DENA BANK (NOW BANK OF BARODA) versus C. SHIVAKUMAR REDDY AND ANR. on 4 August 2021

[2021] 8 S.C.R. 1061

DENA BANK (NOW BANK OF BARODA)

v.

C. SHIVAKUMAR REDDY AND ANR.

(Civil Appeal No.1650 of 2020)

AUGUST 04, 2021

[INDIRA BANERJEE AND V. RAMASUBRAMANIAN, JJ.]

Insolvency and Bankruptcy Code, 2016:

s. 7 – Initiation of corporate insolvency resolution processby financial creditor – Petition u/s. 7, if barred by limitation – Onfacts, appellant Bank sanctioned term loan and letter of credit cumbuyer’s credit in favour of corporate debtor – However, in 2013the corporate debtor defaulted in repayment of its dues to the bankand loan amount declared as non-performing asset-NPA –Issuanceof notice to corporate debtor in 2014, to clear its dues – Pursuantthereto, in 2015 Bank filed application for recovery of theoutstanding dues – In 2017, Debt Recovery tribunal passed arecovery order alongwith recovery certificate in favour of the Bank– Thereafter, in 2018, Bank filed petition u/s. 7 of the IBC – Withinthree months, Bank filed application to place on record additionaldocuments, recovery order and recovery certificate which wasallowed – Another application allowed to place on record letter ofthe corporate debtor proposing one time settlement, and financialstatements of the corporate debtor – Thereafter, petition u/s. 7admitted by the adjudicating authority-NCLT, however, the appellateauthority-NCLAT set aside the said order, holding the applicationto be barred by limitation – On appeal, held: Application u/s. 7 notbarred by limitation, on the ground that it had been filed beyond aperiod of three years from the date of declaration of the loan accountof the corporate debtor as NPA – There was an acknowledgementof the debt by the corporate debtor before expiry of the period oflimitation of three years, in which case the period of limitation wouldget extended by a further period of three years –Recovery order bythe DRT and the recovery certificate issued in favour of the Bankin 2017 gave a fresh cause of action to the Bank to initiate a petitionu/s. 7 – Offer of one time settlement of a live claim made in 201, andthe balance sheets and financial statements of the corporate debtor

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Afor 2016-2017, constitute acknowledgement of liability whichextended the limitation by three years – These documents werebrought on record before any final decision was taken in the petitionu/s. 7, thus, NCLT rightly admitted the application.

s. 7 – Application u/s. 7 for initiation of Corporate insolvencyBresolution process (CIRP) – Limitation period of three years forfiling application – Final judgment and decree of the Debt Recoverytribunal in favour of the financial creditor, as also issuance ofrecovery certificate – Held: Would give rise to a fresh cause ofaction to the Financial Creditor to initiate proceedings u/s. 7 forinitiation of CIRP, within three years from the date of the finalCjudgment and decree, and/or within three years from the date ofissuance of the recovery certificate.

s. 7 – Application under – Filing of additional documents –Permissibility of – Held: There is no bar in law to the amendment ofpleadings, in a petition u/s. 7 or to the filing of additional documents,Dapart from those filed initially, along with the petition u/s. 7 of theIBC in Form-1 – In the absence of any express provision prohibitingor setting a time limit for filing of additional documents, it cannotbe said that the Adjudicating Authority committed any illegality orerror in permitting the Bank to file additional documents – WhenEthere is inordinate delay, the Adjudicating Authority might, at itsdiscretion, decline the request of an applicant to file additionalpleadings and/or documents, and proceed to pass a final order.

s. 3(12)– ‘Default’ –Definition of – Held: Is “non-payment’of a debt which has become due and payable whether in whole orFany part and is not paid by the Corporate Debtor”.

Object and scope of – Nature of construction – Held: IBC isa beneficial legislation for equal treatment of all creditors of thecorporate debtor, as also the protection of the livelihoods of itsemployees/workers, by revival of the corporate debtor – It onlyGsegregates the interests of the corporate debtor from those of itspromoters/persons in management – Relegation of creditors to theremedy of coercive litigation against the corporate debtors couldbe detrimental to the interests of the corporate debtor and its creditorsalike – Thus, the provisions of the IBC and the Rules and Regulationsframed thereunder to be construed liberally, in a purposive mannerH

to further the objects of enactment of the statute, and not to begiven a narrow, pedantic interpretation which defeats the purposesof the Act.

Limitation Act, 1963:

Art. 137 – Applicability of, to Insolvency and BankruptcyCode – Held: There is no specific period of limitation prescribed inthe Limitation Act, for an application under the IBC, before theAdjudicating Authority (NCLT), thus, is governed by Art. 137 of theSchedule wherein the period of limitation prescribed for such anapplication is three years from the date of accrual of the right toapply – Thus, the period of limitation for making an application u/s. 7 or 9 of the IBC is three years from the date of accrual of theright to sue, that is, the date of default.

s. 18 – Acknowledgment in writing – Effect of – Held: As pers. 18, an acknowledgement of present subsisting liability, made inwriting in respect of any right claimed by the opposite party andsigned by the party against whom the right is claimed, has the effectof commencing a fresh period of limitation from the date on whichthe acknowledgement is signed – However, the acknowledgementmust be made before the relevant period of limitation has expired –An offer of One Time Settlement of a live claim, made within theperiod of limitation, can be construed as an acknowledgment toattract s. 18 of the Act.

Interpretation of statutes: Construction/interpretation ofstatutory provision – Held: Legislative intent of the statute is to beseen from the words used by the legislature itself – In case of doubtit is always safe to look into the object and purpose of the statuteor the reason and spirit behind it – Each word, phrase or sentencehas to be construed in the light of the general purpose of the Actitself.

Allowing the appeal, the Court

HELD: 1.1 Under Section 7(2) of the Insolvency andBankruptcy Code, 2016 read with the Insolvency and Bankruptcy(Application to Adjudicating Authority) Rules, 2016 made inexercise of powers conferred, inter alia, by clauses (c) (d) (e) and(f) of sub-section (1) of Section 239 read with Sections 7, 8, 9 and A

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A10 of the IBC, a financial creditor is required to apply in theprescribed Form 1 for initiation of the Corporate InsolvencyResolution Process, against a Corporate Debtor under Section7 of the IBC, accompanied with documents and records requiredtherein, and as specified in the Insolvency and Bankruptcy Boardof India (Insolvency Resolution Process for Corporate Persons)BRegulations, 2016. [Para 71][1112-B-D]

1.2 Since a Financial Creditor is required to apply underSection 7 of the IBC, in statutory Form 1, the Financial Creditorcan only fill in particulars as specified in the various columns ofthe Form. There is no scope for elaborate pleadings. AnCapplication to the Adjudicating Authority (NCLT) under Section7 of the IBC in the prescribed form, cannot therefore, becompared with the plaint in a suit. Such application cannot bejudged by the same standards, as a plaint in a suit, or any otherpleadings in a Court of law. [Para 73][1113-E-F]

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1.3 The IBC is not just another statute for recovery of debts.Nor is it a statute which merely prescribes the modalities ofliquidation of a Corporate body, unable to pay its debts. It isessentially a statute which works towards the revival of aCorporate body, unable to pay its debts, by appointment of aEResolution Professional. [Para 79][1115-A-B]

Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC407 : [2017] 8 SCR 33; P. Mohanraj & Ors. v. ShahBrothers Ispat Private Limited (2021) SCC Online SC152; Swiss Ribbons Private Limited & Anr. v. Union ofFIndia and Ors. (2019) 4 SCC 17 : [2019] 3 SCR 535 –referred to.

1.4 IBC has overriding effect over other laws. Section 238of the IBC provides that the provisions of the IBC shall haveeffect, notwithstanding anything inconsistent therewith containedGin any other law, for the time being in force, or any otherinstrument, having effect by virtue of such law. Unlike coerciverecovery litigation, the Corporate Insolvency Resolution Processunder the IBC is not adversarial to the interests of the Corporate DENA BANK (NOW BANK OF BARODA) v. C. SHIVAKUMARREDDY AND ANR.

Debtor. On the other hand, the IBC is a beneficial legislation forequal treatment of all creditors of the Corporate Debtor, as alsothe protection of the livelihoods of its employees/workers, byrevival of the Corporate Debtor through the entrepreneurial skillsof persons other than those in its management, who failed to clearthe dues of the Corporate Debtor to its creditors. It onlysegregates the interests of the Corporate Debtor from those ofits promoters/persons in management. [Para 84-86][1120-A-D]

1.5 Relegation of creditors to the remedy of Coercivelitigation against the Corporate Debtors could be detrimental tothe interests of the Corporate Debtor and its creditors alike.While multiple coercive proceedings against a Corporate Debtorin different forums could impede its commercial/businessactivities, deplete its cash reserves, dissipate its assets,moveable and immoveable and precipitate its commercial death,such proceedings might not be economically viable for thecreditors as well, because of the length of time consumed in thelitigations, the expenses of litigation, and the uncertainties ofrealisation of claims even after ultimate success in the litigation.Itis, therefore, imperative that the provisions of the IBC and theRules and Regulations framed thereunder be construed liberally,in a purposive manner to further the objects of enactment of thestatute, and not be given a narrow, pedantic interpretation whichdefeats the purposes of the Act. [Para 87, 88][1120-D-G]

1.6 In construing and/or interpreting any statutory provisionone must look into the legislative intent of the statute. Theintention of the statute has to be found in the words used by thelegislature itself. In case of doubt it is always safe to look intothe object and purpose of the statute or the reason and spiritbehind it. Each word, phrase or sentence has to be construed inthe light of the general purpose of the Act itself. The interpretativeeffort “must be illumined by the goal, though guided by thewords”. When a question arises as to the meaning of a certainprovision in a statute the provision has to be read in its context.The statute has to be read as a whole. The previous state of thelaw, the general scope and ambit of the statute and the mischief

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[2021] 8 S.C.R.

Athat it was intended to remedy are relevant factors. [Para 89,90][1120-G-H; 1121-A-B]

Popatlal Shah v. State of Madras AIR 1953 SC 274 :[1953] SCR 677 – relied on.

1.7 On a careful reading of the provisions of the IBC and inBparticular the provisions of Section 7(2) to (5) of the IBC readwith the 2016 Adjudicating Authority Rules there is no bar to thefiling of documents at any time until a final order either admittingor dismissing the application has been passed. The timestipulation of fourteen days in Section 7(4) to ascertain theCexistence of a default is apparently directory not mandatory. Theproviso inserted by amendment with effect from 28th December,2019 provides that if the Adjudicating Authority has notascertained the default and passed an order under sub-section(5) of Section 7 of the IBC within the aforesaid time, it shall recordits reasons in writing for the same. No other penalty is stipulated.DFurthermore, the proviso to Section 7(5)(b) of the IBC obligesthe Adjudicating Authority to give notice to an applicant, to rectifythe defect in its application within seven days of receipt of suchnotice from the Adjudicating Authority, before rejecting itsapplication under Clause (b) of sub-section (5) of Section 7 of theEIBC. When the Adjudicating Authority calls upon the applicantto cure some defects that defect has to be rectified within sevendays. There is no penalty prescribed for inability to cure thedefects in an application within seven days from the date of receiptof notice, and in an appropriate case, the Adjudicating Authoritymay accept the cured application, even after expiry of seven days,Ffor the ends of justice. Section 12 of the IBC imposes a time limitfor completion of the Corporate Insolvency Resolution Process.This time limit starts running from the date of admission of anapplication to initiate the Corporate Insolvency ResolutionProcess. [Para 91-94][1121-C-H; 1122-A]GArcelormittal (India) Pvt. Ltd. v. Satish Kumar Guptaand Anr. (2019) 2 SCC 1 : [2018] 12 SCR 362 – referredto.

1.8 The insolvency Committee of the Ministry of CorporateAffairs, Government of India, in a report published in March 2018,H

stated that the intent of the IBC could not have been to give anew lease of life to debts which were already time barred.Thereafter, Section 238A was incorporated in the IBC by theInsolvency and Bankruptcy Code (Second Amendment) Act, 2018(Act 26 of 2018), with effect from 6th June 2018. [Para 97][1123-G-H; 1124-A]

1.9 There is no specific period of limitation prescribed inthe Limitation Act, 1963, for an application under the IBC, beforethe Adjudicating Authority (NCLT). An application for which noperiod of limitation is provided anywhere else in the Schedule tothe Limitation Act, is governed by Article 137 of the Schedule tothe said Act. Under Article 137 of the Schedule to the LimitationAct, the period of limitation prescribed for such an application isthree years from the date of accrual of the right to apply. Theperiod of limitation for making an application under Section 7 or9 of the IBC is three years from the date of accrual of the right tosue, that is, the date of default. [Para 100, 101][1125-A-D]

Sesh Nath Singh and Anr. v. Baidyabati SheoraphuliCooperative Bank Ltd. and Anr. (2021) SCC OnlineSC 244; Gaurav Hargovindbhai Dave v. AssetReconstruction Company (India) Ltd. and Anr. (2019)SCC Online SC 1239 : (2019) 10 SCC 572 : [2019] 13SCR 224; B. K. Educational Services Private Limited v.Parag Gupta and Associates (2019) 11 SCC 633 :[2018] 12 SCR 794; Jignesh Shah and Anr. v. Union ofIndia and Anr. (2019) SCC online SC 1254 : (2019)10 SCC 750 : [2019] 12 SCR 678; Vashdeo R.Bhojwani v. Abhyudaya Co-operative Bank Ltd. & Ors.(2019) 9 SCC 158 : [2019] 12 SCR 75; BalkrishnaSavalram Pujari Waghmare v. Shree DhyaneshwarMaharaj Sansthan [1959] 2 Suppl. SCR 476 – referredto.

Issues

1.10 Limitation is essentially a mixed question of law andfacts and when a party seeks application of any particular provisionfor extension or enlargement of the period of limitation, therelevant facts are required to be pleaded and requisite evidenceis required to be adduced. [Para 106][1126-E-F]

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1068SUPREME COURT REPORTS

[2021] 8 S.C.R.

ABabulal Vardharji Gurjar v. Veer Gurjar AluminiumIndustries Private Limited (2020) 15 SCC 1 – reliedon.

