RAJENDRA NAROTTAMDAS SHETH & ANR. versus CHANDRA PRAKASH JAIN & ANR. on 30 September 2021

SUPREME COURT REPORTS

[2021] 7 S.C.R.

ARAJENDRA NAROTTAMDAS SHETH & ANR.

v.

CHANDRA PRAKASH JAIN & ANR.

(Civil Appeal No. 4222 of 2020)

BSEPTEMBER 30, 2021

[L. NAGESWARA RAO, B. R. GAVAI,B. V. NAGARATHNA, JJ. ]

Insolvency and Bankruptcy Code, 2016 – s. 7 –Maintainability of – Insolvency and Bankruptcy (Application toCAdjudicating Authority) Rules, 2016 – Limitation Act – s.18 – Loanswere granted by the Financial Creditor-respondent no.2 to theCorporate Debtor-appellants – The Corporate Debtor was unableto settle the dues of the Financial Creditor in time – The account ofthe Corporate Debtor was declared as Non-Performing Asset (NPA)D– The Financial Creditor issued notice for recovery of all duespayable – Pursuant to the notice, the Financial Creditor filed anapplication before the Debt Recovery Tribunal u/s. 19 of theRecovery of Debts Due to Banks and Financial Institutions Act,1993 for recovery of the dues, which was still pending consideration– Meanwhile, the Financial Creditor filed an application u/s. 7 ofEthe Insolvency and Bankruptcy Code averring that the CorporateDebtor owed an amount of Rs. 24.62 crore – There are two issuesthat arise for consideration in this appeal before Supreme Court,the first pertains to the maintainability of the application u/s. 7 ofthe Code filed by a power of attorney holder and the second relatesFto the question of limitation of the same application u/s.7 of theCode – Held: As per Rule 4 of the Insolvency and Bankruptcy(Application to Adjudicating Authority) Rules, 2016, the financialcreditor is required to make an application for initiating thecorporate insolvency resolution process against the corporatedebtor u/s. 7 of the Code in Form 1 which is required to be signedGby the “person authorized to act on behalf of the financial creditor”– In the instant case, general authorisation, in terms of the powerof attorney with respect to all the business and affairs of the Bank,including commencement of legal proceedings was given to a person‘P’ who has filed the application u/s.7 of the Code – Hence,HApplication filed u/s 7 of the Code is maintainable – As far as limitation is concerned, any suit, appeal or application filed afterthe prescribed period of limitation shall be dismissed in spite oflimitation not being set up as a defence, as per s. 3 of the LimitationAct – s.238A of the 2016 Code makes the provisions of theLimitation Act applicable to the proceedings before the AdjudicatingAuthority, as far as may be – Application u/s 7 has to filed within 3years from the date of default – In the present case date of defaultis 30.09.2014 and the application was filed on 25.04.2019 –However, Corporate Debtor had placed on record a letter dated17.11.2018, which detailed the amount repaid till 30.09.2018 andacknowledged the amount outstanding as on 30.09.2018 – On thebasis of the said letter and the record showing that the CorporateDebtor had executed various documents amounting toacknowledgement of the debt even in the financial year 2019-20 –Therefore, the Application u/s.7 is not time barred by limitation.

Dismissing the appeal, the Court

HELD: 1. Essentially, there are two issues that arise forconsideration in this Appeal. The first pertains to themaintainability of the application under Section 7 of the Codefiled by a power of attorney holder. The second relates to thequestion of limitation. [Para 6][845-E-F]

MaintainabilityoftheapplicationunderSection 7whenfiledbyapowerofattorneyholder

Conclusion

2. Initiation of the corporate insolvency resolution processby a financial creditor is dealt with under Section 7 of the Code.Section 7 (2) provides that the financial creditor shall make anapplication in such form and manner and accompanied with suchfee as may be prescribed. As per Rule 4 of the Insolvency andBankruptcy (Application to Adjudicating Authority) Rules, 2016,the financial creditor is required to make an application forinitiating the corporate insolvency resolution process against thecorporate debtor under Section 7 of the Code in Form 1,accompanied with documents and records required therein. Form1 is in a tabular form and the financial creditor has to giveparticulars of the details sought. Further, the Form is requiredto be signed by the “person authorised to act on behalf of thefinancial creditor”. [Para 9][846-D-F]

