M/S. RELIANCE ASSET RECONSTRUCTION COMPANY LTD. versus M/S HOTEL POONJA INTERNATIONAL PVT. LTD. on 21 January 2021

[2021] 1 S.C.R. 495

M/S. RELIANCE ASSET RECONSTRUCTION COMPANY LTD.

v.

M/S HOTEL POONJA INTERNATIONAL PVT. LTD.(Civil Appeal No. 4221 of 2020)

JANUARY 21, 2021

[INDIRA BANERJEE AND SANJIV KHANNA, JJ.]

Insolvency and Bankruptcy Code, 2016 – s.62 – The AssignorBank, along with Corporation Bank sanctioned a term loan of Rs.40lakhs to the corporate debtor – The corporate debtor failed to repayloan – The Assignor Bank declared the account of corporate debtoras an “Non-Performing Asset” (NPA) on 01.04.1993 – AssignorBank filed application before the Debt Recovery Tribunal forrecovery of dues – A settlement was reached between the AssignorBank and the corporate debtor – Accordingly, DRT issued aRecovery Certificate on 27.03.2003 – Corporate debtor again failedto comply with the settlement – Thereafter, an agreement betweenthe Assignor Bank and the appellant was entered into, the appellantwas substituted as applicant in place of the Assignor Bank in DRTand an amended Recovery Certificate was issued on 13.12.2012 –On 27.07.2018, the appellant filed application u/s. 7 of the IBCagainst the corporate debtor for initiation of Corporate InsolvencyResolution Process (CIRP) before the NCLT, which was dismissed –The NCLAT also found that application u/s.7 was barred by limitation– Before the Supreme Court, appellant adverted to two documents,that is, (i) the Balance sheet of the corporate debtor dated16.08.2017 and (ii) a letter dated 23.04.2019 issued by the corporatedebtor in the Paper Book to contend that the proceedings u/s. 7 ofthe IBC are not barred by limitation, as limitation would start runningafresh for a period of three years u/s.18 of the Limitation Act –Held: The right to sue accrues when a default occurs, and if thatdefault has occurred over three years prior to the date of filing ofan application u/s. 7 of the IBC, the application would be barred u/Art.137 of the Limitation Act – The right to sue accrued on01.04.1993 when the amount of the corporate debtor with theAssignor Bank was declared NPA – In Part IV of its application u/s.7 of the IBC, the appellant itself declared the date of default as01.04.1993 – Thus, the claim is apparently barred by limitation –Even the application u/s.7 of the IBC was filed almost 6 years afterissuance of the amended Recovery Certificate (issued on

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A13.12.2012) – As far as two documents referred by the appellantsare concerned, the two documents cannot be construed asadmissions that amount to acknowledgment of the jural relationshipand existence of liability – The balance sheet dated 16.08.2017does not acknowledge or admit any debt – Further, the letter dated23.04.2019 again is not an acknowledgment and admission ofBliability – The language and tone of the letter makes it absolutelyclear that the liability was denied – The Balance Sheet of thecorporate debtor dated 16.08.2017 and the letter dated 23.04.2019,do not constitute any acknowledgment of liability and were not evenreferred to by the appellant in its application under IBC – The NCLAT,rightly held that the application u/s.7 of the IBC is barred byClimitation.

Limitation Act, 1963 – Art. 137 – Insolvency and BankruptcyCode, 2016 – ss. 7 and 9 – In B.K. Educational Services PrivateLtd. v. Parag Gupta and Associates (2009) 11 SCC 633: [2018] 12SCR 794 held that the Limitation Act is applicable to applicationsDfiled under Sections 7 and 9 of the Code from the inception of theCode, Article 137 of the Limitation Act gets attracted.

Limitation Act, 1963 – Art. 137 – Insolvency and BankruptcyCode, 2016 – s. 7 – Held: In Gaurav Hargovindbhai Dave v. AssetReconstruction Company (India) Ltd. and Ors. (2019) 10 SCC 572,Eit was held that “an application” which is filed u/s. 7, would fallonly within the residuary Art. 137.