1.11 In the instant case, admittedly there were freshdocuments before the Adjudicating Authority (NCLT), includingBa letter of offer dated 3.03.2017 for one time settlement of thedues of the Corporate Debtor to the Financial Creditor, uponpayment of Rs.5.5 crores. The Appellant Bank has also reliedupon financial statements up to 31st March, 2018 apart from thefinal judgment and order dated 27th March, 2017 in O.A.16/2015 and the subsequent Recovery Certificate No. 2060/2017Cdated 25th May, 2017 which constituted cause of action forinitiation of proceedings under Section 7 of the IBC. [Para110][1127-D-E]

1.12 It is not necessary for this Court to examine therelevance of all the documents filed by the Appellant BankDpursuant to its interim applications being I.A. No. 27 of 2019 andI.A. No. 131 of 2019. Suffice it to mention that the documentsenclosed with the applications being I.A. No. 27 of 2019 and I.A.No. 131 of 2019 and the pleadings in the supporting affidavits,made out a case for computation of limitation afresh from theEdates of the relevant documents. It would also be pertinent tonote that the reasons for the execution of the documents areirrelevant. It is not the case of the respondents, that any of thosedocuments were extracted through coercion. [Para 112][1127-F-H]

F1.13 As per Section 18 of Limitation Act, anacknowledgement of present subsisting liability, made in writingin respect of any right claimed by the opposite party and signedby the party against whom the right is claimed, has the effect ofcommencing a fresh period of limitation from the date on whichthe acknowledgement is signed. Such acknowledgement needGnot be accompanied by a promise to pay expressly or even byimplication. However, the acknowledgement must be made beforethe relevant period of limitation has expired. [Para 113][1128-A-B]

1.14 IBC does not exclude the application of Section 14 orH18 or any other provision of the Limitation Act. There is therefore DENA BANK (NOW BANK OF BARODA) v. C. SHIVAKUMARREDDY AND ANR.

no reason to suppose that Sections 14 or 18 of the Limitation Actdo not apply to proceedings under Section 7 or Section 9 of theIBC. [Para 114][1128-C-D]

Sesh Nath Singh and Anr. v. Baidyabati SheoraphuliCooperative Bank Ltd. and Anr. (2021) SCC OnlineSC 244; Laxmi Pat Surana v. Union Bank of India andOrs. (2021) SCC Online SC 267; Asset ReconstructionCompany (India) Limited. v. Bishal Jaiswal and Ors.(2021) SCC Online SC 321; Khan Bahadur ShapoorFredoom Mazda v. Durga Prasad Chamaria and OthersAIR 1961 SC 1236 : [1962] SCR 140 – referred to.

1.15 Entries in books of accounts and/or balance sheets ofa Corporate Debtor would amount to an acknowledgment underSection 18 of the Limitation Act. [Para 118][1129-E-F]

Asset Reconstruction Company (India) Limited. v. BishalJaiswal and Ors. (2021) SCC Online SC 321; BengalSilk Mills Co. v. Ismail Golam Hossain Ariff AIR 1962Cal 115; Re Pandem Tea Co. Ltd. AIR 1974 Cal 170;South Asia Industries (P) Ltd. v. General KrishnaShamsher Jung Bahadur Rana ILR (1972) 2 Del 712;Hegde & Golay Limited v. State Bank of India ILR 1987Kar 2673; Reliance Asset Reconstruction Co. Ltd. v.Hotel Poonja International Pvt. Ltd. (2021) 7 SCC352 – referred to.

1.16 The finding of the NCLAT that there was nothing onrecord to suggest that the ‘Corporate Debtor’ acknowledged thedebt within three years and agreed to pay debt is not sustainablein law, in view of the Statement of Accounts/Balance sheets/Financial Statements for the years 2016-2017 and 2017-2018 andthe offer of One Time Settlement referred to above including inparticular, the offer of One Time Settlement made on 3rd March,2017. [Para 126][1134-F-G]

1.17 Section 18 of the Limitation Act speaks of anacknowledgment in writing of liability, signed by the party againstwhom such property or right is claimed. Even if the writingcontaining the acknowledgment is undated, evidence might be

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Agiven of the time when it was signed. The explanation clarifiesthat an acknowledgment may be sufficient even though it isaccompanied by refusal to pay, deliver, perform or permit to enjoyor is coupled with claim to set off, or is addressed to a personother than a person entitled to the property or right. ‘Signed’ isto be construed to mean signed personally or by an authorisedBagent. [Para 127][1134-G-H; 1135-A]

1.18 In the instant case, Rs.111 lakhs had been paid towardsoutstanding interest on 28th March, 2014 and the offer of OneTime Settlement was within three years thereafter. In any case,NCLAT overlooked the fact that a Certificate of Recovery hasCbeen issued in favour of Appellant Bank on 25th May 2017. TheCorporate Debtor did not pay dues in terms of the Certificate ofRecovery. The Certificate of Recovery in itself gives a fresh causeof action to the Appellant Bank to institute a petition underSection 7 of IBC. The petition under Section 7 IBC was wellDwithin three years from 28th March 2014. [Para 128][1135-B-C]

Jignesh Shah and Anr. v. Union of India and Anr. (2019)SCC online SC 1254 : (2019) 10 SCC 750 : [2019] 12SCR 678; Ferro Alloys Corporation Limited v. RajhansSteel Limited (1999) SCC Online Pat 1196 – referredEto.

1.19 ‘Default’ is defined in Section 3(12) to mean “non-payment’ of a debt which has become due and payable whether inwhole or any part and is not paid by the Corporate Debtor”. [Para133][1136-F]F

1.20 It is true that, when the petition under Section 7 ofIBC was filed, the date of default was mentioned as 30.09.2013and 31.12.2013 was stated to be the date of declaration of theAccount of the Corporate Debtor as NPA. However, it is notcorrect to say that there was no averment in the petition of anyGacknowledgment of debt. Such averments were duly incorporatedby way of amendment, and the Adjudicating Authority rightlylooked into the amended pleadings. [Para 134][1136-G-H]

1.21 The Appellant Bank filed the Petition under Section 7of the IBC on 12th October 2018. Within three months, theAppellant Bank filed an application in the NCLT, for permissionto place additional documents on record including the finaljudgment and order/decree dated 27.3.2017 and the RecoveryCertificate dated 25.5.2017, enabling the Appellant Bank torecover Rs.52 crores odd. The judgment and order/decree ofthe DRT and the Recovery Certificate gave a fresh cause of actionto the Appellant Bank to initiate a petition under Section 7 of theIBC. [Para 135][1137-A-B]

1.22 On or about 5th March 2019, the Appellant Bank filedanother application for permission to place on record additionaldocuments including inter alia financial statements, Annual Reportetc. of the period from 1st April 2016 to 31st March 2017, andagain, from 1st April 2017 to 31st March 2018 and a letter dated3rd March 2017 proposing a One Time Settlement. Thisapplication was also allowed on 6th March 2021. The AdjudicatingAuthority, took into consideration the new documents andadmitted the petition under Section 7 of the IBC.Even assumingthat documents were brought on record at a later stage, theAdjudicating Authority was not precluded from considering thesame. The documents were brought on record before any finaldecision was taken in the Petition under Section 7 of IBC. [Para136, 137][1137-C-E]

1.23 A final judgment and order/decree is binding on thejudgment debtor. Once a claim fructifies into a final judgmentand order/decree, upon adjudication, and a certificate of Recoveryis also issued authorizing the creditor to realize its decretal dues,a fresh right accrues to the creditor to recover the amount of thefinal judgment and/or order/decree and/or the amount specifiedin the Recovery Certificate.The Appellant Bank was thus entitledto initiate proceedings u/s. 7 within three years from the date ofissuance of the Recovery Certificate. The Petition of the AppellantBank, would not be barred by limitation at least till 24th May,2020. [Para 138, 139][1137-E-G]

1.24 While it is true that default in payment of a debt triggersthe right to initiate the Corporate Resolution Process, and aPetition under Section 7 or 9 of the IBC is required to be filed

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Awithin the period of limitation prescribed by law, which in thiscase would be three years from the date of default by virtue ofSection 238A of the IBC read with Article 137 of the Schedule tothe Limitation Act, the delay in filing a Petition in the NCLT iscondonable under Section 5 of the Limitation Act unlike delay infiling a suit. Furthermore, Section 14 and 18 of the LimitationBAct are also applicable to proceedings under the IBC. [Para140][1137-G-H; 1138-A-B]

1.25 Section 18 of the Limitation Act cannot also beconstrued with pedantic rigidity in relation to proceedings underthe IBC. This Court sees no reason why an offer of One TimeCSettlement of a live claim, made within the period of limitation,should not also be construed as an acknowledgment to attractSection 18 of the Limitation Act. Be that as it may, the BalanceSheets and Financial Statements of the Corporate Debtor for 2016-2017, constitute acknowledgement of liability which extended theDlimitation by three years, apart from the fact that a Certificate ofRecovery was issued in favour of the Appellant Bank in May2017. The NCLT rightly admitted the application by its orderdated 21st March, 2019. [Para 141][1138-B-D]

1.26 An application under Section 7 of the IBC would notEbe barred by limitation, on the ground that it had been filed beyonda period of three years from the date of declaration of the loanaccount of the Corporate Debtor as NPA, if there were anacknowledgement of the debt by the Corporate Debtor beforeexpiry of the period of limitation of three years, in which case theperiod of limitation would get extended by a further period ofFthree years. Moreover, a judgment and/or decree for money infavour of the Financial Creditor, passed by the DRT, or any otherTribunal or Court, or the issuance of a Certificate of Recovery infavour of the Financial Creditor, would give rise to a fresh causeof action for the Financial Creditor, to initiate proceedings underGSection 7 for initiation of the Corporate Insolvency ResolutionProcess, within three years from the date of the judgment and/ordecree or within three years from the date of issuance of theCertificate of Recovery, if the dues of the Corporate Debtor tothe Financial Debtor, under the judgment and/or decree and/or H

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in terms of the Certificate of Recovery, or any part thereofremained unpaid. [Para 142, 143][1138-D-H]

1.27 There is no bar in law to the amendment of pleadingsin an application under Section 7 of the IBC, or to the filing ofadditional documents, apart from those initially filed along withapplication under Section 7 of the IBC in Form-1. In the absenceof any express provision which either prohibits or sets a timelimit for filing of additional documents, it cannot be said that theAdjudicating Authority committed any illegality or error inpermitting the Appellant Bank to file additional documents.Needless however, to mention that depending on the facts andcircumstances of the case, when there is inordinate delay, theAdjudicating Authority might, at its discretion, decline the requestof an applicant to file additional pleadings and/or documents, andproceed to pass a final order. The decision of the AdjudicatingAuthority to entertain and/or to allow the request of the AppellantBank for the filing of additional documents with supportingpleadings, and to consider such documents and pleadings did notcall for interference in appeal.The impugned judgment and orderis unsustainable in law and facts. [Para 144, 145][1138-H; 1139-A-D]

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Nazir Mohamed v. J. Kamala & Ors. (2020) SCCOnLine SC 676 – referred to.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1650Cof 2020.

From the Judgment and Order dated 18.12.2019 of the AppellateTribunal (NCLAT) in Company Appeal (AT) (Insolvency) No. 407 of2019.

Dhruv Mehta, Sr. Adv., Rajesh Kumar-I, Anant Gautam, NipunDSharma, Madhur Tewatia, Advs. for the Appellant.

Goutham Shivshankar, Adv. for the Respondents.

The Judgment of the Court was delivered by INDIRA BANERJEE, J.

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1. This Appeal under Section 62 of the Insolvency and BankruptcyCode, 2016 (IBC) is against a judgment and final order dated18[th] December 2019 passed by the National Company Law AppellateTribunal (NCLAT), allowing Company Appeal (AT) (Insolvency) No.407of 2019, filed by the Respondents and setting aside an order datedF21[st] March 2019 passed by the Adjudicating Authority/National CompanyLaw Tribunal (NCLT), Bengaluru, whereby the Adjudicating Authorityhad admitted the Petition being CP(IB) No.244/BB/2018 filed by theAppellant Bank against the Respondent No.2 (Corporate Debtor) underSection 7 of the IBC. The NCLAT held that the said Petition of theAppellant Bank under Section 7 of the IBC, was barred by limitation.GThe Respondent No.1 is a Director of the Corporate Debtor.

2. By a letter dated 23[rd] December, 2011 the Appellant Bank hadsanctioned Term Loan and Letter of Credit Cum Buyers’ Credit in favourof the Corporate Debtor, with an upper limit of Rs.45.00 Crores.

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3. The said Term Loan was to be repaid in 24 quarterly instalmentsof Rs.187.50 lakhs, which were to commence two years after the dateof disbursement, and the entire Term Loan was to be repaid in eightyears, inclusive of the implementation period of one year and themoratorium period.

4. The Corporate Debtor executed various documents includingDemand Promissory Notes, Letters of General Lien, etc. in favour ofthe Appellant Bank and also mortgaged its lease hold rights in itsimmovable property specified in the petition of appeal, by depositing theTitle of Deeds of the said immovable property with the Appellant Bank.

5. On 20[th] September, 2013 the Corporate Debtor defaulted inrepayment of its dues to the Appellant Bank. The Loan Account of theCorporate was therefore declared Non Performing Asset (NPA) on31[st] December 2013.

6. The Corporate Debtor addressed a letter dated 24[th] March2014 to the Appellant Bank, making a request for restructuring the TermLoan. The Appellant Bank did not accede to the request.

7. On 22[nd] December 2014, the Appellant Bank issued legal noticeto the Corporate Debtor as well as the Respondent No.2, calling uponthem to make payment of Rs.52.12 crores, claimed to be due from theCorporate Debtor as on 22[nd] December 2014. The Corporate Debtordid not make the payment.

8. On or about 1[st] January 2015, the Appellant Bank filed anapplication being O.A. No.16/2015 under Section 19 of the Recovery ofDebts Due to Banks and Financial Institutions Act, 1993, now known asthe Recovery of Debts and Bankruptcy Act, 1993 and hereinafterreferred to as ‘the Debt Recovery Act’ before the Debt Recovery Tribunal(in short, DRT) Bangalore for recovery of its outstanding dues ofRs.52,12,49,438.60 as on 22[nd] December 2014.

9. By a letter dated 5[th] January 2015, the Corporate Debtor repliedto the said notice dated 22[nd] December 2014, inter alia, requestingonce again, that the loan be restructured. Mr. Dhruv Mehta, SeniorAdvocate, appearing on behalf of the Appellant Bank submitted that theCorporate Debtor had accepted its liability to the Appellant Bank, by itsaforesaid letter dated 5[th] January 2015.

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A10. On or about 3[rd] March 2017, while proceedings were pendingin the DRT, the Corporate Debtor gave a proposal for one time settlementof the Term Loan Account, upon payment of Rs.5.50 crores. The proposalwas, however, not accepted by the Appellant Bank.

11. On 27[th] March 2017, the Debt Recovery Tribunal, BengaluruBpassed a final judgment and order/decree against the Corporate Debtorin the said O.A. No.16/2015, for recovery of Rs.52,12,49,438.60 withfuture interest at the rate of 16.55% per annum, from the date of filingthe application till the date of realization.

