NCLT Mumbai Holds That Mere Initiation Of SARFAESI Proceedings Is Not Sufficient Reason To Condone Delay
The National Company Law Tribunal (NCLT), Mumbai Bench, has dismissed an application filed under Section 5 of the Limitation
NCLT Mumbai Holds That Mere Initiation Of SARFAESI Proceedings Is Not Sufficient Reason To Condone Delay
The National Company Law Tribunal (NCLT), Mumbai Bench, has dismissed an application filed under Section 5 of the Limitation Act, 1963, to condone the delay in filing an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The bench, comprising Justice Virendrasingh Bisht (Judicial Member) and Prabhat Kumar (Technical Member), observed that the mere initiation of SARFESI Proceedings was not sufficient reason to condone the inordinate delay.
Ace Agro Industries Pvt. Ltd., a private company involved in the manufacture of basic chemicals, defaulted on payments to its financial creditor on July 31, 2013.
Under the Limitation Act, a petition to initiate the Corporate Insolvency Resolution Process (CIRP) must be filed within three years of the date of default. On September 21, 2019, the State Bank of India (Applicant) filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate CIRP proceedings against the Corporate Debtor. The petition was filed 1,155 days after the default date. The Applicant also filed an application under Section 5 of the Limitation Act for condonation of delay.
The Applicant contended that after declaring the Respondent's account as a non-performing asset (NPA), it took SARFAESI actions and filed an original application in the Debt Recovery Tribunal, Mumbai, for debt recovery and bankruptcy. Therefore, there was no deliberate delay in initiating the current proceeding.
The Respondent opposed the Applicant's arguments and argued that the delay had not been satisfactorily explained and that there was no sufficient cause to warrant the Tribunal's indulgence. The Respondent relied on the judgment in State Bank of India v. M/s. Deccan Florabase Ltd., in which the Tribunal dealt with similar facts and held that the prosecution of SARFAESI proceedings is not a rational reason for the delay.
The NCLT dismissed the petition, stating that the Applicant had failed to provide any reasonable or acceptable explanation for the significant delay, other than mentioning the prosecution of SARFAESI proceedings and the settlement. No evidence of subsequent proceedings or communication from the Corporate Debtor had been placed on record. The Tribunal held that the Applicant had miserably failed to provide any acceptable or cogent reason to condone such a significant delay and that the case simply amounted to gross negligence and lacked bona fides.