Dismissing the appeal, the Court

Conclusion

HELD: 1. It is well settled by a catena of decisions of thisCourt, that Article 137 of the Limitation Act gets attracted toapplications filed under Sections 7 and 9 of the IBC. The right toFsue accrues when a default occurs, and if that default has occurredover three years prior to the date of filing of an application underSection 7 of the IBC, the application would be barred 6 underArticle 137 of the Limitation Act. At the highest, limitation startedticking on 27th March 2003, when a Recovery Certificate wasGissued by the DRT. The appellant has not disclosed any materialin its application under Section 7 of the IBC to demonstrate thatthe application is not barred by limitation. [Para 19][503-F-G]

2. In its application under Section 7 of the InsolvencyBankruptcy Code, 2016, the Appellant has not shown that thedebt due to the Appellant from the Corporate Debtor is not barredHby limitation. The right to sue accrued on 1st April 1993 when the amount of the Corporate Debtor with the Assignor Bank wasdeclared NPA. In Part IV of its application under Section 7 of theIBC, the Appellant declared the date of default as 1st April, 1993.The claim is apparently barred by limitation. Even the judgmentof the DRT was dated 09.04.2001 and the Recovery Certificatewas dated 27th March 2003. The Appellant’s own statement ofaccounts as on 18th July 2018 is not material to the question oflimitation for making an application under Section 7 of the IBC,which is three years from the date of accrual of the right to sue.[Para 23][504-F-H; 505-A]

3. Under Section 18 of the Limitation Act, 1963, theacknowledgement of liability in writing, signed by a party in respectof any right or property claimed by such party within theprescribed period of limitation to file a suit and/or application,leads to computation of the period of limitation afresh, fromthe time when the acknowledgement is so signed. [Para 24][505-A-B]

4. In this case, the Corporate Debtor has not signed anyacknowledgement in writing after the settlement of 30th June2001, on the basis of which, a Recovery Certificate was issued bythe DRT on 27[th] March 2003. An arrangement between theAssignor Bank and the Appellant and the consequentialsubstitution of the Appellant as party to the Execution/Recoveryproceedings in the DRT does not save limitation to initiateproceedings under Section 7 of IBC. In any case, even theamended Recovery Certificate, relied upon by the Appellant, isdated 13th December, 2012. The application under Section 7 ofthe IBC was filed almost 6 years after issuance of the amendedRecovery Certificate. [Para 25][505-C-D]

5. As per Section 18 of Limitation Act, an acknowledgementof present subsisting liability, made in writing in respect of anyright claimed by the opposite party and signed by the party againstwhom the right is claimed, has the effect of commencing a freshperiod of limitation from the date on which the acknowledgementis signed. Such acknowledgement need not be accompanied by apromise to pay expressly or even by implication. However, theacknowledgement must be made before the relevant period oflimitation has expired. [Para 30][506-D-F]

Khan Bahadur Shapoor Freedom Mazda v. DurgaPrasad Chamaria and Others, AIR 1961 SC 1236 :[1962] 1 SCR 140 – relied on.

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A6. In the present case, reliance ought not to be placed onthe balance sheet dated 16th August 2017 and letter dated 23rdApril 2019 primarily for two reasons. First, there is no evidenceor material to show that the documents were signed before theexpiry of the prescribed period of limitation. There is no pleadingto the said effect in the application under Section 7 of the IBCBfiled by the appellant in the statutory form. In fact, the twodocuments were never relied upon. Secondly, the two documentscannot be construed as admissions that amount toacknowledgment of the jural relationship and existence of liability.The balance sheet dated 16th August 2017 does not acknowledgeor admit any debt. Rather, the Corporate Debtor has disputedCand denied its liability. The letter dated 23rd April 2019 again isnot an acknowledgment and admission of liability. The languageand tone of the letter makes it absolutely clear that the liabilitywas denied. [Paras 32, 33 and 34][507-F-H; 508-A, G]