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A3. The authorisation, in terms of the power of attorney, givenby the Financial Creditor to a person ‘P’ who has filed theapplication under Section 7 of the Code has been placed on record.Pursuant to the resolution passed by the board of directors ofthe Bank on 06.12.2008, the power of attorney was executed bythe general managers in 2011. By way of the said power ofBattorney, ‘P’ was appointed by the Bank to act as its constitutedattorney with respect to “all the business and affairs of the Bankand to conduct and manage and to assist in the conduct andmanagement of all such businesses and affairs of the Bank, bothwithin and outside India and to do all acts, deeds and thingsCnecessary or proper for carrying on the business and affairs of theBank”. Further, ‘P’ has also been authorised to “commence,prosecute, endorse, defend, answer and/or oppose any suit or otherlegal proceedings including any civil or criminal proceedings inany Court or Tribunals and any demand touching any matters inwhich the Bank may or may hereafter be interested or concernedDand also, … compromise, refer to arbitration, abandon, submit tojudgement or become non- suited, in any such suits or proceedings,to appoint advocate, solicitors and pleaders as occasion shall requireand to make sign, execute, present and file all applications, plaints,petitions, written statements, vakalatnamas or any other papersEexpedient or necessary … to be made, signed, executed, presentedor filed”. [Para 10][846-G-H; 847-A-C]

4. In the present case, ‘P’ has been given generalauthorization by the Bank with respect to all the business andaffairs of the Bank, including commencement of legal proceedingsFbefore any court or tribunal with respect to any demand and filingof all necessary applications in this regard. Such authorisation,having been granted by way of a power of attorney pursuant to aresolution passed by the Bank’s board of directors on 06.12.2008,does not impair P’s authority to file an application under Section7 of the Code. It is therefore clear that the application has beenGfiled by an authorised person on behalf of the Financial Creditorand the objection of the Appellants on the maintainability of theapplication on this ground is untenable.[Para 12][848-D-F]

LIMITATION

LIMITATION

5. In the instant case, there is no dispute that the date ofdefault is 30.09.2014 and the application under Section 7 of theCode was filed on 25.04.2019. According to the Financial Creditor,Section 18 of the Limitation Act is applicable in view of theCorporate Debtor acknowledging its debt by way of letters,written in and after 2018, giving details of amount repaid,acknowledging the amount outstanding and requestingconsideration of one-time settlement proposal. It is no more resintegra that Section 18 of the Limitation Act is applicable toapplications filed under Section 7 of the Code. In case theapplication under Section 7 is filed beyond the period of threeyears from the date of default and the financial creditor furnishesthe required information relating to the acknowledgement of debt,in writing by the corporate debtor, before the AdjudicatingAuthority, with such acknowledgement having taken place withinthe initial period of three years from the date of default, a freshperiod of limitation commences and the application can beentertained, if filed within this extended period. [Para 21][852-F-G; 853-C-D]

6. There is no dispute that the date of default in this case is30.09.2014, as mentioned by the financial creditor in its applicationunder Section 7. A copy of the debit balance confirmation letterdated 07.04.2016 was filed along with the application. As theapplication was filed only on 25.04.2019, which is beyond a periodof three years even after taking into account the debit balanceconfirmation letter dated 07.04.2016, the application was barredby limitation. However, the Corporate Debtor had, in its replybefore the Adjudicating Authority, placed on record a letter dated17.11.2018, which detailed the amount repaid till 30.09.2018 andacknowledged the amount outstanding as on 30.09.2018. On thebasis of this letter and the record showing that the CorporateDebtor had executed various documents amounting toacknowledgement of the debt even in the financial year 2019-20,the NCLT was of the opinion that the application was filed withinthe period of limitation. The said view was upheld by the NCLAT.[Para 22][853-D-G]

