Corporate Debtor at Delhi NCLAT.

The Corporate Debtor stated that the State Bank of India (SBI) granted various credit facilities to the 'Corporate Debtor' since 2007. Subsequently, the Corporation Bank started giving credit facilities to the Corporate Debtor since 14thAugust 2009.

On 31st January 2010, the account of the Corporate Debtor was classified as a 'Non-Performing Asset' ('NPA') by State Bank of India. However, it was restructured. The Appellant further contended that, SBI had issued a notice under Section 13(2) of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARAFAESI Act') on 12th August 2014, calling upon the 'Corporate Debtor' to repay a sum of Rs.71,27,47,889/-. The Corporation Bank also declared the account of the 'Corporate Debtor' as 'Non-Performing Asset' on 10th October 2014.

The Appellant submitted that the initiation of the CIRP was fraudulent, malicious and not intended for any resolution. It was meant to act as a process for recovery of the alleged dues of the Financial Creditor and defeat the Cost and Compensation claim under Section 19 of the SARFAESI Act and damages under Section 19(8) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act) which together was higher than alleged due to Banks. However, the Bank ultimately moved an Application under Section 7 of the IBC, which was admitted by the Adjudicating Authority.

The NCLAT, Delhi bench after examining the facts of the case and recorded that the Application submitted in 'Form-1' shows the total outstanding as on 14th December, 2017 was Rs 282,02,71,568.08 (Rupees Two Hundred Eighty-Two Crores Two Lakhs Seventy-One Thousand Five Hundred Sixty-Eight and Eight Paisa only).

The date of 'Default' was not mentioned in Form-1. The period of Limitation for Section 7 or 9 and Applications under the IBC, 2016 would be governed by Article 137 of the Limitation Act, 1963 and it was noted that this petition was filed on 23rd July 2018, i.e. beyond three years from the time, when account of the Corporate Debtor was classified as 'NPA' on 31st December 2014. The tribunal remarked that the Application filed by the Respondents under Section 7 of IBC, 2006 in the present case was an effort to revive a dead debt.
The date of default is crucial to determine the date when the cause of action accrued.

The tribunal observed, "The right to sue under IBC occurs when default occurs. If the default has occurred over three years' period prior to the date of filing the Application, the Application would be time-barred."

The tribunal finally dismissed the application sought by SBI against Corporate Debtor, as the Financial Creditor is barred by Limitation.

The Corporate Debtor was allowed to through its Board of Directors. Further the Interim Resolution Professional/Resolution Professional will provide and intimate the fees for the period he has functioned and costs of the 'Corporate Insolvency Resolution Process' incurred by him to the Financial Creditor.