7. The Balance Sheet of the Corporate Debtor dated 16thAugust, 2017 and the letter dated 23rd April, 2019, as observed,Ddo not constitute any acknowledgment of liability and were noteven referred to by the Appellant in its application under IBC. Itis, therefore, not necessary for this Court to delve intothe question of whether Section 18 of the Limitation Act isattracted in the case of a petition under Section 7 of the IBC.[Para 35][509-D-E]

EB.K. Educational Services Private Limited v. ParagGupta and Associates (2019) 11 SCC 633: [2018]12 SCR 794; Gaurav Hargovindbhai Dave v. AssetReconstruction Company (India) Ltd. and Ors. (2019)10 SCC 572; Radha Export (India) Private Limited v.K.P. Jayaram (2020) 10 SCC 538; BalakrishnaFSavalram Pujari Waghmare v. Shree DhyaneshwarMaharaj Sansthan [1959] Supp (2) SCR 476; KhanBahadur Shapoor Freedom Mazda v. Durga PrasadChamaria and Others, AIR 1961 SC 1236 :[1962] SCR 140 – relied on.

Vashdeo R. Bhojwani v. Abhyudaya Cooperative BankGLtd. & Anr., (2019) 9 SCC 158 : [2019] 12 SCR 75 ;Mobilox Innovations Private Limited v. Kirusa SoftwarePrivate Limited (2018) 1 SCC 353 : [2017] 10 SCR1006; Transmission Corporation of Andhra PradeshLimited v. Equipment Conductors and Cables Limited(2019) 12 SCC 697 : [2018] 13 SCR 1067 – referredHto.

M/S. RELIANCE ASSET RECONSTRUCTION COMPANY LTD. v. M/S HOTEL POONJA INTERNATIONAL PVT. LTD.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4221of 2020.

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From the Judgment and Order dated 05.02.2020 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal(AT)(Insolvency) No. 1011 of 2019.

Siddharth Dave, Sr. Adv., Ms. Ruchi Kohli, Adv. for the appellant.The Judgment of the Court was delivered by D

INDIRA BANERJEE, J.

This appeal under Section 62 of the Insolvency and BankruptcyCode, 2016 hereinafter referred to as “IBC”, is against a judgment andorder dated 5[th] February 2020 passed by the National Company LawAppellate Tribunal, New Delhi, hereinafter referred to as the “NCLAT”,dismissing the Company Appeal (AT) (Insolvency) No. 1011 of 2019filed by the Appellant, whereby the Appellant had challenged an orderdated 20[th] August 2019 passed by the Adjudicating Authority, i.e. theNational Company Law Tribunal, Bengaluru Bench, hereinafter referredto as the “NCLT” rejecting an application being CP (IB) No.170/BB/2018 filed by the Appellant under Section 7 of the IBC.

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2. The Appellant is a company incorporated under the CompaniesAct, 1956 and registered as a Securitisation and Asset ReconstructionCompany, pursuant to Section 3 of the Securitisation and Reconstructionof Financial Assets and Enforcement of Security Interest Act, 2002(SARFAESI).

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3. The Respondent M/s Hotel Poonja International Pvt. Ltd.,hereinafter referred to as the “Corporate Debtor”, was granted credit/loan facilities inter alia by Vijaya Bank, hereinafter referred to as the“Assignor Bank”. Pursuant to an agreement executed between theAssignor Bank and the Appellant on or about 3[rd] May 2011, the AssignorBank has assigned its dues from the Corporate Debtor to the Appellant.

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A4. By a letter dated 20[th] May 1986, the Assignor Bank, along withCorporation Bank, sanctioned a term loan of Rs.40 Lakhs to the CorporateDebtor. Loan documents were duly executed by the Corporate Debtorthrough its authorized directors and guarantors, in favour of the AssignorBank and Corporation Bank, for securing the loan as aforesaid, availedby the Corporate Debtor.B

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5. By a pari pasu agreement executed by and between theAssignor Bank, Corporation Bank, and the Corporate Debtor on 23[rd]November 1987, a pari pasu charge was created on the movable andimmovable properties of the Corporate Debtor, in favour of the twobanks.C

6. The Corporate Debtor failed to repay the loan obtained fromthe Assignor Bank. The Assignor Bank, therefore, declared the accountof the Corporate Debtor as a “Non Performing Asset” (NPA) on 1stApril 1993.