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842SUPREME COURT REPORTS

A7. The burden of prima facie proving occurrence of thedefault and that the application filed under Section 7 of the Codeis within the period of limitation, is entirely on the financial creditor.While the decision to admit an application under Section 7 istypically made on the basis of material furnished by the financialcreditor, the Adjudicating Authority is not barred from examiningBthe material that is placed on record by the corporate debtor todetermine that such application is not beyond the period oflimitation. Undoubtedly, there is sufficient material in the presentcase to justify enlargement of the extension period in accordancewith Section 18 of the Limitation Act and such material has alsoCbeen considered by the Adjudicating Authority before admittingthe application under Section 7 of the Code. The plea of Section18 of the Limitation Act not having been raised by the FinancialCreditor in the application filed under Section 7 cannot come tothe rescue of the Appellants in the facts of this case. It is clarifiedthat the onus on the financial creditor, at the time of filing anDapplication under Section 7, to prima facie demonstrate defaultwith respect to a debt, which is not time-barred, is not sought tobe diluted herein. In the present case, if the documentsconstituting acknowledgement of the debt beyond April, 2016had not been brought on record by the Corporate Debtor, theEapplication would have been fit for dismissal on the ground oflack of any plea by the Financial Creditor before the AdjudicatingAuthority with respect to extension of the limitation period andapplication of Section 18 of the Limitation Act. [Paras 23-24][853-G-H; 854-A-D]FPalogix Infrastructure Private Limited v. ICICI BankLimited (2017 SCC Online NCLAT 266) – approved.

Dena Bank v. C. Shivkumar Reddy & Anr. (2021) SCCOnline SC 543; Asset Reconstruction Company (India)Limited v. Bishal Jaiswal & Anr. (2021) 6 SCC 366;GNoharlal Verma v. District Cooperative Central BankLimited, Jagdalpur (2008) 14 SCC 445 : [2008] 14 SCR774; B.K. Educational Services Private Limited v. ParagGupta and Associates (2019) 11 SCC 633 : [2018] 12SCR 794 – referred to.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No.4222 of2020.

From the Judgment and Order dated 18.12.2020 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No.621 of 2020.

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Rana Mukherjee, Sr. Adv., Nalin Tripathi, Nishank Tripathi, JasmineMorris, Abhikalp Pratap Singh, Advs. for the Appellants.

Rajesh Srivastava, Alok Kumar, G. N. Reddy, Uday Arora, Advs.for the Respondents.

The Judgment of the Court was delivered by D

L. NAGESWARA RAO, J.

1. Respondent No. 2 filed an application under Section 7 of theInsolvency and Bankruptcy Code, 2016 (hereinafter referred to asthe‘Code’) which was admitted by the National Company Law Tribunal,Ahmedabad bench (hereinafter referred to as the ‘NCLT’ or‘Adjudicating Authority’) on 01.06.2020. The Appellants, who are thesuspended directors of the board of R.K. Infratel Ltd. (hereinafterreferred to as the ‘Corporate Debtor’), filed an appeal which wasrejected by the National Company Law Appellate Tribunal, Delhi(hereinafter referred to as the ‘NCLAT’). Therefore, this Appeal.

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2. The Corporate Debtor is in the business of setting upunderground fiber network in the cities of Surat, Ahmedabad, Vapi,Silvasa, Ankleswar and in South Gujarat, and providing dedicated darkfiber, broadband, internet leased line, VPN, point-to-point, wi-fi andwiMAX connections and CCTV surveillance services to corporateentities, financial institutions and other organisations. Respondent No. 2,Union Bank of India (hereinafter referred to as the ‘Bank’ or ‘FinancialCreditor’), sanctioned a loan of Rs. 4.5 crore which was cleared by theCorporate Debtor on 08.12.2012. Another loan was granted by theFinancial Creditor for Rs. 3.5 crore which was also repaid on 28.05.2018.

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AThereafter, loans were granted by the Financial Creditor to the CorporateDebtor but the Corporate Debtor was unable to settle the dues of theFinancial Creditor in time. On 30.09.2014, the account of the CorporateDebtor was declared as non-performing asset (NPA). The FinancialCreditor issued notice for recovery of all dues payable by the CorporateDebtor on 01.10.2014. Pursuant to the notice, the Financial CreditorBfiled an application before the Ahmedabad bench of the Debt RecoveryTribunal under Section 19 of the Recovery of Debts Due to Banks andFinancial Institutions Act, 1993 for recovery of the dues, which is stillpending consideration.

