NCLAT: Limitation Period Ought to Be Excluded by NCLT If Petition Filed Before BIFR & AAIFR is Abated by Competent Judicial Forum

NCLAT: Limitation Period Ought to Be Excluded by NCLT If Petition Filed Before BIFR & AAIFR is Abated by Competent Judicial Forum

The National Company Law Appellate Tribunal (NCLAT), New Delhi, coram comprising of Rakesh Kumar Jain (Judicial Member) and Naresh Salecha (Technical Member), has observed that the period of petition before Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial Financial Re-Construction (AAIFR), once abated by the competent Judicial Forum (AAIFR in present case) such period ought to be excluded by the Adjudicating Authority.

The present appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the impugned Order passed National Company Law Tribunal (NCLT), Kolkata Bench, whereby the application filed by the Appellant under Section 7 of the Code against Uniworth Textile Limited (UTL) (Corporate Debtor) was dismissed on the ground of limitation.

The Corporate Debtor filed the proceedings before BIFR in 2004 which remained pending till 2013 and subsequently were abated by AAIFR vide order dated 22 May, 2013.

Section 7 application was filed on 11 October, 2018. The Appellant- Asset Reconstruction Company (India) Limited revoked the terms of settlement due to non-compliance and default in the payment on part of Corporate Debtor, vide his letter dated 22 November, 2018 and subsequently filed Section 7 application under the Code on 27 November, 2018.

The Appellant sought to rely on various acknowledgments of debt due in the books of the Corporate Debtor and entries reflected in the Balance Sheet from the period 31 March, 2007 to 31 March, 2019.

Learned Counsel for the Appellant assailed the Impugned Order wherein the Adjudicating Authority did not consider the exclusion of period from limitation period in terms of Section 22(5) of Sick Industrial Companies (Special Provisions Act, 1985) (SICA) and misinterpreted the judgment of the Hon’ble Supreme Court of India in the matter of Jignesh Shah & Ors. vs. Government of India and also ignored the provisions of Section 29 of the Limitation Act, 1963.

The moot point which was determined by the bench was whether filing a Petition by the Corporate Debtor before BIFR and subsequently order of AAIFR would be considered as appropriate forum or not and its subsequent impact on Limitation period.

The NCLAT noted that the Corporate Debtor and not the Appellant herein, had moved the petition before the BIFR in 2004.

There was no dispute that the Code came into existence only in 2016, hence the only forum available for the aggrieved party was BIFR initially and AAIFR as Appellant forum later, opined the bench.

Furthermore, the NCLAT noted that AAIFR in its order categorically mentioned that the appeal filed by the Corporate Debtor along with all proceedings relating to the reference of the Corporate Debtor pending before the BIFR stood abated.

The bench upon perusal of Section 22(5) of SICA, stated that, in computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement therefore remains suspended under the Section shall be excluded.

“By virtue of Section 22 of the SICA, sick industrial units get protection with respect to suspension of those legal proceedings,” added the Tribunal.

In this connection the NCLAT referred to the judgment of the Supreme Court of India in the case of Sabarmati Gas Limited vs. Shah Alloys Ltd. (2023).

The NCLAT observed, “It is therefore, clear that the period of petition before BIFR and AAIFR, once abated by the competent Judicial Forum (AAIFR in present case) such period ought to have been excluded by the Adjudicating Authority. Based on this analysis the period up to the order by AAIFR dated 22.05.2013 should be excluded from counting the relevant period under Limitation Act, 1963.”

Applying the aforesaid principle, the NCLAT noted that the subsequent events post 22 May, 2013 impacting the Limitation period till the Section 7 application was filed on 11 October, 2018. The Law of Limitation give 3 years period for initiating the legal remedy. Thus, the Appellant has to cross the hurdle post 22 May, 2016 i.e., 3 years period from AAIFR order dated 22 May, 2013 to 11 October, 2018, clarified the bench.

The next issue to be determined was whether the mere entry in the Balance Sheet of the amount of the outstanding debt should be taken as acknowledgment or only debt without any stigma or adverse note denying the liability should be taken as acknowledgment.

In this connection, the NCLAT referred to the decision passed in the case of Bishal Jaiswal & Anr. (2021) where it was been held that entries in the Balance Sheet may amount to an acknowledgement of debt for the purpose of extending limitation under Section 18 of the Limitation Act.

Therefore, the NCLAT held that mere entry in the Balance Sheet cannot be taken as unqualified acknowledgment of the debt.

However, the NCLAT clarified that, “it may also not be correct to take every note or caveat regarding entries made in the Balance Sheet as ground to denying acknowledgement of debt in order not to extend the limitation period from such acknowledgment period. It is therefore desirable that while looking such entries of debt amounting to acknowledgment, one has to consider the overall scenario which may be evident from Director’s Report, Auditor’s Report, notes to the accounts etc. It may also be relevant to consider the entire series of events starting from such loans/ debts to the filing of application under section 7 of the Code, to gauge the true intent of such entries and caveats, if any, which impact the intended acknowledgements or genuine denial of liability on part of the Corporate Debtor.”

While doing this examination, it may be worthwhile to look into the overall eco system of such transactions which may help in understanding the impact on limitation period based on such acknowledgements, opined the bench.

Averting to the present case, the NCLAT recorded from the entries in the Balance Sheet of 2016-17 and Director’s Report it was clear that the debt indeed finds place in the Balance Sheet with admission as a Corporate Debtor that they are in process of negotiation with the term lenders for rescheduling/ restructuring. This established that the loan/ debt had been taken and acknowledged by the Corporate Debtor.

On perusal of perusal of various Balance Sheets from 2006-07 to Balance Sheets of 2013-14, the NCLAT did not find any apparat denial of debts by the Corporate Debtor.

The bench affirmed that according to Section 18 of the Limitation Act, 1963 any acknowledgement expiration of prescribed period for an application in respect of any acknowledgement of liability made in writing signed by the party against whom such right is claimed shall result into fresh period of limitation to be computed from such time.

Accordingly, the NCLAT held that the Adjudicating Authority erred in rejecting the application filed under Section 7 of the Code by the Appellant on the ground of limitation and remanded the case back to the Adjudicating and Authority.