12. On 25[th] May 2017, the Debt Recovery Tribunal issued aCRecovery Certificate No. 2060/2017, in favour of the Appellant Bankfor recovery of Rs.52,12,49,438.60 from the Corporate Debtor. Thereafter,on 19[th] June 2017, Corporate Debtor once again gave the AppellantBank a proposal for One Time Settlement to mutually settle the loanamount.

D13. Mr. Mehta appearing for the Appellant Bank pointed out, thatthe Corporate Debtor had, in its Annual Reports for the financial years2016-2017 and 2017-2018, acknowledged its liability in respect of theloan taken by it from the Appellant Bank.

14. On 1[st] October 2018, the Appellant Bank issued a DemandENotice to the Corporate Debtor in Form-3 contained in the Insolvencyand Bankruptcy (Application to Adjudicating Authority) Rules, 2016,hereinafter referred to as the ‘2016 Adjudicating Authority Rules’, andon 12[th] October 2018, the Appellant Bank filed the Petition being CP(IB)No.244/BB/2018 before the Adjudicating Authority under Section 7 ofthe IBC in Form-1 given in the Annexure to the 2016 AdjudicatingFAuthority Rules.

15. About three months thereafter, by a Notification being GSRNo.2(e) dated 2[nd] January 2019 the Department of Financial Services,Ministry of Finance, Government of India amalgamated Vijaya Bank,Dena Bank and Bank of Baroda.G

16. On 9[th] January 2019, the Appellant Bank filed an applicationbefore Adjudicating Authority under Rule 11 of the National CompanyLaw Tribunal Rules 2016 hereinafter referred to as the ‘NCLT Rules’,read with Rule 4 of the 2016 Adjudicating Authority Rules, being I.A.No.27/2019 dated 9[th] January 2019 in CP(IB) No.244/BB/2018, forHpermission to place on record additional documents, including the final judgment and order dated 27.03.2017 of the DRT in OA No.16/2015and the Recovery Certificate No.2060/2017 dated 25.05.2017 issued bythe DRT.

17. On 2[nd] February 2019, the Corporate Debtor filed its preliminaryobjection to the Petition filed by the Appellant Bank under Section 7 ofthe IBC, inter alia, contending that the said Petition was barred bylimitation.

18. By an order dated 4[th] February 2019, the Adjudicating Authorityallowed the application of the Appellant Bank being I.A No. 27/2019 inCP (IB) No.244/BB/2018, and directed the Appellant Bank to file anamended petition enclosing the documents referred to in the Applicationbeing I.A. No.27/2019. The Registry was directed to permit the Counselfor the Appellant Bank to amend the Company Petition accordingly.

19. On or about 5[th] March 2019, the Appellant Bank filed anotherapplication under Rule 11 of the NCLT Rules, being I.A. No.131 of2019 in CP(IB) No.244/BB/2018, before the Adjudicating Authority forpermission to place on record additional documents, including the letterdated 03.03.2017 of the Corporate Debtor to the Appellant Bankproposing a One Time Settlement, the Annual Report of the CorporateDebtor for the years 2016-2017, the Financial Statement of the CorporateDebtor for the period from 1[st] April 2016 to 31[st] March 2017 and theFinancial Statement of the Corporate Debtor, for the period from 1[st]April 2017 to 31[st] March 2018. By an order dated 6.03.2019 in I.A.No.131 of 2019, the Appellant Bank was permitted to file the documentsin the Registry.

20. By an order dated 21[st] March 2019 the Adjudicating Authorityadmitted the Petition under Section 7 of the IBC, being CP(IB) No.244/BB/2018, and appointed an Interim Resolution Professional. The objectionof the bar of limitation, raised on behalf of the Corporate Debtor wasconsidered at length, but rejected by the Adjudicating Authority (NCLT).

21. On 6[th] April 2019, the Respondent No.1, filed an appeal beingCA(AT) (Ins) No.407/2019 before the NCLAT under Section 61 of theIBC. The Appellant Bank filed its written statement supporting the orderof the Adjudicating Authority dated 21[st] March 2019 admitting the Petitionof the Appellant Bank under Section 7 of the IBC.

22. After hearing the Appellant Bank, the Respondent No.1 andthe Corporate Debtor, the NCLAT set aside the order dated 21[st] March

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A2019 passed by the Adjudicating Authority (NCLT) Bengaluru anddismissed the Petition filed by the Appellant Bank under Section 7 of theIBC, holding that the said application was barred by limitation.

23. The issue which arises for consideration of this Court, in thisappeal is, whether the NCLAT has erred in law in arriving at theBconclusion that, the Petition filed by the Appellant Bank under Section 7of the IBC was barred by limitation, and setting aside the order dated21[st] March 2019 passed by the Adjudicating Authority, admitting the saidPetition.

24. In other words, the main question involved in this appeal is,Cwhether a Petition under Section 7 of the IBC would be barred bylimitation, on the sole ground that it had been filed beyond a period of 3years from the date of declaration of the loan account of the CorporateDebtor as NPA, even though the Corporate Debtor might subsequentlyhave acknowledged its liability to the Appellant Bank, within a period ofthree years prior to the date of filing of the Petition under Section 7 ofDthe IBC, by making a proposal for a One Time Settlement, or byacknowledging the debt in its statutory Balance Sheets and Books ofAccounts.

25. Another question which arises for the consideration of thisCourt is, whether a final judgment and decree of the DRT in favour ofEthe Financial Creditor, or the issuance of a Certificate of Recovery infavour of the Financial Creditor, would give rise to a fresh cause ofaction to the Financial Creditor to initiate proceedings under Section 7 ofthe IBC within three years from the date of the final judgment and decree,and/or within three years from the date of issuance of the Certificate ofFRecovery.

26. A third issue which arises for adjudication of this Court is,whether there is any bar in law to the amendment of pleadings, in aPetition under Section 7 of the IBC, or to the filing of additional documents,apart from those filed initially, along with the Petition under Section 7 ofthe IBC in Form-1.G

27. Mr. Mehta appearing on behalf of the Appellant Banksubmittedthat the Adjudicating Authority had passed its order dated 21[st] March2019, admitting the Petition of the Appellant Bank under Section 7 of theIBC, after taking into consideration the documents filed by the AppellantBank along with its interim applications being I.A. No. 27 of 2019 andH

I.A. No.131 of 2019, and arriving at the finding that the Petition filed bythe Appellant Bank under Section 7 of the IBC was not barred bylimitation.

28. Mr. Mehta submitted that NCLAT has allowed the appeal ofthe Respondent No.1, set aside the order of the Adjudicating Authority,and dismissed the Petition of the Appellant Bank under Section 7 ofIBC, recording a finding that there was nothing on record that suggestedthat the Corporate Debtor had acknowledged its debt to the AppellantBank. The Appellate Authority has ignored the documents filed by theAppellant Bank along with I.A. No.131 of 2019, which had duly beenallowed by the Adjudicating authority.

29. Mr. Mehta pointed out that, the NCLAT cited the judgmentsof this Court in Jignesh Shah and Anr. v. Union of India and Anr.[1]and Gaurav Hargovindbhai Dave v. Asset Reconstruction Company(India) Ltd. and Anr.[2] and held that the account of the Corporate Debtorhaving been declared as NPA on 31[st] December 2013, the Petition underSection 7 of the IBC, filed after five years was barred by limitation.

30. Mr. Mehta argued that the NCLAT had returned a findingthat there was nothing on record to show that the Corporate Debtor hadadmitted its debt to the Appellant Bank, overlooking relevant materialson record, including:

(i) Admission of the Corporate Debtor of payment of Rs.111lakhs on 28[th] March, 2014 towards interest on the loan.

(ii) Letter dated 5[th] January, 2015 of the Corporate Debtor tothe Appellant Bank, in response to the Demand Notice,acknowledging its liability to the Appellant Bank.

(iii) A statement of objection filed by the Corporate Debtor inthe DRT, Bangalore on or about 9[th] December 2015, denyingthe Appellant Bank’s claim of Rs.52,04,438 as baseless,but admitting that part of the amount was due.

(iv) The Financial Statements and Balance Sheets of theCorporate Debtor for the years 2016-2017 (year ending31[st] March 2017) and for the years 2017-2018 (year ending31[st] March 2018).

1. 2019 SCC online SC 1254: (2019) 10 SCC 750

2. 2019 SCC Online SC 1239: (2019) 10 SCC 572

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A(v)Offer made by the Corporate Debtor on 03.03.2017 to settleits dues to the Appellant Bank on onetime payment of Rs.5.5crores.

(vi) Final judgment and decree/order dated 27[th] March, 2017passed by the DRT, Bengaluru, in favour of the AppellantBBank for an amount of Rs.52,12,49,438.60 in O.A. No.16/2015, with future interest at 16.55% per annum and theRecovery certificate No.2060/2017 issued by the DRT on25[th] May 2017.

31. Mr. Mehta argued that the Corporate Debtor had admittedChaving paid Rs.111 lakhs towards interest on 28[th] March, 2014. Thisshowed that the loan was alive and there was a subsisting juralrelationship. On 03.03.2017, within three years, the Corporate Debtorhad submitted a proposal for One Time Settlement (OTS) of its TermLoan Account with the Appellant Bank. In doing so, the Corporate Debtorhad acknowledged its liability to the Appellant Bank. The Petition underDSection 7 of the IBC was filed well within three years from the date ofsuch acknowledgement.

32. Mr. Mehta also pointed out that on 27[th] March 2017 the DRT,Bengaluru had passed a final judgment and order/decree for an amountof Rs.52,12,49,438.60 in favour of the Appellant Bank in O.A. No.16/E2015 along with future interest at 16.55% per annum with monthly rests,from the date of application till the date of realisation, and had issued aRecovery Certificate No.2060 of 2017, dated 25[th] May 2017 for realisationof the said amount from the Corporate Debtor and the Respondent No.1.The Appellant Bank filed the Petition under Section 7 of the IBC forFinitiation of the Corporate Insolvency Resolution Process well within 3years from the aforesaid dates.

33. Mr. Mehta also submitted that the Corporate Debtor had in itsfinancial statements for the period from 1[st] April 2016 to 31[st] March2017 and the period from 1[st] April 2017 to 31[st] March 2018, admittedGthat the Corporate Debtor had defaulted in repayment of its loan to theAppellant Bank. The financial statements of the Corporate Debtor, forthe period from 1[st] April 2017 to 31[st] March 2018 reflect dues of Rs.67crores to the Appellant Bank along with interest as on 31[st] March 2018,but excluding penal interest.

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34. Mr. Mehta argued that the Corporate Debtor had thus admittedthe existence of jural relationship of debtor and creditor, between theCorporate Debtor and the Appellant Bank, which is evident from thedocuments referred to above. In their objections filed in this Court, theRespondents have admitted that they deposited Rs.111 lakhs in the currentaccount of the Corporate Debtor with the Appellant Bank on 28[th] March2014, thereby acknowledging that the jural relationship of debtor andcreditor between the Corporate Debtor and the Appellant Bank continuedafter 31[st] December, 2013.

35. Mr. Mehta has also referred to the Counter Affidavit filed bythe Respondent No.1 and the Corporate Debtor, where they admittedthat the Corporate Debtor had sent a letter dated 3[rd] March 2017 to theAppellant Bank, offering to make payment of Rs.5.5 crores by way ofOne Time Settlement. Moreover, the judgment and order/decree dated27[th] March, 2017 passed by the DRT and the Recovery CertificateNo.2060/2017 referred to above, which gave rise to a fresh cause ofaction to the Appellant Bank to initiate proceedings against the CorporateDebtor under Section 7 of the IBC, are matters of record and in anycase, duly admitted.

36. Relying on the judgments of this Court in Sesh Nath Singhand Anr. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. And Anr.[3],Laxmi Pat Surana v. Union Bank of India and Ors.[4] and AssetReconstruction Company (India) Limited. v. Bishal Jaiswal andOrs.[5] Mr. Mehta argued that Section 18 of the Limitation Act applied toproceedings under the IBC. This issue was no longer res integra.

37. On the other hand, Mr. Goutham Shivshankar appearing onbehalf of the Respondents, submitted that under the scheme of the IBC,NCLAT is the final forum for determination of facts. Mr. Shivshankarargued that there is a factual determination by the NCLAT that recordsreveal no acknowledgement of debt for the purpose of extendinglimitation.

38. Mr. Shivshankar contended the NCLAT has duly dealt withthe question of acknowledgement holding:

3. 2021 SCC Online SC 244

4. 2021 SCC Online SC 267

5. 2021 SCC Online SC 321

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A“In the present case there is nothing on record to suggest thatthe ‘Corporate Debtor’ acknowledged the debt within threeyears and agreed to pay the debt. The application moved by‘Corporate Debtor’ to restructure the debt or payment of theinterest does not amount to acknowledgement of debt. Thereis nothing on record to suggest that the ‘Corporate Debtor’Bor its authorized representative by its signature has acceptedor acknowledged the debt within three years from the date ofdefault or from the date when the account was declared NPA,i.e. on 31[st] December 2013. The Balance Sheet of the‘Corporate Debtor’ for the year 2016-2017 filed after 31[st]CMarch 2017 cannot be termed to be a document ofacknowledgment in terms of section 18 of the Limitation Act.”

39. According to Mr. Shivshankar, the NCLAT was entirely rightin coming to the factual conclusion that the Petition of the AppellantBank under Section 7 of the IBC was barred by limitation.DMr. Shivshankar argued that NCLT arrived at this conclusion on thebasis of facts and materials on record and it cannot be said that theconclusion is perverse or otherwise warrants intervention of this Courtin a Second Appeal, restricted to questions of law under Section 62 ofthe IBC.

E40. Mr. Shivshankar argued that this appeal has been filed on thebasis of documents that were brought on record before the AdjudicatingAuthority (NCLT) at a belated stage, in a manner contrary to theprovisions of IBC and the law laid down by this Court.

41. Mr. Shivshankar emphatically argued that Appellant Bank filedFits Petition under Section 7 of the IBC on 12[th] October 2018, about fiveyears after the date of default and was thus well beyond the period oflimitation of three years, under Article 137 of the Schedule to theLimitation Act.

42. Mr. Shivshankar pointed out that the Petition under Section 7Gof the IBC mentions the date of default as 30[th] September 2013, and 31[st]December 2013 as the date of declaration of the account of the CorporateDebtor as NPA. There was no averment in the petition of anyacknowledgement of debt which extended the period of limitation.43. Mr. Shivshankar argued that, under Section 7(3) of the IBC, aFinancial creditor is required to furnish “record of the default recordedH

with the information utility or record of evidence of default as may bespecified” and “ any other information as may be specified by the Board”.

44. Mr. Shivshankar further argued that as per Section 7(4) of theIBC, the NCLT was required to “ascertain the existence of default fromthe records of an information utility or on the basis of other evidencefurnished by the financial creditor under sub-section (3)” within “fourteendays of the receipt of the application”. Mr. Shivshankar further arguedthat under Section 7(5) of the IBC, it was open to the NCLT to allowseven days to the financial creditor to rectify any defect in its application.