3. On 25.04.2019, the Financial Creditor filed an application underCSection 7 of the Code, which was admitted on 01.06.2020. The FinancialCreditor averred, in the application filed under Section 7 of the Code,that the Corporate Debtor owed an amount of Rs. 24.62 crore as on31.03.2019. The Financial Creditor submitted documents in support ofits claim, including a debit balance confirmation letter dated 07.04.2016

Dsigned by the Corporate Debtor. On the other hand, the Corporate Debtorcontended that the application was time-barred. It was further contendedby the Corporate Debtor that the application under Section 7 filed by theFinancial Creditor was legally untenable, as proceedings before the DebtRecovery Tribunal, including a counter claim by the Corporate Debtor,were still pending consideration. After examining the material on record,Ethe Adjudicating Authority held, by an order dated 01.06.2020, thatthe application under Section 7 was not barred by limitation. TheAdjudicating Authority referred to the debit balance confirmation letterdated 07.04.2016 and regular credit entries made after 07.04.2016 tillMay, 2018 to come to the said conclusion. A letter by the CorporateFDebtor dated 17.11.2018 giving details of the amount repaid till 30.09.2018and acknowledging the outstanding amount as on 30.09.2018 was alsoreferred to by the NCLT. In addition, the reply of the Corporate Debtorwas relied upon wherein payment of an amount of Rs. 16.17 lakh duringthe financial year 2019-20 was admitted. The Adjudicating Authorityrejected the contention of the Corporate Debtor that the application filedGby the power of attorney holder on behalf of the Financial Creditor wasnot maintainable.

4. The Corporate Debtor reiterated its stand that the applicationunder Section 7 of the Code was barred by limitation before the NCLAT.According to the Corporate Debtor, the payments made by it to theH

RAJENDRA NAROTTAMDAS SHETH & ANR. v. CHANDRAPRAKASH JAIN & ANR. [L. NAGESWARA RAO, J.]

Bank after its account was declared as NPA could not extend the periodof limitation. It was further contended by the Corporate Debtor that the“cut back offer” cannot be taken into account for attracting Section 19of the Limitation Act, 1963 (hereinafter referred to as the ‘LimitationAct’). It was argued on behalf of the Corporate Debtor that Section 18of the Limitation Act is also not applicable to the facts of this case. Thefurther argument of the Corporate Debtor was that the power of attorneyin favour of the individual who has signed the application under Section7 of the Code had been granted prior to the Code coming into forcewithout any specific authorisation to initiate proceedings under the Code,and therefore, the application was not maintainable.

5. The NCLAT examined the power of attorney given by theBank to Mr. Praveen Kumar Gupta and found no merit in the argumentof the Corporate Debtor that the application under Section 7 of the Codewas not maintainable as it was filed by a power of attorney holder. In sofar as limitation is concerned, the NCLAT referred to all the documentsas well as the “cut back arrangement” relied on by the NCLT to holdthat the application under Section 7 of the Code was filed within theprescribed time. It was further observed by the NCLAT that the CorporateDebtor could not demonstrate any error in the order of the AdjudicatingAuthority. Accordingly, the NCLAT dismissed the appeal of the CorporateDebtor.

6. Essentially, there are two issues that arise for consideration inthis Appeal. The first pertains to the maintainability of the applicationunder Section 7 of the Code filed by a power of attorney holder. Thesecond relates to the question of limitation.

Maintainability of the application under Section 7 when filedby a power of attorney holder

7. Mr. Rana Mukherjee, learned Senior Counsel appearing forthe Appellants, submitted that the application filed on behalf of theFinancial Creditor under Section 7 of the Code was on the basis of apower of attorney. He relied upon a judgment of the NCLAT in PalogixInfrastructure Private Limited v. ICICI Bank Limited[1] in which itwas held that an ‘authorised person’, distinct from a ‘power of attorneyholder’, can file an application under Section 7 and that a ‘power ofattorney holder’ is not competent to file an application on behalf of a AB

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Afinancial creditor. According to Mr. Mukherjee, the defect in filing of theapplication by an unauthorised person is not curable. Assuming it iscurable, the Financial Creditor failed to rectify the defect within the timestipulated under Section 7 (5) of the Code, in spite of an order passed bythe Adjudicating Authority on 22.01.2020 granting time to the FinancialCreditor. He submitted that the person who filed the application underBSection 7 of the Code is not the authorised representative of the FinancialCreditor and therefore, the application was liable to be dismissed.