7. On or about 18[th] May 1998, the Assignor Bank filed an OriginalApplication No. 547 of 1998 under the Recovery of Debts due to Banksand Financial Institutions Act, 1993 before the Debt Recovery Tribunal(DRT), Andhra Pradesh and Karnataka at Bangalore for recovery of itsdues aggregating Rs.2,61,88,403.05/- odd from the Corporate Debtor.

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E8. It is the case of the Appellant that during the pendency of thesaid original application, the Corporate Debtor acknowledged and admittedits debt to the Assignor Bank and approached the Assignor Bank for asettlement, subject to payment of a consolidated amount of Rupees1 Crore, less Rs.25 Lakhs that had already been paid. The CorporateDebtor agreed to pay the balance Rs.75 Lakhs in instalments, alongFwith interest. Accordingly, a settlement was executed between theAssignor Bank and the Corporate Debtor on 30[th] June 2001, on thebasis of which the DRT issued a Recovery Certificate on 27[th] March2003.

9. The Appellant contends that since the Corporate Debtor failedGto pay the settlement amount, the Assignor Bank became entitled torecover the decretal amount from the Corporate Debtor. The AssignorBank, therefore, filed an application for execution in the DRT, for recoveryof the decretal amount of Rs.2,61,88,403.05, after deducting Rs.25 lakhsalready paid by the Corporate Debtor. After the execution of theagreement dated 03[rd] May 2011, between the Assignor Bank and theH

Appellant, the Appellant was substituted as applicant in place of theAssignor Bank, in the proceedings before the DRT, and an amendedRecovery Certificate was issued on 13[th] December, 2012.

10. On or about 27[th] July 2018, the Appellant filed a petition beforethe NCLT, Bengaluru bearing No.CP(IB) No.170/BB/2018 under Section7 of the IBC against the Corporate Debtor, for initiation of CorporateInsolvency Resolution Process (CIRP).

11. By an order dated 20[th] August 2019, the NCLT, dismissed thesaid petition under Section 7 of the IBC, holding that it was the settledproposition of law that the provisions of the IBC could not be invokedfor recovery of outstanding dues, but could only be invoked to initiateCIRP for just reasons.

12. The NCLT, Bengaluru took note of the following relevantfacts:

“In the instant case, it is not in dispute that Vijaya Bank hadsanctioned loan of 40 lakhs to Corporate Debtor on20.05.1986 and it has defaulted in making payment of theloan as per the terms of the loan agreement. The account ofthe Corporate Debtor was classified as NPA on 1.04.1993.Vijaya Bank also filed original application OA No.547/1998before DRT, Bangalore and DRT has decreed and issued arecovery certificate by issuing an order dated 9[th] April, 2001.Further, due to non-repayment of the amount as per the orderdated 9[th] April, 2001, DRT, Bangalore issued another recoverycertificate vide DCP no.2691 dated 27.03.2003 directing theRecovery Officer to recover the amount of debt as statedtherein. Subsequently, Vijaya Bank assigned the loandisbursed in favour of the Corporate Debtor to the Petitioner/Financial Creditor herein vide Assignment Agreement dated3[rd] May, 2011. Consequently, an amended recovery certificatedated 13[th] May, 2011 was issued by the DRT, Bangalorerecognizing the assignment to the petitioner/Financial Creditorand vesting rights of recovery with it.”

13. Being aggrieved by the judgment and order of NCLT,Bengaluru dismissing the application of the Appellant under Section 7 ofthe IBC, the Appellant filed an appeal therefrom, being Company Appeal A

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A(AT) (INS.) No.1011 of 2019, before the NCLAT. The Appeal has beendismissed by the judgment and order impugned.

14. The NCLAT also found that the application filed by the Appellantunder Section 7 of the IBC was barred by limitation. The NCLAT,however, made it clear that the dismissal of the application under SectionB7 of the IBC, would not preclude the appellant from availing theappropriate remedy for redressal of its grievances, in accordance withlaw, before the competent forum.