45. Mr. Shivshankar argued the Adjudicating Authority (NCLT),instead of proceeding in the manner expressly stipulated in the IBC andwithout adhering to the time lines stipulated therein, delayed theadjudication of the question of admissibility of the petition under Section7 of the IBC by four months, and allowed the Appellant Bank to introducedocuments at a belated stage and these documents were considered bythe NCLT despite vehement objections by the Respondents.

46. Mr. Shivshankar further argued that on 2[nd] February 2019,Corporate Debtor filed its preliminary objection to the petition underSection 7 of the IBC, taking, a specific objection that the petition wastime barred since the date of default was admittedly stated to be 30[th]September 2013. However, the NCLT after hearing arguments on 8[th]February 2019, adjourned the matter with a direction on Counsel appearingfor the Appellant Bank, to file a gist of the case as also a copy of theorder passed by the Karnataka High Court, in a Writ Petition filed by theCorporate Debtor, whereby the execution of the judgment and/or order/decree of the DRT in O.A. 16 of 2015 had been stayed.

47. Mr. Shivshankar submitted that, taking advantage of the limitedliberty granted to the Appellant Bank by the Adjudicating Authority tofile a gist of the case and some orders/judgments, the Appellant Bank inabuse of the process of the Tribunal, filed I.A. No. 131 of 2019, introducinga whole new set of documents and setting up an entirely new case forextension of limitation, on the ground of alleged acknowledgement ofdebt.

48. Mr. Shivshankar argued that I.A. No.131 of 2019 wassupported by an affidavit. The documents listed above were introducedfor the first time. Even at this stage all the documents were not filed.Some of the documents were never filed in the NCLT and were firstbrought on record in the reply filed before NCLAT.

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A49. Mr. Shivshankar submitted that on 6[th] March 2019 the NCLTpassed an order, permitting learned counsel for the Appellant Bank tofile a set of documents in the Registry, after serving copies thereof onthe Respondents, and posted the case on 18[th] March 2019.Mr. Shivshankar argued that the Respondents had specifically objectedto the belated filing of additional documents. However, the NCLTBcompletely ignored the objections raised on behalf of the Respondentsand passed its order dated 21[st] March 2019, admitting the petition underSection 7 of the IBC.

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50. Mr. Shivshankar submitted that the Respondents immediatelyappealed to the NCLAT, inter alia contending that the AdjudicatingCAuthority had erred in permitting the Appellant Bank to substantiallyimprove upon its original petition filed under Section 7 of the IBC, byfiling additional documents and making out an entirely new case, afterthe expiry of fourteen days specified in Section 7 for ascertainment ofdefault. Mr. Shivshankar submitted that it was in this background thatDthe NCLAT made the factual finding at Paragraph 4 of the impugnedorder, that there was nothing on record to say that there was anyacknowledgement of debt, renewing or extending limitation.

51. Mr. Shivshankar argued that it is now well settled that theLimitation Act applies to proceedings under the IBC. Mr. ShivshankarEalso agreed that Section 18 of the Limitation Act would apply toproceedings in the NCLT under Section 7 of the IBC. However, heargued that, what falls for consideration in this appeal, is whether theAppellant Bank had placed sufficient materials on record, with its petitionunder Section 7 of the IBC, to attract Section 18 of the Limitation Act.

F52. Mr. Shivshankar finally argued that Section 62 of the IBC,under which this appeal has been filed, is restricted to questions of law,unlike an appeal to the NCLAT from an order of the Adjudicating Authority(NCLT), which is an appeal both on facts and in law.

53. Mr. Shivshankar cited the judgment of this Court in NazirGMohamed v. J. Kamala& Ors.[6], authored by one of us (IndiraBanerjee J.) where this Court held:- “To be a question of law “involved in the case”, there mustbe first, a foundation for it laid in the pleadings, and the

question should emerge from the sustainable findings of fact,arrived at by Courts of facts, and it must be necessary todecide that question of law for a just and proper decision ofthe case. (emphasis supplied)

54. There can be no dispute with the proposition that, to be aquestion of law involved in the case, there must be first a foundation laidin the pleadings, and the question should emerge from the sustainablefindings of fact, arrived at by Courts of facts, as reiterated by this Courtin Nazir Mohamad v. J. Kamala (supra), rendered in the context of asecond appeal under Section 100 of the Civil Procedure Code.

55. Mr. Shivshankar next cited the judgment of this Court inBabulal Vardharji Gurjar v. Veer Gurjar Aluminium IndustriesPrivate Limited[7], where this Court speaking through Maheshwari J.,held:

“35. Apart from the above and even if it be assumed that theprinciples relating to acknowledgment as per Section 18 ofthe Limitation Act are applicable for extension of time for thepurpose of the application under Section 7 of the Code, inour view, neither the said provision and principles come inoperation in the present case nor do they enure to the benefitof Respondent 2 for the fundamental reason that in theapplication made before NCLT, Respondent 2 specificallystated the date of default as “8-7-2011 being the date of NPA”.It remains indisputable that neither has any other date ofdefault been stated in the application nor has any suggestionabout any acknowledgment been made. As noticed, even inPart V of the application, Respondent 2 was required to statethe particulars of financial debt with documents and evidenceon record. In the variety of descriptions which could havebeen given by the applicant in the said Part V of the applicationand even in residuary Point 8 therein, nothing was at all statedat any place about the so-called acknowledgment or any otherdate of default.

35.1. Therefore, on the admitted fact situation of the presentcase, where only the date of default as “8-7-2011” has been 7 (2020) 15 SCC 1 : 2020 SCC Online SC 647

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Astated for the purpose of maintaining the application underSection 7 of the Code, and not even a foundation is laid in theapplication for suggesting any acknowledgment or any otherdate of default, in our view, the submissions sought to bedeveloped on behalf of Respondent 2 at the later stage cannotbe permitted. It remains trite that the question of limitation isBessentially a mixed question of law and facts and when aparty seeks application of any particular provision forextension or enlargement of the period of limitation, therelevant facts are required to be pleaded and requisite evidenceis required to be adduced. Indisputably, in the present case,CRespondent 2 never came out with any pleading other thanstating the date of default as “8-7-2011” in the application.That being the position, no case for extension of period oflimitation is available to be examined. In other words, even ifSection 18 of the Limitation Act and principles thereof wereapplicable, the same would not apply to the application underDconsideration in the present case, looking to the very avermentregarding default therein and for want of any other avermentin regard to acknowledgment. In this view of the matter,reliance on the decision in Mahabir Cold Storage [MahabirCold Storage v. CIT, 1991 Supp (1) SCC 402] does notEadvance the cause of Respondent 2.”

56. Relying on the aforesaid judgment, Mr. Shivshankar contendedthat the foundation for a plea of extension of limitation by virtue ofacknowledgment of debt should be in the pleadings and cannot bedeveloped at a later stage. Mr. Shivshankar emphatically argued that inFthis case, there was no foundation in the pleadings for a case of extensionof limitation under Section 18 of the Limitation Act.

57. Relying on Babulal Vardharji Gurjar (supra) Mr. Shivshankarargued that subsequent improvement in pleadings, at the fag-end of theNCLT proceedings, ought not to have been countenanced.GMr. Shivshankar further argued that, in any case, a proper constructionof the documents relied upon by the Appellant Bank would show thatthey do not amount to acknowledgment under Section 18 of the LimitationAct, which requires that any acknowledgment must be made “beforethe expiration of the period of limitation for a suit or application”.

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58. Mr. Shivshankar cited a Full Bench judgment of AllahabadHigh Court in Munshi Lal v. Hira Lal& Anr.[8], where the High Courtheld:- “Now, it is clear that a document said to constitute anacknowledgment has to be construed in the context in whichit is given and that, where its language is not clear in itself,the context may be examined to see what it is to which thewords refer. That is not to say that any equivocation in anacknowledgment can be cured by ascertaining what theprobable intention of the acknowledgor was. That is quite adifferent thing. But, where, after examining in the light of thecontext what it was that the person giving the acknowledgmentwas actually referring to the conclusion follows that it is anunequivocal acknowledgment of a right, then thatacknowledgment is sufficient to satisfy section 19 of theLimitation Act.”

59. Mr. Shivshankar further pointed out that the Corporate Debtor’sreply dated 5[th] January 2015 to the legal notice issued by the AppellantBank, the reply filed by the Corporate Debtor in O. S. No.16/2015 beforethe DRT, Bengaluru, the OTS Proposal dated 3[rd] March 2017, OTSProposal dated 19[th] June 2017 and the Balance Sheets/Annual Reportsof the Corporate Debtor and a group company of the Corporate Debtor,namely Kaveri Telecom Products Limited, for the financial years2016-17 and 2017-18 are irrelevant for the purpose of Section 18 of theLimitation Act and many of those documents were in response tosuggestions made by the Appellant Bank seeking willingness to restructurethe account of the Respondents. Moreover, payment of outstandinginterest of Rs.111 lakhs was made in March 2014 that is over four yearsbefore the date of filing of the petition under Section 7 of the IBC.

60. Mr. Shivshankar also argued that the letter dated 24[th] March2014 written by the Corporate Debtor was not on record in theproceedings before the Adjudicating Authority. The document wasintroduced for the first time along with the reply filed by the AppellantBank before the NCLAT. This document cannot be considered as partof the records at all.

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A61. Mr. Shivshankar finally submitted that the communicationsfrom the Respondents were only to buy peace and end the litigation andcannot, therefore, be construed as acknowledgment of debts for thepurpose of Section 18 of the Limitation Act.

62. Referring to the judgment of this Court in GauravBHargovindbhai Dave (supra), Mr. Shivshankar argued that a proposalfor One Time Settlement cannot be construed as an acknowledgment ofdebt for the purpose of Section 18 of the Limitation Act.

63. Mr. Shivshankar drew our attention to the fact that a reviewpetition was pending in this Court against the decision in GauravCHargovindbhai Dave (supra). Admittedly, however, the effect of thejudgment has not been stayed. Until and unless the review application isallowed and the judgment is reversed, it would operate as a precedent.

64. Mr. Shivshankar finally cited Jignesh Shah (supra) wherethis Court observed:-D

“The aforesaid judgments correctly hold that a suit forrecovery based upon a cause of action that is within limitationcannot in any manner impact the separate and independentremedy of a winding-up proceeding.In law, when time beginsto run, it can only be extended in the manner provided in theELimitation Act. For example, an acknowledgment of liabilityunder Section 18 of the Limitation Act would certainly extendthe limitation period, but a suit for recovery, which is aseparate and independent proceeding distinct from the remedyof winding up would, in no manner, impact the limitation withinwhich the winding-up proceeding is to be filed, by somehowFkeeping the debt alive for the purpose of the winding-upproceeding.”

65. Mr. Shivshankar concluded his arguments with the submissionthat the Petition under Section 7 of the IBC was not based on the RecoveryCertificate issued by the DRT or the judgment and order of the DRT.GTherefore, there could be no question of reckoning limitation from thedate of failure to make payment in terms of the Recovery Certificate.

66. The IBC is an Act “to consolidate and amend the lawsrelating to reorganisation and insolvency resolution of corporatepersons, partnership firms and individuals in a time-bound mannerH

for maximisation of value of assets of such persons, to promoteentrepreneurship, availability of credit and balance the interests ofall the stakeholders including alteration in the order of priority ofpayment of Government dues and to establish an Insolvency andBankruptcy Board of India, and for matters connected therewith orincidental thereto”.

67. The IBC aims at promoting, inter alia, investments and alsoresolution of insolvency of Corporate persons. As per its Statement ofObjects and Reasons “the objective of the Insolvency and BankruptcyCode, 2015 is to consolidate and amend the laws relating toreorganization and insolvency resolution of corporate persons,partnership firms and individuals in a time bound manner formaximization of value of assets of such persons, to promoteentrepreneurship, availability of credit and balance the interests ofall the stakeholders including alteration in the priority of paymentof government dues and to establish an Insolvency and BankruptcyFund, and matters connected therewith or incidental thereto. Aneffective legal framework for timely resolution of insolvency andbankruptcy would support development of credit markets andencourage entrepreneurship. It would also improve Ease of DoingBusiness, and facilitate more investments leading to higher economicgrowth and development”.

68. Under the scheme of the IBC, the Insolvency ResolutionProcess begins, when a default takes place, in the sense that a debtbecomes due and is not paid. Some of the relevant provisions of theIBC, are set out hereinbelow for convenience:

“3. Definitions.—In this Code, unless the context otherwiserequires,—

(6) “claim” means—

(a) a right to payment, whether or not such right is reducedto judgment, fixed, disputed, undisputed, legal,equitable, secured or unsecured; (b) right to remedy for breach of contract under any lawfor the time being in force, if such breach gives rise toa right to payment, whether or not such right is reducedto judgment, fixed, matured, unmatured, disputed,undisputed, secured or unsecured; A

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A(7) “corporate person” means a company as defined in clause(20) of Section 2 of the Companies Act, 2013 (18 of 2013), alimited liability partnership, as defined in clause (n) of sub-section (1) of Section 2 of the Limited Liability PartnershipAct, 2008 (6 of 2009), or any other person incorporated withlimited liability under any law for the time being in force butBshall not include any financial service provider; A

(8) “corporate debtor” means a corporate person who owesa debt to any person;

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(10) “creditor” means any person to whom a debt is owedand includes a financial creditor, an operational creditor, asecured creditor, an unsecured creditor and a decree-holder;

(11) “debt” means a liability or obligation in respect of aclaim which is due from any person and includes a financialDdebt and operational debt;

(12) “default” means non-payment of debt when whole orany part or instalment of the amount of debt has become dueand payable and is not 5[paid] by the debtor or the corporatedebtor, as the case may be; E

4. Application of this Part.—(1) This Part shall apply tomatters relating to the insolvency and liquidation of corporatedebtors where the minimum amount of the default is one lakhrupees:

Provided that the Central Government may, by notification,Fspecify the minimum amount of default of higher value whichshall not be more than one crore rupees.