8. On the other hand, the Financial Creditor contended that thepower of attorney was executed in favour of Mr. Praveen Kumar Gupta,which was perused by both the Adjudicating Authority and the NCLATCto conclude that the application was filed by the authorised person. Mr. Alok Kumar, the learned Counsel appearing for the Financial Creditor,also relied upon the judgment in Palogix Infrastructure (supra) andargued that a person authorised by way of a power of attorney can filean application under Section 7 of the Code. D

9. Initiation of the corporate insolvency resolution process by afinancial creditor is dealt with under Section 7 of the Code. Section 7 (2)provides that the financial creditor shall make an application in suchform and manner and accompanied with such fee as may be prescribed.As per Rule 4 of the Insolvency and Bankruptcy (Application toEAdjudicating Authority) Rules, 2016 (hereinafter, ‘the 2016 Rules’), thefinancial creditor is required to make an application for initiating thecorporate insolvency resolution process against the corporate debtor underSection 7 of the Code in Form 1, accompanied with documents andrecords required therein. Form 1 is in a tabular form and the financialcreditor has to give particulars of the details sought. Further, the Form isFrequired to be signed by the “person authorised to act on behalf of thefinancial creditor”.

10. The authorisation, in terms of the power of attorney, given bythe Financial Creditor to Mr. Praveen Kumar Gupta who has filed theapplication under Section 7 of the Code has been placed on record.GPursuant to the resolution passed by the board of directors of the Bankon 06.12.2008, the power of attorney was executed by the generalmanagers in 2011. By way of the said power of attorney, Mr. PraveenKumar Gupta was appointed by the Bank to act as its constituted attorneywith respect to “all the business and affairs of the Bank and toHconduct and manage and to assist in the conduct and management

of all such businesses and affairs of the Bank, both within andoutside India and to do all acts, deeds and things necessary orproper for carrying on the business and affairs of the Bank”. Further,Mr. Praveen Kumar Gupta has also been authorised to “commence,prosecute, endorse, defend, answer and/or oppose any suit or otherlegal proceedings including any civil or criminal proceedings inany Court or Tribunals and any demand touching any matters inwhich the Bank may or may hereafter be interested or concernedand also, … compromise, refer to arbitration, abandon, submit tojudgement or become non-suited, in any such suits or proceedings,to appoint advocate, solicitors and pleaders as occasion shallrequire and to make sign, execute, present and file all applications,plaints, petitions, written statements, vakalatnamas or any otherpapers expedient or necessary … to be made, signed, executed,presented or filed”.

11. The NCLAT in its judgment in Palogix Infrastructure (supra)held that a ‘power of attorney holder’ is not competent to file an applicationunder Section 7 on behalf of the financial creditor. However, the NCLATmade certain further observations, as reproduced below:

“41. In so far as the present case is concerned, the ‘FinancialCreditor’-Bank has pleaded that by Board’s Resolutions dated30[th] May, 2002 and 30[th] October, 2009, the Bank authorisedits officers to do needful in the legal proceedings by andagainst the Bank. If general authorisation is made by any‘Financial Creditor’ or ‘Operational Creditor’ or ‘CorporateApplicant’ in favour of its officers to do needful in legalproceedings by and against the ‘Financial Creditor’ /’Operational Creditor’ / ‘Corporate Applicant’ in favour ofits officer, mere use of word ‘Power of Attorney’ whiledelegating such power will not take away the authority ofsuch officer and for all purposes it is to be treated as an‘authorization’ by the ‘Financial Creditor’ / ‘OperationalCreditor’ / ‘Corporate Applicant’ in favour of its officer, whichcan be delegated even by designation. In such case, officerdelegated with power can claim to be the ‘AuthorizedRepresentative’ for the purpose of filing any application undersection 7 or Section 9 or Section 10 of ‘I &B Code’.”

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AThe NCLAT was of the opinion that general authorisation givento an officer of the financial creditor by means of a power of attorney,would not disentitle such officer to act as the authorised representativeof the financial creditor while filing an application under Section 7 of theCode, merely because the authorisation was granted through a power ofattorney. Moreover, the NCLAT in Palogix Infrastructure (supra) hasBheld that if the officer was authorised to sanction loans and had done so,the application filed under Section 7 of the Code cannot be rejected onthe ground that no separate specific authorisation letter has been issuedby the financial creditor in favour of such officer. In such cases, thecorporate debtor cannot take the plea that while the officer has powerCto sanction the loan, such officer has no power to recover the loan amountor to initiate corporate insolvency resolution process, in spite of defaultin repayment. We approve the view taken by the NCLAT in PalogixInfrastructure (supra).

