Judicial indiscipline creates uncertainty and impairs public faith in Rule of Law: NCLAT

Judicial indiscipline creates uncertainty and impairs public faith in Rule of Law: NCLAT

In this matter, a three member Bench of the National Company Law Appellate Tribunal (NCLAT), was of the view that the judgment rendered by a five member Bench of this Appellate Tribunal in "V. Padmakumar Vs. Stressed Assets Stabilization Fund (SASF) & Anr." required reconsideration.

Herein, the Corporate Debtor (Corporate Power Ltd.), which had availed loan from the Consortium Lenders for setting up a coal-based power plant at Chandwa in Jharkhand defaulted in repaying the dues leading to recalling of the loan facility by Financial Creditor – State Bank of India and the Consortium Lenders.

The lenders issued notices on 20th June, 2015 under Section 13(2) of the SARFAESI Act, 2002 demanding total amount of Rs.59,97,80,02,973/-.

However, the Corporate Debtor failed to discharge its liability. The Lenders had assigned the debt in favour of 'Asset Reconstruction Company (India) Ltd.' (Respondent No. 1/ Financial Creditor), who filed application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) for initiation of CIRP against the Corporate Debtor which raised various issues including limitation.

The Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, on being satisfied that debt and default was established and the application had been filed within limitation period, admitted the application.

Aggrieved thereof, Mr. Bishal Jaiswal, the Ex-Director of the Corporate Debtor filed appeal against the order of admission, primarily on the ground that the account of Corporate Debtor had been declared as NPA on 28th February, 2014 and since the application under Section 7 came to be filed in December, 2018, after a delay of around five years, same was barred by limitation. According to the Financial Creditor, the right to sue stood extended in terms of Section 18 of the Limitation Act, 1963.

The Referral Bench declined to accept the argument advanced on behalf of Corporate Debtor that Section 18 of Limitation Act, 1963 is not applicable to Insolvency Cases and proceeded to record its reasons for reconsideration of the NCLAT judgment in the case of V. Padmakumar

The five Member Bench in 'V. Padmakumar's Case' has expressly referred to the judgment of Hon'ble Apex Court rendered in "B. K. Educational Services Pvt. Ltd. vs. Parag Gupta and Associates wherein the Hon'ble Apex Court held that for purpose of Section 7 of I&B Code limitation Act, 1963 is applied from the date of inception of the Code. Article 137 of the Limitation Act would be applicable to applications under Section 7, 9 or 10 of the I&B Code.

It was on the basis of the authoritative pronouncements and binding precedents of the Hon'ble Apex Court that the five Member Bench of this Appellate Tribunal arrived at the conclusion that for purpose of computing the period of limitation under Section 7, the date of default is NPA.

The Appellate Tribunal opined that there is no room for doubt that the date of default in regard to application under Section 7 of I&B Code is the date of classification of the account of Corporate Debtor as NPA. The date of default is extendable within the ambit of Section 18 of Limitation Act on the basis of an acknowledgement in writing made by the Corporate Debtor before the expiry of period of limitation. This is clearly laid down by Hon'ble Apex Court in a host of judgments.

It was preposterous to hold that the judgment of five Member Bench 'is so incorrect that the same can in no circumstances be followed'. The Referral Bench had failed to draw a distinction between the 'recovery proceedings' and the 'insolvency resolution process'.

I&B Code provides timelines for resolution of insolvency issues and proceedings thereunder cannot be equated with the 'recovery proceedings'. The insolvency resolution mechanism is based on 'debt' and 'default'. Adjudication of civil disputes and complex issues is impermissible within the ambit and scope of I&B Code.

According to the NCLAT, stretching forward the concept of default beyond NPA, in the context of law declared by the Hon'ble Apex Court as it now stands, would be the forbidden province and the liability in regard to defaulted amount on the basis of classification of account of Corporate Debtor as NPA cannot be given a new lease of life when it is time barred.

As per the Appellate Tribunal, in 'Jignesh Shah's Case', the Hon'ble Apex Court has recognized the nature of remedy under Companies Act being distinct from recovery mechanism and observed that limitation cannot be impacted by an acknowledgement of liability under Section 18 of Limitation Act to keep debt alive for the purpose of winding up proceedings. This equally holds good in so far as insolvency jurisdiction in concerned unless a contrary view is taken by the Hon'ble Apex Court in matters involving the issue.

Thus, the Appellate Tribunal was of the considered view that the order of reference which, in letter and spirit, was more akin to a judgment of an Appellate Court appreciating the findings and judgment in 'V. Padmakumar's Case' was incompetent and deserved to be rejected.

The National Company Law Appellate Tribunal has directed that the Company Appeal be listed for regular hearing on 11th January, 2021.