5. Definitions.—In this Part, unless the context otherwiserequires—

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(7) “financial creditor” means any person to whom afinancial debt is owed and includes a person to whom suchdebt has been legally assigned or transferred to;

(8) “financial debt” means a debt along with interest, ifany, which is disbursed against the consideration for thetime value of money and includes—

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under anyacceptance credit facility or its dematerialisedequivalent;

(c) any amount raised pursuant to any note purchasefacility or the issue of bonds, notes, debentures, loanstock or any similar instrument; (d) the amount of any liability in respect of any lease orhire-purchase contract which is deemed as a financeor capital lease under the Indian Accounting Standardsor such other accounting standards as may beprescribed; (e) receivables sold or discounted other than anyreceivables sold on non-recourse basis; (f) any amount raised under any other transaction,including any forward sale or purchase agreement,having the commercial effect of a borrowing; (g) any derivative transaction entered into in connectionwith protection against or benefit from fluctuation inany rate or price and for calculating the value of anyderivative transaction, only the market value of suchtransaction shall be taken into account; (h) any counter-indemnity obligation in respect of aguarantee, indemnity, bond, documentary letter of creditor any other instrument issued by a bank or financialinstitution;

(i) the amount of any liability in respect of any ofthe guarantee orindemnity for any of the items-referred to in subclauses (a) to (h) ofthis clause;

6. Persons who may initiate corporate insolvency resolution process.—Where any corporate debtor commits a default, afinancial creditor, an operational creditor or the corporate

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debtor itself may initiate corporate insolvency resolutionprocess in respect of such corporate debtor in the manner asprovided under this Chapter.

7. Initiation of corporate insolvency resolution process byfinancial creditor.—(1) A financial creditor either by itself orjointly with 15[other financial creditors, or any other personon behalf of the financial creditor, as may be notified by theCentral Government, may file an application for initiatingcorporate insolvency resolution process against a corporatedebtor before the Adjudicating Authority when a default hasoccurred.

Provided that for the financial creditors, referred to in clauses(a) and (b) of sub-section (6-A) of Section 21, an applicationfor initiating corporate insolvency resolution process againstthe corporate debtor shall be filed jointly by not less thanone hundred of such creditors in the same class or not lessthan ten per cent. of the total number of such creditors in thesame class, whichever is less:

Provided further that for financial creditors who are allotteesunder a real estate project, an application for initiatingcorporate insolvency resolution process against the corporatedebtor shall be filed jointly by not less than one hundred ofsuch allottees under the same real estate project or not lessthan ten per cent. of the total number of such allottees underthe same real estate project, whichever is less:

Provided also that where an application for initiating thecorporate insolvency resolution process against a corporatedebtor has been filed by a financial creditor referred to inthe first and second provisos and has not been admitted bythe Adjudicating Authority before the commencement of theInsolvency and Bankruptcy Code (Amendment) Act, 2020,such application shall be modified to comply with therequirements of the first or second proviso within thirty daysof the commencement of the said Act, failing which theapplication shall be deemed to be withdrawn before itsadmission.]

Explanation.—For the purposes of this sub-section, a defaultincludes a default in respect of a financial debt owed notonly to the applicant financial creditor but to any otherfinancial creditor of the corporate debtor.

(2) The financial creditor shall make an application undersub-section (1) in such form and manner and accompaniedwith such fee as may be prescribed.

(3) The financial creditor shall, along with the applicationfurnish—

(a) record of the default recorded with the information utilityor such other record or evidence of default as may bespecified; (b) the name of the resolution professional proposed toact as an interim resolution professional; and

(c) any other information as may be specified by the Board.

(4) The Adjudicating Authority shall, within fourteen days ofthe receipt of the application under sub-section (2), ascertainthe existence of a default from the records of an informationutility or on the basis of other evidence furnished by thefinancial creditor under sub-section (3):

Provided that if the Adjudicating Authority has not ascertainedthe existence of default and passed an order under sub-section(5) within such time, it shall record its reasons in writing forthe same.]

(5) Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinaryproceedings pending against the proposed resolutionprofessional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding ispending against the proposed resolution professional, itmay, by order, reject such application:

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Provided that the Adjudicating Authority shall, beforerejecting the application under clause (b) of sub-section (5),give a notice to the applicant to rectify the defect in hisapplication within seven days of receipt of such notice fromthe Adjudicating Authority.

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B(6) The corporate insolvency resolution process shallcommence from the date of admission of the application undersub-section (5).

(7) The Adjudicating Authority shall communicate—

(a) the order under clause (a) of sub-section (5) to theCfinancial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to thefinancial creditor, within seven days of admission orrejection of such application, as the case may be.

8. Insolvency resolution by operational creditor.—(1) Anoperational creditor may, on the occurrence of a default,deliver a demand notice of unpaid operational debtor copyof an invoice demanding payment of the amount involved inthe default to the corporate debtor in such form and manneras may be prescribed.

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(2) The corporate debtor shall, within a period of ten days ofthe receipt of the demand notice or copy of the invoicementioned in sub-section

(1) bring to the notice of the operational creditor—

(a) existence of a dispute, if any, or record of the pendencyof the suit or arbitration proceedings filed before the receiptof such notice or invoice in relation to such dispute; F

(b) the payment of unpaid operational debt—

(i) by sending an attested copy of the record of electronictransfer of the unpaid amount from the bank accountof the corporate debtor; or G

(ii) by sending an attested copy of record that theoperational creditor has encashed a cheque issued bythe corporate debtor.

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Explanation.—For the purposes of this section, a “demandnotice” means a notice served by an operational creditor tothe corporate debtor demanding payment of the operationaldebt in respect of which the default has occurred.”

12. Time-limit for completion of insolvency resolutionprocess.—(1) Subject to sub-section (2), the corporateinsolvency resolution process shall be completed within aperiod of one hundred and eighty days from the date ofadmission of the application to initiate such process.

(2) The resolution professional shall file an application tothe Adjudicating Authority to extend the period of thecorporate insolvency resolution process beyond one hundredand eighty days, if instructed to do so by a resolution passedat a meeting of the committee of creditors by a vote of sixty-six per cent of the voting shares.

(3) On receipt of an application under sub-section (2), if theAdjudicating Authority is satisfied that the subject-matter ofthe case is such that corporate insolvency resolution processcannot be completed within one hundred and eighty days, itmay by order extend the duration of such process beyondone hundred and eighty days by such further period as itthinks fit, but not exceeding ninety days:

Provided that any extension of the period of corporateinsolvency resolution process under this section shall not begranted more than once:

Provided further that the corporate insolvency resolutionprocess shall mandatorily be completed within a period ofthree hundred and thirty days from the insolvencycommencement date, including any extension of the periodof corporate insolvency resolution process granted under thissection and the time taken in legal proceedings in relation tosuch resolution process of the corporate debtor:

Provided also that where the insolvency resolution process ofa corporate debtor is pending and has not been completedwithin the period referred to in the second proviso, suchresolution process shall be completed within a period of ninety A

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days from the date of commencement of the Insolvency andBankruptcy Code (Amendment) Act, 2019.

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12-A. Withdrawal of application admitted under Section 7, 9or 10.—The Adjudicating Authority may allow the withdrawalof application admitted under Section 7 or Section 9 orSection 10, on an application made by the applicant with theapproval of ninety per cent. voting share of the committee ofcreditors, in such manner as may be specified.

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13. Declaration of moratorium and public announcement.—(1) The Adjudicating Authority, after admission of theCapplication under Section 7 or Section 9 or Section 10, shall,by an order—

(a) declare a moratorium for the purposes referred to inSection 14; (b) cause a public announcement of the initiation ofcorporate insolvency resolution process and call for thesubmission of claims under Section 15; and D

(c) appoint an interim resolution professional in the manneras laid down in Section 16.

(2) The public announcement referred to in clause (b) of sub-section (1) shall be made immediately after the appointmentof the interim resolution professional.

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14. Moratorium.—(1) Subject to provisions of sub-sections(2) and (3), on the insolvency commencement date, theAdjudicating Authority shall by order declare moratorium forFprohibiting all of the following, namely—

(a) the institution of suits or continuation of pending suitsor proceedings against the corporate debtor includingexecution of any judgment, decree or order in any courtof law, tribunal, arbitration panel or other authority; G

(b) transferring, encumbering, alienating or disposing ofby the corporate debtor any of its assets or any legal rightor beneficial interest therein;

(c) any action to foreclose, recover or enforce any securityinterest created by the corporate debtor in respect of its H

property including any action under the Securitisation andReconstruction of Financial Assets and Enforcement ofSecurity Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessorwhere such property is occupied by or in the possession ofthe corporate debtor.

Explanation.—For the purposes of this sub-section, it is herebyclarified that notwithstanding anything contained in any otherlaw for the time being in force, a license, permit, registration,quota, concession, clearances or a similar grant or right givenby the Central Government, State Government, local authority,sectoral regulator or any other authority constituted underany other law for the time being in force, shall not besuspended or terminated on the grounds of insolvency, subjectto the condition that there is no default in payment of currentdues arising for the use or continuation of the license, permit,registration, quota, concession, clearances or a similar grantor right during the moratorium period.]

(2) The supply of essential goods or services to the corporatedebtor as may be specified shall not be terminated orsuspended or interrupted during moratorium period.

(2-A) Where the interim resolution professional or resolutionprofessional, as the case may be, considers the supply of goodsor services critical to protect and preserve the value of thecorporate debtor and manage the operations of suchcorporate debtor as a going concern, then the supply of suchgoods or services shall not be terminated, suspended orinterrupted during the period of moratorium, except wheresuch corporate debtor has not paid dues arising from suchsupply during the moratorium period or in such circumstancesas may be specified.

(3) The provisions of sub-section (1) shall not apply to—

(a) such transactions, agreements or other arrangementsas may be notified by the Central Government inconsultation with any financial sector regulator or anyother authority;]

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(b) a surety in a contract of guarantee to a corporatedebtor.]

(4) The order of moratorium shall have effect from the dateof such order till the completion of the corporate insolvencyresolution process:

Provided that where at any time during the corporateinsolvency resolution process period, if the AdjudicatingAuthority approves the resolution plan under sub-section (1)of Section 31 or passes an order for liquidation of corporatedebtor under Section 33, the moratorium shall cease to haveeffect from the date of such approval or liquidation order, asthe case may be.

15. Public announcement of corporate insolvency resolution process.—(1) The public announcement of the corporateinsolvency resolution process under the order referred to inSection 13 shall contain the following information, namely:—

(a) name and address of the corporate debtor under thecorporate insolvency resolution process; (b) name of the authority with which the corporate debtoris incorporated or registered;

(c) the last date for submission of claims, as may bespecified; (d) details of the interim resolution professional who shallbe vested with the management of the corporate debtorand be responsible for receiving claims; (e) penalties for false or misleading claims; and (f) the date on which the corporate insolvency resolutionprocess shall close, which shall be the one hundred andeightieth day from the date of the admission of theapplication under Sections 7, 9 or Section 10, as the casemay be.

(2) The public announcement under this section shall be madein such manner as may be specified.

16. Appointment and tenure of interim resolutionprofessional.—(1) The Adjudicating Authority shall appointan interim resolution professional on the insolvencycommencement date.

(2) Where the application for corporate insolvency resolutionprocess is made by a financial creditor or the corporate debtor,as the case may be, the resolution professional, as proposedrespectively in the application under Section 7 or Section 10,shall be appointed as the interim resolution professional, ifno disciplinary proceedings are pending against him.

(3) Where the application for corporate insolvency resolutionprocess is made by an operational creditor and—

(a) no proposal for an interim resolution professional ismade, the Adjudicating Authority shall make a referenceto the Board for the recommendation of an insolvencyprofessional who may act as an interim resolutionprofessional; (b) a proposal for an interim resolution professional is madeunder sub-section (4) of Section 9, the resolutionprofessional as proposed, shall be appointed as the interimresolution professional, if no disciplinary proceedings arepending against him.

(4) The Board shall, within ten days of the receipt of a referencefrom the Adjudicating Authority under sub-section (3),recommend the name of an insolvency professional to theAdjudicating Authority against whom no disciplinaryproceedings are pending.

(5) The term of the interim resolution professional shallcontinue till the date of appointment of the resolutionprofessional under Section 22.

17. Management of affairs of corporate debtor by interimresolution professional.—(1) From the date of appointment ofthe interim resolution professional,—

(a) the management of the affairs of the corporate debtorshall vest in the interim resolution professional;

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[2021] 8 S.C.R.

(b) the powers of the board of directors or the partners ofthe corporate debtor, as the case may be, shall standsuspended and be exercised by the interim resolutionprofessional;

(c) the officers and managers of the corporate debtor shallreport to the interim resolution professional and provideaccess to such documents and records of the corporatedebtor as may be required by the interim resolutionprofessional; (d) the financial institutions maintaining accounts of thecorporate debtor shall act on the instructions of the interimresolution professional in relation to such accounts andfurnish all information relating to the corporate debtoravailable with them to the interim resolution professional.

18. Duties of interim resolution professional.—(1) The interimresolution professional shall perform the following duties,namely—

(a) collect all information relating to the assets, finances andoperations of the corporate debtor for determining thefinancial position of the corporate debtor, includinginformation relating to—

(i) business operations for the previous two years;

(ii) financial and operational payments for the previoustwo years;

(iii) list of assets and liabilities as on the initiation date;and

(iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditorsto him, pursuant to the public announcement made underSections 13 and 15;

(c) constitute a committee of creditors;

(d) monitor the assets of the corporate debtor and manageits operations until a resolution professional is appointedby the committee of creditors; (e) file information collected with the information utility, ifnecessary; and (f) take control and custody of any asset over which thecorporate debtor has ownership rights as recorded in thebalance sheet of the corporate debtor, or with informationutility or the depository of securities or any other registrythat records the ownership of assets including—

(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;

(ii) assets that may or may not be in possession of thecorporate debtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

(v) securities including shares held in any subsidiaryof the corporate debtor, financial instruments,insurance policies;

(vi) assets subject to the determination of ownership bya court or authority; (g) to perform such other duties as may be specified by theBoard.

Explanation.—For the purposes of this section, the term“assets” shall not include the following, namely—

(a) assets owned by a third party in possession of thecorporate debtor held under trust or under contractualarrangements including bailment; (b) assets of any Indian or foreign subsidiary of thecorporate debtor; and

(c) such other assets as may be notified by the CentralGovernment in consultation with any financial sectorregulator.

20. Management of operations of corporate debtor as goingconcern.—(1) The interim resolution professional shall makeevery endeavour to protect and preserve the value of the A

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SUPREME COURT REPORTS

property of the corporate debtor and manage the operationsof the corporate debtor as a going concern.

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21. Committee of creditors.—(1) The interim resolutionprofessional shall after collation of all claims received againstthe corporate debtor and determination of the financialposition of the corporate debtor, constitute a committee ofcreditors.

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(2) The committee of creditors shall comprise all financialcreditors of the corporate debtor:

Provided that a financial creditor or the authorisedrepresentative of the financial creditor referred to in sub-section (6) or sub-section (6-A) or sub-section (5) of Section24, if it is a related party of the corporate debtor, shall nothave any right of representation, participation or voting in ameeting of the committee of creditors:

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Provided further that the first proviso shall not apply to afinancial creditor, regulated by a financial sector regulator,if it is a related party of the corporate debtor solely on accountof conversion or substitution of debt into equity shares orinstruments convertible into equity shares or completion ofEsuch transactions as may be prescribed, prior to theinsolvency commencement date.