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12. In the present case, Mr. Praveen Kumar Gupta has been givenDgeneral authorisation by the Bank with respect to all the business andaffairs of the Bank, including commencement of legal proceedings beforeany court or tribunal with respect to any demand and filing of all necessaryapplications in this regard. Such authorisation, having been granted byway of a power of attorney pursuant to a resolution passed by the Bank’sboard of directors on 06.12.2008, does not impair Mr. Gupta’s authorityEto file an application under Section 7 of the Code. It is therefore clearthat the application has been filed by an authorised person on behalf ofthe Financial Creditor and the objection of the Appellants on themaintainability of the application on this ground is untenable.LimitationF

13. Mr. Rana Mukherjee, learned Senior Counsel appearing forthe Appellants, contended that the date of default is shown as 30.09.2014in the application filed under Section 7 of the Code. He submitted thatthe application under Section 7 filed on 25.04.2019 was barred bylimitation as it was not filed within three years from the date of default.GHe further argued that apart from the debit balance confirmation letterdated 07.04.2016, no other document extending the period of limitationhas been filed along with the application under Section 7 of the Code.No other information has been provided by the Financial Creditor toshow that the application under Section 7 was filed within the period ofHlimitation. The balance sheet referred to by the Financial Creditor in the application relates to the financial year 2015-2016 which does not savethe period of limitation. He argued that the application ought to havebeen rejected at the threshold in view of the absence of any pleading orproof that the application was filed within limitation. Reliance was placedby him on a judgment of this Court in Babulal Vardharji Gurjar v. VeerGurjar Aluminium Industries Private Limited & Anr.[2].

14. In response, Mr. Alok Kumar, learned Counsel appearing forthe Financial Creditor, submitted that no error was committed by theAdjudicating Authority in admitting the application filed under Section 7of the Code, after perusing the documents filed by the Financial Creditoralong with the application. It was further submitted that the materialplaced on record by the Corporate Debtor before the AdjudicatingAuthority clearly shows acknowledgement of the debt till the year 2019.Therefore, the application under Section 7 filed on 25.04.2019 cannot besaid to be beyond the period of limitation in terms of Section 18 of theLimitation Act.

15. Section 7 (1) of the Code enables a financial creditor to file anapplication for initiating corporate insolvency resolution process againsta corporate debtor before the adjudicating authority when a default hasoccurred. Sub-section (2) thereof provides that the application shall bein the form and manner as prescribed. Sub-section (3) obligates thefinancial creditor to furnish the record of default recorded with theinformation utility or such other record or evidence of default as may bespecified, along with the application. On the basis of records of aninformation utility or on the basis of other evidence furnished by thefinancial creditor under sub-section (3), the Adjudicating Authority withina period of 14 days shall ascertain the existence of a default, as stipulatedunder sub-section (4). According to sub-section (5), the AdjudicatingAuthority may admit the application filed under sub-section (2), wherethe Adjudicating Authority is satisfied that a default has occurred, theapplication filed is complete and no disciplinary proceedings are pendingagainst the proposed resolution professional. As per sub-section (6), thecorporate insolvency resolution process shall commence from the dateof admission of the application.

16. Rule 4 of the 2016 Rules prescribes that the application underSection 7 of the Code shall be filed in Form 1, accompanied by documents 2 (2020) 15 SCC 1

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Aand records required therein and as specified in the Insolvency andBankruptcy Board of India (Insolvency Resolution Process for CorporatePersons) Regulations, 2016. Regulation 2-A of the said Regulationspermits the financial creditor to furnish, as evidence of default, (a)certified copy of entries in the relevant account in the bankers’ book asdefined in clause (3) of section 2 of the Bankers’ Books Evidence Act,B1891, and (b) an order of a court or tribunal that has adjudicated uponthe non-payment of a debt, where the period of appeal against suchorder has expired. Form 1 is in a printed format and in five parts, whereinthe financial creditor shall give his particulars, the particulars of thecorporate debtor, the proposed interim resolution professional and theCfinancial debt. The date on which the default has occurred shall beprovided by the financial creditor as required in Part IV. In Part V ofForm 1, the financial creditor is required to furnish documents as listedtherein as well as other documents that may be relevant to prove theexistence of financial debt, the amount and the date of default.