15. The application of the Appellant in Statutory Form 1 underSection 7 of the IBC read with Rule 4 of the Insolvency and BankruptcyC(Application to Adjudicating Authority) Rules, 2016 to initiate theCorporate Insolvency Resolution Process (CIRP) is included in the PaperBook filed in this appeal, as Annexure P-7. Part IV of the applicationrelating to the particulars of the financial debt claimed to be due to theAppellant from the Corporate Debtor is extracted hereinbelow:- PART - IV

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PARTICULAR OF FINANCIAL DEBT

1. TOTAL AMOUNT OF DEBT GRANTED DATE(s) OFTHE DISBURSMENT *

Debt granted by Vijya Bank Assignor)- Rs 40,00,000(Rupees Forty Lakhs)

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Nature of Facility – Term Loan

Date of Sanction – 20.05.1986

2. AMOUNT CLAIMED TO BE IN DEFAULT AND THEFDATE ON WHICH THE DEFAULT OCCURRED(ATTACH THE WORKINGS FOR COMPUTATION OFAMOUNT AND DAYS OF DEFAULT IN TABULARFORM)

Total outstanding – Rs. 145,44,46,651.32 (Rupees OneGHundred Forty Four lakhs Forty Six Thousand Six HundredFifty One and Paisa Thirty Two Only) as on 18.07.2018

(Amt in Rs.)

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16. The particulars of the financial debt with documents, recordsand evidence of default are given in Part V of the application. In supportof its claim, the Appellant relied on the judgment of the DRT in O.A.No.547/1998, dated 9[th] April, 2001, the Recovery Certificate issued bythe DRT dated 27[th] March 2003 and an order dated 14[th] December2017 in the Execution/ Recovery Proceedings before the DRT, as willappear from Sl. No.2 of Part V of the application before the DRT.

17. The Appellant also relied on the Assignment Agreement dated3[rd] May 2011 (Serial No.5 of Part V); a Statement of Accounts of theAppellant as on 8[th] July 2018 along with Certificate under the BankersBooks Evidence Act, 1891 (Serial No.7 of Part V); a memo of theRecovery Officer dated 3[rd ]June 2011 in the DRT, regarding assignmentof the decretal dues of the judgment debtor in favour of the Appellant,and an amended Recovery Certificate dated 13[th] December 2012 (SerialNo.8 of Part V).

18. Admittedly, as stated in Part IV of the application filed by theAppellant in the NCLT under Section 7 of the IBC, the account of theCorporate Debtor was declared as Non Performing Asset on 1[st ]April,1993, that is, over 15 years before the application under Section 5 wasfiled in the NCLT.

19. It is well settled by a catena of decisions of this Court, thatArticle 137 of the Limitation Act gets attracted to applications filed underSections 7 and 9 of the IBC. The right to sue accrues when a defaultoccurs, and if that default has occurred over three years prior to thedate of filing of an application under Section 7 of the IBC, the applicationwould be barred under Article 137 of the Limitation Act. At the highest,limitation started ticking on 27[th] March 2003, when a Recovery Certificatewas issued by the DRT. The appellant has not disclosed any material inits application under Section 7 of the IBC to demonstrate that theapplication is not barred by limitation.

20. In B.K. Educational Services Private Limited v. ParagGuptaand Associates reported in (2019) 11 SCC 633, this Court held:

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A“42. It is thus clear that since the Limitation Act is applicableto applications filed under Sections 7 and 9 of the Code fromthe inception of the Code, Article 137 of the Limitation Actgets attracted. “The right to sue”, therefore, accrues when adefault occurs. If the default has occurred over three yearsprior to the date of filing of the application, the applicationBwould be barred under Article 137 of the Limitation Act,..”