22. Appointment of resolution professional.—(1) The firstmeeting of the committee of creditors shall be held within sevendays of the constitution of the committee of creditors.

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(2) The committee of creditors, may, in the first meeting, by amajority vote of not less than sixty-six] per cent of the votingshare of the financial creditors, either resolve to appoint theinterim resolution professional as a resolution professionalor to replace the interim resolution professional by anotherresolution professional.

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(3) Where the committee of creditors resolves under sub-section(2)—

(a) to continue the interim resolution professional asresolution professional subject to a written consent fromthe interim resolution professional in the specified form], H

it shall communicate its decision to the interim resolutionprofessional, the corporate debtor and the AdjudicatingAuthority; or (b) to replace the interim resolution professional, it shallfile an application before the Adjudicating Authority forthe appointment of the proposed resolutionprofessional along with a written consent from the proposedresolution professional in the specified form.

(4) The Adjudicating Authority shall forward the name of theresolution professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall makesuch appointment after confirmation by the Board.

(5) Where the Board does not confirm the name of the proposedresolution professional within ten days of the receipt of thename of the proposed resolution professional, theAdjudicating Authority shall, by order, direct the interimresolution professional to continue to function as the resolutionprofessional until such time as the Board confirms theappointment of the proposed resolution professional.

23. Resolution professional to conduct corporate insolvency resolution process.—(1) Subject to Section 27, the resolutionprofessional shall conduct the entire corporate insolvencyresolution process and manage the operations of the corporatedebtor during the corporate insolvency resolution processperiod:

Provided that the resolution professional shall continue tomanage the operations of the corporate debtor after the expiryof the corporate insolvency resolution process period, untilan order approving the resolution plan under sub-section (1)of Section 31 or appointing a liquidator under Section 34 ispassed by the Adjudicating Authority.

(2) The resolution professional shall exercise powers andperform duties as are vested or conferred on the interimresolution professional under this Chapter.

(3) In case of any appointment of a resolution professionalunder sub-sections (4) of Section 22, the interim resolution

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professional shall provide all the information, documents andrecords pertaining to the corporate debtor in his possessionand knowledge to the resolution professional.

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25. Duties of resolution professional.—(1) It shall be the dutyof the resolution professional to preserve and protect the assetsof the corporate debtor, including the continued businessoperations of the corporate debtor.

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(2) For the purposes of sub-section (1), the resolutionprofessional shall undertake the following actions, namely—

(a) take immediate custody and control of all the assets ofthe corporate debtor, including the business records of thecorporate debtor; C

(b) represent and act on behalf of the corporate debtorwith third parties, exercise rights for the benefit of thecorporate debtor in judicial, quasi-judicial or arbitrationproceedings; D

(c) raise interim finances subject to the approval of thecommittee of creditors under Section 28;

25-A. Rights and duties of authorised representative offinancial creditors.—(1) The authorised representative underEsub-section (6) or sub-section (6-A) of Section 21 or sub-section (5) of Section 24 shall have the right to participateand vote in meetings of the committee of creditors on behalfof the financial creditor he represents in accordance with theprior voting instructions of such creditors obtained throughFphysical or electronic means.

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(2) It shall be the duty of the authorised representative tocirculate the agenda and minutes of the meeting of thecommittee of creditors to the financial creditor he represents.

(3) The authorised representative shall not act against theinterest of the financial creditor he represents and shall alwaysact in accordance with their prior instructions:

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Provided that if the authorised representative representsseveral financial creditors, then he shall cast his vote inrespect of each financial creditor in accordance with H

instructions received from each financial creditor, to the extentof his voting share:

Provided further that if any financial creditor does not giveprior instructions through physical or electronic means, theauthorised representative shall abstain from voting on behalfof such creditor.

(3-A) Notwithstanding anything to the contrary contained insub-section (3), the authorised representative under sub-section (6-A) of Section 21 shall cast his vote on behalf of allthe financial creditors he represents in accordance with thedecision taken by a vote of more than fifty per cent. of thevoting share of the financial creditors he represents, who havecast their vote:

Provided that for a vote to be cast in respect of an applicationunder Section 12-A, the authorised representative shall casthis vote in accordance with the provisions of sub-section (3).

(4) The authorised representative shall file with the committeeof creditors any instructions received by way of physical orelectronic means, from the financial creditor he represents,for voting in accordance therewith, to ensure that theappropriate voting instructions of the financial creditor herepresents is correctly recorded by the interim resolutionprofessional or resolution professional, as the case may be.

Explanation.—For the purposes of this section, the “electronicmeans” shall be such as may be specified.]

27. Replacement of resolution professional by committee ofcreditors.—(1) Where, at any time during the corporateinsolvency resolution process, the committee of creditors is ofthe opinion that a resolution professional appointed underSection 22 is required to be replaced, it may replace him withanother resolution professional in the manner provided underthis section.

(2) The committee of creditors may, at a meeting, by a vote ofsixty-six per cent. of voting shares, resolve to replace theresolution professional appointed under Section 22 with A

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another resolution professional, subject to a written consentfrom the proposed resolution professional in the specified form.

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(3) The committee of creditors shall forward the name of theinsolvency professional proposed by them to the AdjudicatingAuthority.

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(4) The Adjudicating Authority shall forward the name of theproposed resolution professional to the Board for itsconfirmation and a resolution professional shall be appointedin the same manner as laid down in Section 16.

(5) Where any disciplinary proceedings are pending againstthe proposed resolution professional under sub-section (3),the resolution professional appointed under Section 22 shallcontinue till the appointment of another resolutionprofessional under this section.

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30. Submission of resolution plan.—(1) A resolution applicantmay submit a resolution plan along with an affidavit statingthat he is eligible under Section 29-A to the resolutionprofessional prepared on the basis of the informationmemorandum.

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(2) The resolution professional shall examine each resolutionEplan received by him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolutionprocess costs in a manner specified by the Board in priorityto the payment of other debts of the corporate debtor; (b) provides for the payment of debts of operationalcreditors in such manner as may be specified by the Boardwhich shall not be less than—

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(i) the amount to be paid to such creditors in the event of aliquidation of the corporate debtor under Section 53; or

(ii) the amount that would have been paid to such creditors,if the amount to be distributed under the resolution planhad been distributed in accordance with the order ofpriority in sub-section (1) of Section 53, G

whichever is higher, and provides for the payment of debtsof financial creditors, who do not vote in favour of the H

resolution plan, in such manner as may be specified by theBoard, which shall not be less than the amount to be paidto such creditors in accordance with sub-section (1) ofSection 53 in the event of a liquidation of the corporatedebtor.

Explanation 1.—For the removal of doubts, it is herebyclarified that a distribution in accordance with theprovisions of this clause shall be fair and equitable to suchcreditors.

Explanation 2.—For the purposes of this clause, it is herebydeclared that on and from the date of commencement ofthe Insolvency and Bankruptcy Code (Amendment) Act,2019, the provisions of this clause shall also apply to thecorporate insolvency resolution process of a corporatedebtor—

(i) where a resolution plan has not been approved orrejected by the Adjudicating Authority;

(ii) where an appeal has been preferred under Section 61or Section 62 or such an appeal is not time barred underany provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in anycourt against the decision of the Adjudicating Authorityin respect of a resolution plan;]

(c) provides for the management of the affairs of thecorporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolutionplan; (e) does not contravene any of the provisions of the lawfor the time being in force; (f) conforms to such other requirements as may be specifiedby the Board.

Explanation.—For the purposes of clause (e), if any approvalof shareholders is required under the Companies Act, 2013(18 of 2013) or any other law for the time being in force forthe implementation of actions under the resolution plan, such A

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approval shall be deemed to have been given and it shall notbe a contravention of that Act or law.

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(3) The resolution professional shall present to thecommittee of creditors for its approval such resolutionplans which confirm the conditions referred to in sub-section (2).

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(4) The committee of creditors may approve a resolution planby a vote of not less than sixty-six per cent of voting share ofthe financial creditors, after considering its feasibility andviability, the manner of distribution proposed, which may takeinto account the order of priority amongst creditors as laiddown in sub-section (1) of Section 53,including the priorityand value of the security interest of a secured creditor andsuch other requirements as may be specified by the Board:

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Provided that the committee of creditors shall not approve aresolution plan, submitted before the commencement of theInsolvency and Bankruptcy Code (Amendment) Ordinance,2017, where the resolution applicant is ineligible underSection 29-A and may require the resolution professional toinvite a fresh resolution plan where no other resolution planis available with it:

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Provided further that where the resolution applicant referredto in the first proviso is ineligible under clause (c) of Section29-A, the resolution applicant shall be allowed by thecommittee of creditors such period, not exceeding thirty days,to make payment of overdue amounts in accordance with theFproviso to clause (c) of Section 29-A:

Provided also that nothing in the second proviso shall beconstrued as extension of period for the purposes of theproviso to sub-section (3) of Section 12, and the corporateinsolvency resolution process shall be completed within theperiod specified in that sub-section.]

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Provided also that the eligibility criteria in Section 29-A asamended by the Insolvency and Bankruptcy Code(Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall applyto the resolution applicant who has not submitted resolution H

plan as on the date of commencement of the Insolvency andBankruptcy Code (Amendment) Ordinance, 2018.

(5) The resolution applicant may attend the meeting of thecommittee of creditors in which the resolution plan of theapplicant is considered:

Provided that the resolution applicant shall not have a rightto vote at the meeting of the committee of creditors unlesssuch resolution applicant is also a financial creditor.

(6) The resolution professional shall submit the resolution planas approved by the committee of creditors to the AdjudicatingAuthority.

31. Approval of resolution plan.—(1) If the AdjudicatingAuthority is satisfied that the resolution plan as approved bythe committee of creditors under sub-section (4) of Section30 meets the requirements as referred to in sub-section (2) ofSection 30, it shall by order approve the resolution plan whichshall be binding on the corporate debtor and its employees,members, creditors, including the Central Government, anyState Government or any local authority to whom a debt inrespect of the payment of dues arising under any law for thetime being in force, such as authorities to whom statutorydues are owed, guarantors and other stakeholders involvedin the resolution plan:

Provided that the Adjudicating Authority shall, before passingan order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for itseffective implementation.

(2) Where the Adjudicating Authority is satisfied that theresolution plan does not confirm to the requirements referredto in sub-section (1), it may, by an order, reject the resolutionplan.

(3) After the order of approval under sub-section (1),—

(a) the moratorium order passed by the AdjudicatingAuthority under Section 14 shall cease to have effect; and (b) the resolution professional shall forward all recordsrelating to the conduct of the corporate insolvency A

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resolution process and the resolution plan to the Board tobe recorded on its database.

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(4) The resolution applicant shall, pursuant to the resolutionplan approved under sub-section (1), obtain the necessaryapproval required under any law for the time being in forcewithin a period of one year from the date of approval of theresolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law,whichever is later:

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Provided that where the resolution plan contains a provisionfor combination, as referred to in Section 5 of the CompetitionAct, 2002 (12 of 2003), the resolution applicant shall obtainthe approval of the Competition Commission of India underthat Act prior to the approval of such resolution plan by thecommittee of creditors.]

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33. Initiation of liquidation.—(1) Where the AdjudicatingAuthority,—

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(a) before the expiry of the insolvency resolution processperiod or the maximum period permitted for completion ofthe corporate insolvency resolution process under Section12 or the fast track corporate insolvency resolution processunder Section 56, as the case may be, does not receive aresolution plan under sub-section (6) of Section 30; or E

(b) rejects the resolution plan under Section 31 for thenon-compliance of the requirements specified therein, Fit shall—

(i) pass an order requiring the corporate debtor to beliquidated in the manner as laid down in this Chapter;

(ii) issue a public announcement stating that the corporatedebtor is in liquidation; and G

(iii) require such order to be sent to the authority with whichthe corporate debtor is registered.

(2) Where the resolution professional, at any time during thecorporate insolvency resolution process but beforeconfirmation of resolution plan, intimates the Adjudicating H

Authority of the decision of the committee ofcreditors approved by not less than sixty-six per cent of thevoting share] to liquidate the corporate debtor, theAdjudicating Authority shall pass a liquidation order asreferred to in sub-clauses (i), (ii) and (iii) of clause (b) ofsub-section (1).

Explanation.—For the purposes of this sub-section, it is herebydeclared that the committee of creditors may take the decisionto liquidate the corporate debtor, any time after its constitutionunder sub-section (1) of Section 21 and before theconfirmation of the resolution plan, including at any timebefore the preparation of the information memorandum.

(3) Where the resolution plan approved by the AdjudicatingAuthority is contravened by the concerned corporate debtor,any person other than the corporate debtor, whose interestsare prejudicially affected by such contravention, may makean application to the Adjudicating Authority for a liquidationorder as referred to in sub-clauses (i), (ii) and (iii) of clause(b) of sub-section (1).

(4) On receipt of an application under sub-section (3), if theAdjudicating Authority determines that the corporate debtorhas contravened the provisions of the resolution plan, it shallpass a liquidation order as referred to in sub-clauses (i), (ii)and (iii) of clause (b) of sub-section (1).

(5) Subject to Section 52, when a liquidation order has beenpassed, no suit or other legal proceeding shall be institutedby or against the corporate debtor:

Provided that a suit or other legal proceeding may be institutedby the liquidator, on behalf of the corporate debtor, with theprior approval of the Adjudicating Authority…”.

69. The scheme of the IBC is to ensure that when a default takesplace, in the sense that a debt becomes due and is not paid, the CorporateInsolvency Resolution Process begins.Where any corporate debtorcommits default, a financial creditor, an operational creditor or thecorporate debtor itself may initiate Corporate Insolvency ResolutionProcess in respect of such corporate debtor in the manner as providedin Chapter II of the IBC.

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A70. The provisions of the IBC are designed to ensure that thebusiness and/or commercial activities of the Corporate Debtor arecontinued by a Resolution Professional, post imposition of a moratorium,which would give the Corporate Debtor some reprieve from coercivelitigation, which could drainthe Corporate Debtor of its financialresources. This is to enable the Corporate Debtor to improve its financialBhealth and at the same time repay the dues of its creditors.

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71. Under Section 7(2) of the IBC, read with the Statutory 2016Adjudicating Authority Rules, made in exercise of powers conferred,inter alia, by clauses (c) (d) (e) and (f) of sub-section (1) of Section239 read with Sections 7, 8, 9 and 10 of the IBC, a financial creditor isCrequired to apply in the prescribed Form 1 for initiation of the CorporateInsolvency Resolution Process, against a Corporate Debtor under Section7 of the IBC, accompanied with documents and records required therein,and as specified in the Insolvency and Bankruptcy Board of India(Insolvency Resolution Process for Corporate Persons) Regulations,D2016, hereinafter referred to as the 2016 IB Board of India Regulations.