D17. The date of default in the Babulal Vardharji Gurjarcase(supra) was 08.07.2011, being the date of the NPA. The particularsof financial debt with documents and evidence on record as required inPart V of the application were not furnished by the financial creditor.As no foundation was laid in the application suggesting anyacknowledgement or any other date of default, the financial creditorEwas not permitted to make submissions at a later stage to the effect thatthe application filed was with the limitation period. In the said factsituation, this Court in Babulal Vardharji Gurjar (supra) held that Section18 of the Limitation Act and the principles thereof were not applicable.In Dena Bank v. C. Shivkumar Reddy & Anr.[3], this Court had occasion Fto deal with the pleadings and the documents required to be filed at thetime of making of an application under Section 7 of the Code. It wasobserved therein that the financial creditor can only fill in the particularsas mentioned in Form 1 and there is no scope for elaborate pleadings.This Court was of the view that an application under Section 7 cannot be compared with a plaint in a suit. It was further held in the said judgmentGthat there is no bar for filing of documents as required under Section 7,until a final order either admitting or dismissing the application has beenpassed. While concluding, this Court had opined that in case of inordinatedelay, the Adjudicating Authority, at its discretion, may allow or decline the request of the applicant to file additional pleadings and / or documentsbefore passing the final order.

18. While examining the question of maintainability of an applicationfiled under Section 7 of the Code in the absence of a plea regarding theacknowledgement of liability, this Court in Asset ReconstructionCompany (India) Limited v. Bishal Jaiswal & Anr.[4], gave anopportunity to the financial creditor to amend its pleadings before theNCLAT on payment of costs of Rs.1 lakh. In the said case, the corporatedebtor’s account was declared as NPA from 2010. The NCLT admittedthe application under Section 7 on the ground that there was a continuingcause of action. The NCLAT dismissed the appeal of the corporatedebtor on the ground that limitation would commence from the date onwhich the Code came into force, i.e., 01.12.2016. This Court remandedthe matter back to the NCLAT to re-examine the question of limitation.After remand, the NCLAT allowed the appeal filed by the corporatedebtor on the ground that the three years’ period from the date of thecorporate debtor’s account being classified as NPA, prescribed underSection 137 of the Limitation Act, had expired on 30.12.2017. In theappeal filed against the order passed by the NCLAT before this Court,the financial creditor argued that there was acknowledgement on thepart of the corporate debtor. On the other hand, the corporate debtorcontended that there was no pleading either before the NCLT or theNCLAT regarding the acknowledgement of liability extending limitation.An application was filed by the financial creditor before this Court toamend the pleadings, arguing that such amendment could be permittedby this Court. Noting that the financial creditor had been remiss in pleadingacknowledgement of liability but given the staggering amounts allegedlydue, the financial creditor was given an opportunity to amend its pleadingsbefore the NCLAT in support of its contention that there wasacknowledgement of liability, subject to payment of costs.

19. Any suit, appeal or application filed after the prescribed periodof limitation shall be dismissed in spite of limitation not being set up as adefence, as per Section 3 of the Limitation Act. Section 238A of theCode makes the provisions of the Limitation Act applicable to theproceedings before the Adjudicating Authority, as far as may be.Therefore, the Adjudicating Authority is duty-bound to scrutinise theapplication filed under Section 7 of the Code and come to a conclusion4 (2021) 6 SCC 366

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Aon whether such application is barred by limitation, even in the absenceof any plea with respect to limitation. (See: Noharlal Verma v. DistrictCooperative Central Bank Limited, Jagdalpur[5])

20. There can be no doubt that it is the responsibility of the financialcreditor to give all particulars relating to the debt due and the date ofBdefault, along with the requisite documents, at the time of filing of anapplication under Section 7 of the Code. A plain reading of Section 7,Rule 4 of the 2016 Rules and Form 1 makes it clear that the AdjudicatingAuthority may admit an application under Section 7 only if he is satisfiedthat a default has occurred. The definition of ‘default’ underSection 3 (12) of the Code refers to non-payment of debts which areC“due and payable” in law, meaning thereby that an application underSection 7 of the Code is maintainable only with respect to debts that arenot time-barred. (See: B.K. Educational Services Private Limited v.Parag Gupta and Associates[6]) The primary obligation of making out aprima facie case of default is on the financial creditor. There is noDnecessity for the corporate debtor to provide any information at the stageof admission of the application under Section 7 of the Code, as the burdenof showing non-payment of a legally recoverable debt, which is not time-barred, is on the financial creditor. At the same time, it is clear from thejudgments of this Court in Asset Reconstruction (supra) and Dena Bank(supra) that non-furnishing of information by the financial creditor at theEtime of filing an application under Section 7 of the Code need notnecessarily entail in dismissal of the application. An opportunity can beprovided to the financial creditor to provide additional information requiredfor satisfaction of the Adjudicating Authority with respect to theoccurrence of the default.F