21. In Gaurav Hargovindbhai Dave v. Asset ReconstructionCompany (India) Ltd. And Ors. reported in (2019) 10 SCC 572, wherethe account of the Corporate Debtor was declared NPA on 21.7.2011,this Court observed:C

“6. …The present case being “an application” which is filedunder Section 7, would fall only within the residuary Article137. As rightly pointed out by the learned counsel appearingon behalf of the appellant, time, therefore, begins to run on21-7-2011, as a result of which the application filed underDSection 7 would clearly be time-barred…”

22. In Radha Export (India) Private Limited v. K.P. Jayaramreported in (2020) 10 SCC 538, authored by one of us (Justice IndiraBanerjee), this Court referred to B.K. Educational Services (P)Ltd. v. Parag Gupta & Associates (supra), and held:E

35. It was for the applicant invoking the corporate insolvencyresolution process, to prima facie show the existence in hisfavour, of a legally recoverable debt. In other words, therespondent had to show that the debt is not barred bylimitation, which they failed to do.F

23. In its application under Section 7 of the IBC, the Appellanthas not shown that the debt due to the Appellant from the CorporateDebtor is not barred by limitation. The right to sue accrued on 1[st] April1993 when the amount of the Corporate Debtor with the Assignor Bankwas declared NPA. In Part IV of its application under Section 7 of theGIBC, the Appellant declared the date of default as 1[st] April, 1993. Theclaim is apparently barred by limitation. Even the judgment of the DRTin OA No.547/98 was dated 09.04.2001 and the Recovery Certificatewas dated 27[th] March 2003. The Appellant’s own statement of accountsas on 18[th] July 2018 is not material to the question of limitation for making H

an application under Section 7 of the IBC, which is three years from thedate of accrual of the right to sue.

24. Under Section 18 of the Limitation Act, 1963, theacknowledgement of liability in writing, signed by a party in respect ofany right or property claimed by such party within the prescribed periodof limitation to file a suit and/or application, leads to computation of theperiod of limitation afresh, from the time when the acknowledgement isso signed.

25. In this case, the Corporate Debtor has not signed anyacknowledgement in writing after the settlement of 30[th] June 2001, onthe basis of which, a Recovery Certificate was issued by the DRT on27[th] March 2003. An arrangement between the Assignor Bank and theAppellant and the consequential substitution of the Appellant as party tothe Execution/Recovery proceedings in the DRT does not save limitationto initiate proceedings under Section 7 of IBC. In any case, even theamended Recovery Certificate, relied upon by the Appellant, is dated13[th] December, 2012. The application under Section 7 of the IBC wasfiled almost 6 years after issuance of the amended Recovery Certificate.

26. In Vashdeo R. Bhojwani v. Abhyudaya Cooperative BankLtd. & Anr., reported in (2019) 9 SCC 158, this Court had set aside theorders of the NCLT and the NCLAT, holding that the application underSection 7 of the IBC was time barred, as the loan account had beendeclared Non Performing Asset on 23[rd] December 1999 and thereafterthe Debt Recovery Tribunal had issued a Recovery Certificate dated24[th] December 2001. Insolvency proceedings before the NCLT wereadmitted on 5[th] March 2018.

27. In Vashdeo R. Bhojwani (supra), this Court rejected thecontention that the default was a continuing wrong and Section 23 of theLimitation Act 1963 would apply, relying upon Balakrishna SavalramPujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan reportedin 1959 Supp (2) SCR 476.

28. To quote P.B. Gajendragadkar, J in Balakrishna SavalramPujari Wagmare (supra):- “......Section 23 refers not to a continuing right but to acontinuing wrong. It is the very essence of a continuing wrongthat it is an act which creates a continuing source of injury ABC

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Aand renders the doer of the act responsible and liable for thecontinuance of the said injury. If the wrongful act causes aninjury which is complete, there is no continuing wrong eventhough the damage resulting from the act may continue. If,however, a wrongful act is of such a character that the injurycaused by it itself continues, then the act constitutes aBcontinuing wrong. In this connection it is necessary to drawa distinction between the injury caused by the wrongful actand what may be described as the effect of the said injury. Itis only in regard to acts which can be properly characterised A

as continuing wrongs that Section 23 can be invoked. .....”C

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as continuing wrongs that Section 23 can be invoked. .....”C

29. Counsel appearing on behalf of the Appellant has adverted totwo documents in the Paper Book, that is, (i) the Balance sheet of theCorporate Debtor dated 16[th] August 2017 and (ii) a letter dated 23[rd]April 2019 issued by the Corporate Debtor in the Paper Book to contendthat the proceedings under Section 7 of the IBC are not barred byDlimitation, as limitation would start running afresh for a period of threeyears from the respective dates of those documents as acknowledgementof liability. Reliance is placed upon Section 18 of the Limitation Act.