72. Statutory Form 1 under Rule 4(1) of the 2016 AdjudicatingAuthority Rules comprises Parts I to V, of which Part I pertains toparticulars of the Applicant, Part II pertains to particulars of the CorporateDebtor and Part III pertains to particulars of the proposed InterimEResolution Professional. Parts IV and V which require particulars ofFinancial Debt with Documents, Records and Evidence of default, isextracted hereinbelow:

PART IV

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73. Since a Financial Creditor is required to apply under Section 7of the IBC, in statutory Form 1, the Financial Creditor can only fill inparticulars as specified in the various columns of the Form. There is noscope for elaborate pleadings. An application to the Adjudicating Authority(NCLT) under Section 7 of the IBC in the prescribed form, cannottherefore, be compared with the plaint in a suit. Such application cannotbe judged by the same standards, as a plaint in a suit, or any otherpleadings in a Court of law.

74. Section 7(3) requires a financial creditor making an applicationunder Section 7(1) to furnish records of the default recorded with theinformation utility or such other record or evidence of default as may bespecified; the name of the resolution professional proposed to act as anInterim Resolution Professional and any other information as may bespecified by the Insolvency and Bankruptcy Board of India.

75. Section 7(4) of the IBC casts an obligation on the AdjudicatingAuthority to ascertain the existence of a default from the records of an

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Ainformation utility or on the basis of other evidence furnished by thefinancial creditor within fourteen days of the receipt of the applicationunder Section 7. As per the proviso to Section 7(4) of the IBC, insertedby amendment, by Act 26 of 2019, if the Adjudicating Authority has notascertained the existence of default and passed an order within thestipulated period of time of fourteen days, it shall record its reasons forBthe same in writing. The application does not lapse for non-complianceof the time schedule. Nor is the Adjudicating Authority obliged to dismissthe application. On the other hand, the application cannot be dismissed,without compliance with the requisites of the Proviso to Section 7(5) ofthe IBC.C

76. Section 7(5)(a) provides that when the Adjudicating Authorityis satisfied that a default has occurred, and the application under sub-section (2) of Section 7 is complete and there is no disciplinary proceedingpending against the proposed resolution professional, it may by orderadmit such application. As per Section 7(5)(b), if the AdjudicatingDAuthority is satisfied that default has not occurred or the applicationunder sub-Section (2) of Section 7 is incomplete or any disciplinaryproceeding is pending against the proposed resolution professional, itmay, by order, reject such application, provided that the AdjudicatingAuthority shall, before rejecting the application under sub-section (b) ofSection 5, give notice to the applicant, to rectify the defects in hisEapplication, within 7 days of receipt of such notice from the AdjudicatingAuthority.

77. The Corporate Insolvency Resolution Process commenceson the date of admission of the application under sub-section (5) of Section7 of the IBC. Section 7(7) casts an obligation on the Adjudicating AuthorityFto communicate an order under clause (a) of sub-section (5) of Section7 to the financial creditor and the corporate debtor and to communicatean order under clause (b) of sub-section (5) of Section 7 to the financialcreditor within seven days of admission or rejection of such application,as the case may be. Sections 8 and 9 of IBC pertain to InsolvencyGResolution by an operational creditor and are not attracted in the factsand circumstances of this case.Section 10 pertains to initiation ofCorporate Insolvency Resolution Process by the Corporate Debtor itself,and is also not attracted in the facts and circumstances of the case.

78. Section 12(1) of the IBC requires the Corporate InsolvencyHProcess to be completed within a period of 180 days from the date of admission of the application to initiate such process. The period of 180days is not extendable more than once.

79. The IBC is not just another statute for recovery of debts. Noris it a statute which merely prescribes the modalities of liquidation of aCorporate body, unable to pay its debts. It is essentially a statute whichworks towards the revival of a Corporate body, unable to pay its debts,by appointment of a Resolution Professional.

80. In Innoventive Industries Ltd vs. ICICI Bank[9], this Court,speaking through Nariman, J. extracted excerpts from the Report of theBankruptcy Law Reforms Committee of November, 2015 some of whichare reproduced hereinbelow:- “…When a firm (referred to as the corporate debtor in thedraft law) defaults, the question arises about what is to bedone. Many possibilities can be envisioned. One possibilityis to take the firm into liquidation. Another possibility is tonegotiate a debt restructuring, where the creditors accept areduction of debt on an NPV basis, and hope that thenegotiated value exceeds the liquidation value. Anotherpossibility is to sell the firm as a going concern and use theproceeds to pay creditors. Many hybrid structures of thesebroad categories can be envisioned.

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Speed is of essence

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Speed is of essence

Speed is of essence for the working of the bankruptcycode, for two reasons. First, while the “calm period” canhelp keep an organisation afloat, without the full clarity ofownership and control, significant decisions cannot be made.Without effective leadership, the firm will tend to atrophy andfail. The longer the delay, the more likely it is that liquidationwill be the only answer. Second, the liquidation value tendsto go down with time as many assets suffer from a higheconomic rate of depreciation.

From the viewpoint of creditors, a good realisation cangenerally be obtained if the firm is sold as a going concern.Hence, when delays induce liquidation, there is value

9. (2018) 1 SCC 407

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destruction. Further, even in liquidation, the realisation islower when there are delays. Hence, delays cause valuedestruction. Thus, achieving a high recovery rate is primarilyabout identifying and combating the sources of delay.

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Control of a company is not divine right.—When a firmdefaults on its debt, control of the company should shift tothe creditors. In the absence of swift and decisive mechanismsfor achieving this, management teams and shareholders retaincontrol after default. Bankruptcy law must address this.CObjectives…”

81. In Innoventive Industries Ltd vs. ICICI Bank (supra) thisCourt noted the objectives set by the Bankruptcy Law ReformsCommittee in recommending the IBC, “The Committee set the following as objectives desired fromDimplementing a new Code to resolve insolvency andbankruptcy:

(1) Low time to resolution.

(2) Low loss in recovery.

E(3) Higher levels of debt financing across a wide variety ofdebt instruments.

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Principles driving the design

The Committee chose the following principles to design thenew insolvency and bankruptcy resolution framework:

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I. The Code will facilitate the assessment of viability of theenterprise at a very early stage.

(1) The law must explicitly state that the viability of theGenterprise is a matter of business, and that matters of businesscan only be negotiated between creditors and debtor. Whileviability is assessed as a negotiation between creditors anddebtor, the final decision has to be an agreement amongcreditors who are the financiers willing to bear the loss in theinsolvency.

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(2) The legislature and the courts must control the process ofresolution, but not be burdened to make business decisions.

(3) The law must set up a calm period for insolvency resolutionwhere the debtor can negotiate in the assessment of viabilitywithout fear of debt recovery enforcement by creditors.

(4) The law must appoint a resolution professional as themanager of the resolution period, so that the creditors cannegotiate the assessment of viability with the confidence thatthe debtors will not take any action to erode the value of theenterprise. The professional will have the power andresponsibility to monitor and manage the operations andassets of the enterprise. The professional will manage theresolution process of negotiation to ensure balance of powerbetween the creditors and debtor, and protect the rights of allcreditors. The professional will ensure the reduction ofasymmetry of information between creditors and debtor inthe resolution process.

II. The Code will enable symmetry of information betweencreditors and debtors.

(5) The law must ensure that information that is essential forthe insolvency and the bankruptcy resolution process iscreated and available when it is required.

(6) The law must ensure that access to this information is madeavailable to all creditors to the enterprise, either directly orthrough the regulated professional.

(7) The law must enable access to this information to thirdparties who can participate in the resolution process, throughthe regulated professional.

III. The Code will ensure a time-bound process to betterpreserve economic value.

(8) The law must ensure that time value of money is preserved,and that delaying tactics in these negotiations will not extendthe time set for negotiations at the start.

IV. The Code will ensure a collective process.

(9) The law must ensure that all key stakeholders willparticipate to collectively assess viability. The law must ensure

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that all creditors who have the capability and the willingnessto restructure their liabilities must be part of the negotiationprocess. The liabilities of all creditors who are not part of thenegotiation process must also be met in any negotiatedsolution.

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BV. The Code will respect the rights of all creditors equally.

(10) The law must be impartial to the type of creditor incounting their weight in the vote on the final solution inresolving insolvency.

VI. The Code must ensure that, when the negotiations fail toCestablish viability, the outcome of bankruptcy must be binding.

(11) The law must order the liquidation of an enterprise whichhas been found unviable. This outcome of the negotiationsshould be protected against all appeals other than for veryexceptional cases.

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VII. The Code must ensure clarity of priority, and that therights of all stakeholders are upheld in resolving bankruptcy.

(12) The law must clearly lay out the priority of distributionsin bankruptcy to all stakeholders. The priority must bedesigned so as to incentivise all stakeholders to participateEin the cycle of building enterprises with confidence.

(13) While the law must incentivise collective action in resolvingbankruptcy, there must be a greater flexibility to allowindividual action in resolution and recovery duringbankruptcy compared with the phase of insolvencyFresolution.”

82. As observed by this Court, speaking through Nariman, J in P.

Mohanraj & Ors. v. Shah Brothers Ispat Private Limited[10] :- “10. A cursory look at Section 14(1)makes it clear that subjectGto the exceptions contained in sub-sections (2) and (3), onthe insolvency commencement date, the Adjudicating Authorityshall mandatorily, by order, declare a moratorium to prohibitwhat follows in clauses (a) to (d). Importantly, under sub-

section (4), this order of moratorium does not continueindefinitely, but has effect only from the date of the orderdeclaring moratorium till the completion of the corporateinsolvency resolution process which is time bound, eitherculminating in the order of the Adjudicating Authorityapproving a resolution plan or in liquidation.

11. The two exceptions to Section 14(1)are contained in sub-sections (2) and (3) of Section 14. Under sub-section (2), thesupply of essential goods or services to the corporate debtorduring this period cannot be terminated or suspended or eveninterrupted, as otherwise the corporate debtor would bebrought to its knees and would not able to function as a goingconcern during this period...”

83. In Swiss Ribbons Private Limited & Anr. v. Union of Indiaand Ors.[11], authored by Nariman, J. this Court observed:-

“28. It can thus be seen that the primary focus of thelegislation is to ensure revival and continuation of thecorporate debtor by protecting the corporate debtor from itsown management and from a corporate death by liquidation.The Code is thus a beneficial legislation which puts thecorporate debtor back on its feet, not being a mere recoverylegislation for creditors. The interests of the corporate debtorhave, therefore, been bifurcated and separated from that ofits promoters/those who are in management. Thus, theresolution process is not adversarial to the corporate debtorbut, in fact, protective of its interests. The moratorium imposedby Section 14 is in the interest of the corporate debtor itself,thereby preserving the assets of the corporate debtor duringthe resolution process. The timelines within which theresolution process is to take place again protects the corporatedebtor’s assets from further dilution, and also protects all itscreditors and workers by seeing that the resolution processgoes through as fast as possible so that another managementcan, through its entrepreneurial skills, resuscitate thecorporate debtor to achieve all these ends.”

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A84. IBC has overriding effect over other laws. Section 238 of theIBC provides that the provisions of the IBC shall have effect,notwithstanding anything inconsistent therewith contained in any otherlaw, for the time being in force, or any other instrument, having effect byvirtue of such law.B85. Unlike coercive recovery litigation, the Corporate InsolvencyResolution Process under the IBC is not adversarial to the interests ofthe Corporate Debtor, as observed by this Court in Swiss Ribbons PrivateLimited v. Union of India (supra).

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86. On the other hand, the IBC is a beneficial legislation for equalCtreatment of all creditors of the Corporate Debtor, as also the protectionof the livelihoods of its employees/workers, by revival of the CorporateDebtor through the entrepreneurial skills of persons other than those inits management, who failed to clear the dues of the Corporate Debtor toits creditors. It only segregates the interests of the Corporate Debtorfrom those of its promoters/persons in management.D

87. Relegation of creditors to the remedy of Coercive litigationagainst the Corporate Debtors could be detrimental to the interests ofthe Corporate Debtor and its creditors alike. While multiple coerciveproceedings against a Corporate Debtor in different forums could impedeits commercial/business activities, deplete its cash reserves, dissipate itsEassets, moveable and immoveable and precipitate its commercial death,such proceedings might not be economically viable for the creditors aswell, because of the length of time consumed in the litigations, theexpenses of litigation, and the uncertainties of realisation of claims evenafter ultimate success in the litigation.F

88. It is, therefore, imperative that the provisions of the IBC andthe Rules and Regulations framed thereunder be construed liberally, in apurposive manner to further the objects of enactment of the statute, andnot be given a narrow, pedantic interpretation which defeats the purposesof the Act.G89. In construing and/or interpreting any statutory provision one G89. In construing and/or interpreting any statutory provision onemust look into the legislative intent of the statute. The intention of thestatute has to be found in the words used by the legislature itself. In caseof doubt it is always safe to look into the object and purpose of thestatute or the reason and spirit behind it. Each word, phrase or sentencehas to be construed in the light of the general purpose of the Act itself,H

as observed by Mukherjea J., in Popatlal Shah v. State of Madras[12]and a plethora of other judgments of this Court. To quote Krishna IyerJ., the interpretative effort “must be illumined by the goal, thoughguided by the words”.

90. When a question arises as to the meaning of a certain provisionin a statute the provision has to be read in its context. The statute has tobe read as a whole. The previous state of the law, the general scope andambit of the statute and the mischief that it was intended to remedy arerelevant factors.

91. On a careful reading of the provisions of the IBC and inparticular the provisions of Section 7(2) to (5) of the IBC read with the2016 Adjudicating Authority Rules there is no bar to the filing ofdocuments at any time until a final order either admitting or dismissingthe application has been passed.

92. The time stipulation of fourteen days in Section 7(4) toascertain the existence of a default is apparently directory not mandatory.The proviso inserted by amendment with effect from 28[th] December,2019 provides that if the Adjudicating Authority has not ascertained thedefault and passed an order under sub-section (5) of Section 7 of theIBC within the aforesaid time, it shall record its reasons in writing forthe same. No other penalty is stipulated.

93. Furthermore, the proviso to Section 7(5)(b) of the IBC obligesthe Adjudicating Authority to give notice to an applicant, to rectify thedefect in its application within seven days of receipt of such notice fromthe Adjudicating Authority, before rejecting its application under Clause(b) of sub-section (5) of Section 7 of the IBC. When the AdjudicatingAuthority calls upon the applicant to cure some defects that defect hasto be rectified within seven days. There is no penalty prescribed forinability to cure the defects in an application within seven days from thedate of receipt of notice, and in an appropriate case, the AdjudicatingAuthority may accept the cured application, even after expiry of sevendays, for the ends of justice.