21. In the instant case, there is no dispute that the date of defaultis 30.09.2014 and the application under Section 7 of the Code was filedon 25.04.2019. According to the Financial Creditor, Section 18 of theLimitation Act is applicable in view of the Corporate Debtoracknowledging its debt by way of letters, written in and after 2018, givingGdetails of amount repaid, acknowledging the amount outstanding andrequesting consideration of one-time settlement proposal. Sub-section(1) of Section 18 of the Limitation Act reads as under:

5 (2008) 14 SCC 445H6 (2019) 11 SCC 633

RAJENDRA NAROTTAMDAS SHETH & ANR. v. CHANDRAPRAKASH JAIN & ANR. [L. NAGESWARA RAO, J.]

18. Effect of acknowledgement in writing. – (1) Where, beforethe expiration of the prescribed period for a suit or applicationin respect of any property or right, an acknowledgement ofliability in respect of such property or right has been made inwriting signed by the party against whom such property orright is claimed, or by any person through whom he deriveshis title or liability, a fresh period of limitation shall becomputed from the time when the acknowledgement was sosigned.

It is no more res integra that Section 18 of the Limitation Act isapplicable to applications filed under Section 7 of the Code. In case theapplication under Section 7 is filed beyond the period of three yearsfrom the date of default and the financial creditor furnishes the requiredinformation relating to the acknowledgement of debt, in writing by thecorporate debtor, before the Adjudicating Authority, with suchacknowledgement having taken place within the initial period of threeyears from the date of default, a fresh period of limitation commencesand the application can be entertained, if filed within this extended period.

22. There is no dispute that the date of default in this case is30.09.2014, as mentioned by the financial creditor in its application underSection 7. A copy of the debit balance confirmation letter dated 07.04.2016was filed along with the application. As the application was filed only on25.04.2019, which is beyond a period of three years even after takinginto account the debit balance confirmation letter dated 07.04.2016, theapplication was barred by limitation. However, the Corporate Debtorhad, in its reply before the Adjudicating Authority, placed on record aletter dated 17.11.2018, which detailed the amount repaid till 30.09.2018and acknowledged the amount outstanding as on 30.09.2018. On thebasis of this letter and the record showing that the Corporate Debtorhad executed various documents amounting to acknowledgement of thedebt even in the financial year 2019-20, the NCLT was of the opinionthat the application was filed within the period of limitation. The saidview was upheld by the NCLAT.

23. We have already held that the burden of prima facie provingoccurrence of the default and that the application filed under Section 7of the Code is within the period of limitation, is entirely on the financialcreditor. While the decision to admit an application under Section 7 istypically made on the basis of material furnished by the financial creditor, AB

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D

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H

Athe Adjudicating Authority is not barred from examining the materialthat is placed on record by the corporate debtor to determine that suchapplication is not beyond the period of limitation. Undoubtedly, there issufficient material in the present case to justify enlargement of theextension period in accordance with Section 18 of the Limitation Actand such material has also been considered by the Adjudicating AuthorityBbefore admitting the application under Section 7 of the Code. The pleaof Section 18 of the Limitation Act not having been raised by the FinancialCreditor in the application filed under Section 7 cannot come to the rescueof the Appellants in the facts of this case. It is clarified that the onus onthe financial creditor, at the time of filing an application under Section 7,Cto prima facie demonstrate default with respect to a debt, which is nottime-barred, is not sought to be diluted herein. In the present case, if thedocuments constituting acknowledgement of the debt beyond April, 2016had not been brought on record by the Corporate Debtor, the applicationwould have been fit for dismissal on the ground of lack of any plea bythe Financial Creditor before the Adjudicating Authority with respect toDextension of the limitation period and application of Section 18 of theLimitation Act.

24. In view of the aforesaid, the Appeal is dismissed.

E

Ankit Gyan

Appeal dismissed.

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G

H