30. As per Section 18 of Limitation Act, an acknowledgement ofpresent subsisting liability, made in writing in respect of any right claimedEby the opposite party and signed by the party against whom the right isclaimed, has the effect of commencing a fresh period of limitation fromthe date on which the acknowledgement is signed. Such acknowledgementneed not be accompanied by a promise to pay expressly or even byimplication. However, the acknowledgement must be made before therelevant period of limitation has expired.F

31. In Khan Bahadur Shapoor Freedom Mazda v. DurgaPrasad Chamaria and Others,reported in AIR 1961 SC 1236, thisCourt held :- “6. It is thus clear that acknowledgment as prescribed byGSection 19 merely renews debt; it does not create a new rightof action. It is a mere acknowledgment of the liability in respectof the right in question; it need not be accompanied by apromise to pay either expressly or even by implication. Thestatement on which a plea of acknowledgment is based mustrelate to a present subsisting liability though the exact nature H

or the specific character of the said liability may not beindicated in words. Words used in the acknowledgment must,however, indicate the existence of jural relationship betweenthe parties such as that of debtor and creditor, and it mustappear that the statement is made with the intention to admitsuch jural relationship. Such intention can be inferred byimplication from the nature of the admission, and need not beexpressed in words. If the statement is fairly clear then theintention to admit jural relationship may be implied from it.The admission in question need not be express but must bemade in circumstances and in words from which the courtcan reasonably infer that the person making the admissionintended to refer to a subsisting liability as at the date of thestatement. In construing words used in the statements madein writing on which a plea of acknowledgment rests oralevidence has been expressly excluded but surroundingcircumstances can always be considered. Stated generallycourts lean in favour of a liberal construction of suchstatements though it does not mean that where no admissionis made one should be inferred, or where a statement wasmade clearly without intending to admit the existence of juralrelationship such intention could be fastened on the makerof the statement by an involved or far-fetched process ofreasoning. Broadly stated that is the effect of the relevantprovisions contained in Section 19, and there is really nosubstantial difference between the parties as to the true legalposition in this matter.”

32. In the present case, reliance ought not to be placed on thebalance sheet dated 16[th] August 2017 and letter dated 23[rd] April 2019primarily for two reasons. First, there is no evidence or material to showthat the documents were signed before the expiry of the prescribedperiod of limitation. There is no pleading to the said effect in the applicationunder Section 7 of the IBC filed by the appellant in the statutory form. Infact, the two documents were never relied upon.

33. Secondly, the two documents cannot be construed as admissionsthat amount to acknowledgment of the jural relationship and existenceof liability. The balance sheet dated 16[th] August 2017 does notacknowledge or admit any debt. Rather, the Corporate Debtor has ABC

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Adisputed and denied its liability. Point (d) of the Report of the independentauditor at page 86 of the paper book reads:

“d) Note No. 28 Claims against the Company under adjudicationnot acknowledged as debts for reasons stated in point (b) and (c)above.

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Our opinion is not modified in respect of these matters.”

Point (d) quoted above read with the immediately preceding sub-paragraph (point c) makes it clear that the Balance Sheet cannot betreated as an acknowledgment of liability. This is also clear from the lastsub-heading of Note 27 and Note 28 of the Balance Sheet at page 147Cof the paper book, set out hereinbelow:

“As on the date of this report the matter is pending before theHon’ble High Court of Karnataka, Bangalore. The Board ofDirectors have decided that no interest be provided in thebooks of account for the year ended 31[st] March 2017. TheDBoard is also of the opinion based on legal advice obtainedby it in the matter that no interest be provided in the books tillthe matter acquires clarity and the entire amount demandedby Reliance except for a sum of Rs.40.00 lakhs be treated as“contingent liability not provided for”.

