No fresh right to trigger IBC by issue of decree/recovery certificate

No fresh right to trigger IBC by issue of decree/recovery certificate

The Appellate Tribunal held Kotak Mahindra Bank liable to pay the fees and CIRP expenses incurred in the matter of Prasad Properties and Investments Pvt. Ltd.

The Hon'ble National Company Law Appellate Tribunal (NCLAT) has allowed the appeal filed by the appellant who is the Director of the Corporate Debtor namely M/s. Prasad Properties and Investments Pvt. Ltd. (Respondent No. 2).

Respondent No. 1/Kotak Mahindra Bank Ltd. filed an application against the Corporate Debtor before the Adjudicating Authority (National Company Law Tribunal/NCLT, Division Bench, Chennai) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Adjudicating Authority by the Impugned Order admitted the application and initiated the Corporate Insolvency Resolution Process (CIRP).

The appellant contended that when the accounts of the borrower entities were classified as non-performing assets (NPAs) in 1997 even if the suits were filed in the High Court within time, the filing of the suit or filing of the OAs before the DRT would not extend the period of limitation.

The appellant put forth that although the winding up notice was issued on 6 May, 2008 under Sections 433 and 434 of the Companies Act, 1956, no winding up proceedings were filed. Thus, the application filed under Section 7 on 5 October, 2018 was time-barred and the Adjudicating Authority should have dismissed the application on this ground alone.

It was also stated by the appellant that on the strength of the recovery certificate obtained in 2017, the application under Section 7 could not have been maintained for default which was more than three years old considering Article 137 of the Limitation Act, 1963.

The Respondent referred to the Judgment of Vashdeo R Bhojwani vs. Abhyudaya Co-operative Bank Ltd &Anr. to argue that the right to suit got triggered from the date of issuance of the Debt Recovery Certificate and that such Certificate was issued on 20 June 2017 and thus the Application filed in 2018 was within Limitation.

The Appellate Tribunal observed that if Indbank Housing Ltd. classified the borrower entities as NPAs in November, 1997, even if the suits were filed in 1998 and 1999, that would not be relevant or helpful to extend the time of Limitation for the purpose of filing of application under Section 7 of the IBC which was independent proceeding required to be filed as per Article 137 of the Limitation Act within three years of default.

When time begins to run, it can only be extended in the manner provided in the Limitation Act. Proceedings under the IBC are not execution proceedings either for the decree which was obtained or for execution of the Certificates of Recovery which have been issued by the DRT.

According to the Hon'ble NCLAT, the Financial Creditor did not show under which provision of the Limitation Act, the time which had started running in November, 2007, could be extended. If filing of Suit or OA does not extend time, or give the right to exclude a period for a winding up proceeding, it cannot extend period for an independent right under IBC. Consequently, passing of decree or issue of Recovery Certificate will not give fresh right to trigger IBC.

The Appellate Tribunal also stressed that it had revisited the Judgment in the matter of Vashdeo R Bhojwani Vs. Abhyudaya Co-operative Bank Ltd. &Anr. and was unable to agree that the Judgment gives a fresh date to trigger application under Section 7 of IBC.

It was also opined that the application in the present matter was hopelessly time-barred. The Adjudicating Authority failed to see that the Financial Creditor had not indicated the date of default in the format. The Adjudicating Authority was duty-bound under Section 3 of the Limitation Act, 1963 to suomoto consider whether or not the application under Section 7 of IBC was within Limitation by considering whether or not the debt said to be in default was within Limitation.

Hence, the Impugned Order was quashed and set aside. The application filed by Respondent No. 1/Financial Creditor was also quashed. Respondent No. 1 /Financial Creditor has been held liable to pay the fees and CIRP expenses incurred. The IRP/RP has been ordered to present particulars of the fees and CIRP expenses before the Adjudicating Authority and the Adjudicating Authority has been requested to pass necessary orders to recover the same from Respondent No. 1/Financial Creditor/Kotak Mahindra Bank Ltd.