EThe Board is also of the opinion that developments subsequentto the decree of the DRT Bangalore have not been consideredby Reliance while demanding the amount of Rs.97.12 crores.These developments have a substantial bearing on the case.

Note No. 28 Claims against the Company under adjudicationFnot acknowledged as debt:

Commercial and other claims

Rs. 113.85 crores

Previous Year

Rs. 72.92 crores”

34. The letter dated 23[rd] April 2019 again is not an acknowledgmentGand admission of liability. The language and tone of the letter makes itabsolutely clear that the liability was denied. The Corporate Debtorcontended that it had paid more than the double the amount it hadborrowed. Nevertheless, the Corporate Debtor offered a one-timesettlement seeking opinion/concurrence of the Appellant with regard tosuch offer to settle the dispute, which offer was not accepted by theH

M/S. RELIANCE ASSET RECONSTRUCTION COMPANY LTD. v. M/S HOTEL POONJA INTERNATIONAL PVT. LTD.[INDIRA BANERJEE, J.]

Appellant. The relevant part of the letter dated 23[rd] April 2019 is extractedhereinbelow:

“Since we have agreed to clear the loan account under onetime settlement scheme for a sum of Rs. 1.00 crore out of whichwe have already paid Rs. 40 lakhs, what has remained unpaidis Rs. 60 Lakhs. If you calculate the total amount paid by ustill now, it is more than double the amount borrowed by us.Anyhow, we have now decided to offer Rs. 65 Lakhs in fulland final settlement of our claim. We therefore, kindly requestyou to accept our offer for a sum of Rs. 65 Lakhs in fullsettlement of the claim and close the case. In the event ofwillingness on your part to accept our said offer for Rs. 65Lakhs, we undertake to pay it off on or before 30.06.2019.Therefore, please let us have your opinion in the matter at theearliest.”

35. The Balance Sheet of the Corporate Debtor dated 16[th] August,2017 and the letter dated 23[rd] April, 2019, as observed above, do notconstitute any acknowledgment of liability and were not even referredto by the Appellant in its application under IBC. It is, therefore, notnecessary for this Court to delve into the question of whether Section 18of the Limitation Act is attracted in the case of a petition under Section7 of the IBC.

36. At the cost of repetition, it is reiterated that in its applicationunder Section 7 of the IBC, the Appellant declared the date of default as1[st] April, 1993. At the highest, limitation started running from 27[th] March,2003, when the Recovery Certificate was issued by the DRT in favourof the Assignor. The NCLAT has rightly held that the application of theAppellant under Section 7 of the IBC barred by limitation.

37. In any case, there are pending proceedings in the DRT, inrespect of the dues of the Corporate Debtor. The Appellant has beensubstituted in place of the Assignor Bank in the execution proceedings inthe DRT. There is an amended Certificate issued by the DRT. Ordershave, from time to time, been passed in the Execution Proceedings. TheAppellant is not without remedy against the Corporate Debtor.

38. As held by this Court in Mobilox Innovations Private Limitedv. Kirusa Software Private Limited reported in (2018) 1 SCC 353, theIBC is not intended to be a substitute to a recovery forum. In AB

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ATransmission Corporation of Andhra Pradesh Limited v. EquipmentConductors and Cables Limited reported in (2019) 12 SCC 697, thisCourt followed its earlier judgment in Mobilox Innovations Private Ltd.(supra) and observed as hereunder:- “In a recent judgment of this Court in Mobilox InnovationsBPrivate Limted v. Kirusa Software Private Limited (2018) 1SCC 353, this Court has categorically laid down that IBC isnot intended to be substitute to a recovery forum. It is alsolaid down that whenever there is existence of real dispute,the IBC provisions cannot be invoked….”

C39. There is no infirmity in the judgment and order of the NCLATunder appeal that calls for interference of this Court. The appeal istherefore, dismissed.

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Ankit Gyan

Appeal dismissed.

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