94. Section 12 of the IBC imposes a time limit for completion ofthe Corporate Insolvency Resolution Process. This time limit starts runningfrom the date of admission of an application to initiate the Corporate A

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AInsolvency Resolution Process. Section 12 is, therefore, not attracted inthis case.

95. In any case, Section 12 has been considered by this Court inArcelormittal (India) Pvt. Ltd. V. Satish Kumar Gupta and Anr.[13]This Court held :- B

“86. Given the fact that both the NCLT and NCLAT are to decidematters arising under the Code as soon as possible, we cannotshut our eyes to the fact that a large volume of litigation hasnow to be handled by both the aforesaid Tribunals. Whathappens in a case where the NCLT or the NCLAT decide amatter arising out of Section 31 of the Code beyond the time-limit of 180 days or the extended time-limit of 270 days? Actuscuriae neminem gravabit — the act of the court shall harmno man — is a maxim firmly rooted in our jurisprudence(see Jang Singh v. Brij Lal [Jang Singh v. Brij Lal, (1964) 2SCR 145 : AIR 1966 SC 1631] , SCR at p. 149 and A.R.Antulay v. R.S. Nayak [A.R. Antulay v. R.S. Nayak, (1988) 2SCC 602 : 1988 SCC (Cri) 372 : 1988 Supp (1) SCR 1] , SCRat p. 71). It is also true that the time taken by a Tribunalshould not set at naught the time-limits within which thecorporate insolvency resolution process must take place.However, we cannot forget that the consequence of thechopper falling is corporate death. The only reasonableconstruction of the Code is the balance to be maintainedbetween timely completion of the corporate insolvencyresolution process, and the corporate debtor otherwise beingput into liquidation. We must not forget that the corporatedebtor consists of several employees and workmen whose dailybread is dependent on the outcome of the corporate insolvencyresolution process. If there is a resolution applicant who cancontinue to run the corporate debtor as a going concern,every effort must be made to try and see that this is madepossible. [ Regulation 32 of the Insolvency and BankruptcyBoard of India (Liquidation Process) Regulations, 2016, statesthat the liquidator may also sell the corporate debtor as agoing concern.] A reasonable and balanced construction ofthis statute would therefore lead to the result that, where a C

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resolution plan is upheld by the appellate authority, either byway of allowing or dismissing an appeal before it, the periodof time taken in litigation ought to be excluded. This is not tosay that the NCLT and NCLAT will be tardy in decision-making.This is only to say that in the event of the NCLT, or the NCLAT,or this Court taking time to decide an application beyond theperiod of 270 days, the time taken in legal proceedings todecide the matter cannot possibly be excluded, as otherwisea good resolution plan may have to be shelved, resulting incorporate death, and the consequent displacement ofemployees and workers.

87. Coming to the facts of the present case, let us first examinethe resolution plan presented by Numetal. Numetal wasincorporated in Mauritius on 13-10-2017, expressly for thepurpose of submission of a resolution plan qua the corporatedebtor i.e. ESIL. Two other companies viz. AHL and AEL, werealso incorporated on the same day in Mauritius. Shri RewantRuia, son of Shri Ravi Ruia (who was the promoter of ESIL)held the entire share capital of AHL, which in turn held theentire shareholding of AEL, which in turn held the entire sharecapital of Numetal. At this stage there can be no doubtwhatsoever that Shri Rewant Ruia, being the son of Shri RaviRuia, would be deemed to be a person acting in concert withthe corporate debtor, being covered by Regulation 2(1)(q)(v)of the 2011 Takeover Regulations.

96. Even in the case of Section 12 of the IBC, this Court takingnote of the workload of the Adjudicating Authority, in effect held that thetime stipulation was directory. This Court observed that failure tocomplete the Resolution Process within stipulated time should not resultin corporate death by shelving of an otherwise good resolution plan. ThisCourt emphasized the need to maintain balance between timely completionof the Corporate Insolvency Resolution Process and the CorporateDebtor otherwise being put into liquidation, for failure to maintain thetime schedule.

97. The insolvency Committee of the Ministry of Corporate Affairs,Government of India, in a report published in March 2018, stated thatthe intent of the IBC could not have been to give a new lease of life todebts which were already time barred. Thereafter Section 238A was

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98. Section 238A of the IBC provides as follows:- “238A. The provisions of the Limitation Act, 1963 (36 of 1963)shall, as far as may be, apply to the proceedings or appealsbefore the Adjudicating Authority, the National Company LawAppellate Tribunal, the Debt Recovery Tribunal or the DebtRecovery Appellate Tribunal, as the case may be.”

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99. As observed by this Court in Sesh Nath Singh & Anr. Vs.CBaidyabati Sheoraphuli (supra), authored by one of us (Indira Banerjee,J.), this Court held:- “91. Legislature has in its wisdom chosen not to make theprovisions of the Limitation Act verbatim applicable toproceedings in NCLT/NCLAT, but consciously used the wordsD‘as far as may be’. The words ‘as far as may be’ are not meantto be otiose. Those words are to be understood in the sense inwhich they best harmonise with the subject matter of thelegislation and the object which the Legislature has in view.The Courts would not give an interpretation to those wordsEwhich would frustrate the purposes of making the LimitationAct applicable to proceedings in the NCLT/NCLAT ‘as far asmay be’.

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94. The use of words ‘as far as may be’, occurring in Section238A of the IBC tones down the rigour of the words ‘shall’ inthe aforesaid Section which is normally considered asmandatory. The expression ‘as far as may be’ is indicative ofthe fact that all or any of the provisions of the Limitation Actmay not apply to proceedings before the AdjudicatingAuthority (NCLT) or the Appellate authority (NCLAT) if theyare patently inconsistent with some provisions of the IBC. Atthe same time, the words ‘as far as may be’ cannot be construedas a total exclusion of the requirements of the basic principlesof Section 14 of the Limitation Act, but permits a wider, moreliberal, contextual and purposive interpretation by necessary F

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modification, which is in harmony with the principles of thesaid Section.”

100. There is no specific period of limitation prescribed in theLimitation Act, 1963, for an application under the IBC, before theAdjudicating Authority (NCLT). An application for which no period oflimitation is provided anywhere else in the Schedule to the LimitationAct, is governed by Article 137 of the Schedule to the said Act. UnderArticle 137 of the Schedule to the Limitation Act, the period of limitationprescribed for such an application is three years from the date of accrualof the right to apply.

101. There can be no dispute with the proposition that the periodof limitation for making an application under Section 7 or 9 of the IBC isthree years from the date of accrual of the right to sue, that is, the dateof default. In Gaurav Hargovindbhai Dave v. Asset ReconstructionCompany (India) Ltd. (supra) authored by Nariman, J. this Court held:- “6. …...The present case being “an application” which is filedunder Section 7, would fall only within the residuary Article137.”

102. In B. K. Educational Services Private Limited v. ParagGupta and Associates[14], this Court speaking through Nariman, J. held:- “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 applicationwould be barred under Article 137 of the Limitation Act, saveand except in those cases where, in the facts of the case,Section 5 of the Limitation Act may be applied to condone thedelay in filing such application.”

103. In Jignesh Shah v. Union of India (supra) this Courtspeaking through Nariman, J. reiterated the proposition that the periodof limitation for making an application under Section 7 or 9 of the IBCwas three years from the date of accrual of the right to sue, that is, thedate of default.

14 (2019) 11 SCC 633

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A104. In Vashdeo R. Bhojwani v. Abhyudaya Co-operative BankLtd. & Ors.[15 ]this Court rejected the contention that the default was acontinuing wrong and Section 23 of the Limitation Act 1963 would apply,relying upon Balkrishna Savalram Pujari Waghmare v. ShreeDhyaneshwar Maharaj Sansthan[16].

B105. To quote P.B. Gajendragadkar, J in Balkrishna 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 injuryCand 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 aDcontinuing 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 characterisedas continuing wrongs that Section 23 can be invoked. .....”

E106. There can be no dispute with the proposition of law laiddown in Babulal Vardharji Gurjar (supra) that limitation is essentiallya mixed question of law and facts and when a party seeks application ofany particular provision for extension or enlargement of the period oflimitation, the relevant facts are required to be pleaded and requisiteFevidence is required to be adduced.

107. The judgment of this Court in Babulal Vardharji Gurjar(supra) was rendered in the facts of the aforesaid case, where the dateof default had been mentioned as 8.7.2011 being the date of N.P.A. andit remained undisputed that there had neither been any other date ofGdefault stated in the application nor had any suggestion about anyacknowledgement been made.

108. In the backdrop of the aforesaid facts, this court observedthat even if Section 18 of the Limitation Act and principles thereof were 15 (2019) 9 SCC 158H16. 1959 Supp (2) SCR 476

applicable, the same would not apply to the application under consideration,in view of the averments regarding default therein and for want of anyother averment with regard to acknowledgment.

109. It is well settled, that a judgment is a precedent for the issueof law that is raised and decided and not any observations made in thefacts of the case. As very aptly penned by V. Sudhish Pai in“Constitutional Supremacy-A Revisit”, “Judicial utterances/pronouncements are in the setting of the facts of a particular case.To interpret words and provisions of a statute it may becomenecessary for judges to embark upon lengthy discussions, but suchdiscussion is meant to explain not define. Judges interpret statutes,their words are not to be interpreted as statutes.”The aforesaidpassage was extracted and incorporated as part of the judgment of thisCourt in Sesh Nath Singh (supra).

110. In this case, admittedly there were fresh documents beforethe Adjudicating Authority (NCLT), including a letter of offer dated3.03.2017 for one time settlement of the dues of the Corporate Debtorto the Financial Creditor, upon payment of Rs.5.5 crores. The AppellantBank has also relied upon financial statements up to 31[st] March, 2018apart from the final judgment and order dated 27[th] March, 2017 in O.A.16/2015 and the subsequent Recovery Certificate No.2060/2017 dated25[th] May, 2017 which constituted cause of action for initiation ofproceedings under Section 7 of the IBC.

111. Babulal Vardharji Gurjar (supra) is not an authority for theproposition that there can be no amendment of pleadings at the fag endof the NCLT proceeding. Moreover, in this case, the amendments werenot made at the fag end of the proceedings but within 2/3 months of theirinitiation, before admission of the petition under Section 7 of the IBC.

112. It is not necessary for this Court to examine the relevance ofall the documents filed by the Appellant Bank pursuant to its interimapplications being I.A. No.27 of 2019 and I.A. No.131 of 2019. Sufficeit to mention that the documents enclosed with the applications beingI.A. No.27 of 2019 and I.A. No.131 of 2019 and the pleadings in thesupporting affidavits, made out a case for computation of limitation afreshfrom the dates of the relevant documents. It would also be pertinent tonote that the reasons for the execution of the documents are irrelevant.It is not the case of the Respondents, that any of those documents wereextracted through coercion.

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A113. As per Section 18 of Limitation Act, an acknowledgement ofpresent subsisting liability, made in writing in respect of any right claimedby 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 byBimplication. However, the acknowledgement must be made before therelevant period of limitation has expired.

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114. In Sesh Nath Singh and Anr. v. Baidyabati SheoraphuliCooperative Bank Ltd. (supra) this Court, speaking through one of us(Indira Banerjee J.) held that the IBC does not exclude the applicationCof Section 14 or 18 or any other provision of the Limitation Act. There istherefore no reason to suppose that Sections 14 or 18 of the LimitationAct do not apply to proceedings under Section 7 or Section 9 of the IBC.

115. In Laxmi Pat Surana v. Union Bank of India (supra) thisCourt speaking through Khanwilkar J. held that there was no reason toDexclude the effect of Section 18 of the Limitation Act to proceedingsinitiated under the IBC.

116. InAsset Reconstruction Company (India) Limited. v. BishalJaiswal and Anr. (supra) where this Court speaking through NarimanJ. relied, inter alia, on Sesh Nath Singh (supra) and Laxmi Pat SuranaE(supra) and held that the question of applicability of Section 18 of theLimitation Act to proceedings under the IBC was no longer res integra.

117. In Khan Bahadur Shapoor Fredoom Mazda v. DurgaPrasad Chamaria and Others[17], this Court held:- F“6. It is thus clear that acknowledgment as prescribed bySection 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 mustGrelate to a present subsisting liability though the exact natureor 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 between

the 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.”

118. It is well settled that entries in books of accounts and/orbalance sheets of a Corporate Debtor would amount to anacknowledgment under Section 18 of the Limitation Act. In AssetReconstruction Company (India) Limited v. Bishal Jaiswall andAnr. (supra) authored by Nariman, J. this Court quoted with approvalthe judgments, inter alia, of Bengal Silk Mills Co. v. Ismail GolamHossain Ariff,[18] [“Bengal Silk Mills”] and in Re Pandem Tea Co.[19]Ltd., the judgment of the Delhi High Court in South Asia Industries (P)Ltd. v. General Krishna Shamsher Jung Bahadur Rana[20 ]and thejudgment of Karnataka High Court in Hegde Golay Ltd. v. State Bank 18 AIR 1962 Cal 11519 AIR 1974 Cal 17020 ILR (1972) 2 Del 712

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Aof India[21] and held that an acknowledgement of liability that is made ina balance sheet can amount to an acknowledgement of debt.

119. In Bengal Silk Mills Co. (supra) the Calcutta High Courtheld:-

“9. ….. I am unable to agree with the reasoning of the NagpurBdecision that a balance-sheet does not save limitation becauseit is drawn up under a duty to set out the claims made on thecompany and not with the intention of acknowledging liability.The balance-sheet contains admissions of liability; the agentof the company who makes and signs it intends to make thoseCadmissions. The admissions do not cease to beacknowledgements of liability merely on the ground that theywere made in discharge of a statutory duty. I notice that inthe Nagpur case the balance-sheet had been signed by adirector and had not been passed either by the Board ofDirectors or by the company at its annual general meetingDand it seems that the actual decision may be distinguished onthe ground that the balance-sheet was not made or signed bya duly authorized agent of the company.”

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E11. To come under section 19 an acknowledgement of a debtneed not be made to the creditor nor need it amount to apromise to pay the debt. In England it has been held that abalance-sheet of a company stating the amount of itsindebtedness to the creditor is a sufficient acknowledgementin respect of a specialty debt under section 5 of the CivilFProcedure Act, 1833 (3 and 4 Will — 4c. 42), see Re : Atlanticand Pacific Fibre Importing and Manufacturing Co. Ltd.,[1928] Ch. 836…….”

120. In Re Pandem Tea Co. Ltd. (supra), Sabyasachi MukharjiJ.held:G“

“4. Now the question is whether the statements, which arecontained in the profits and loss accounts and the assets andliabilities side indicating the liability of the petitioning creditoralong with the statement of the Directors made to the 21 ILR 1987 Kar 2673H

shareholders as Directors’ report should be read together andif so whether reading these two statements together theseamount to an acknowledgement as contemplated underSection 18 of the Limitation Act, 1963, or Section 19 of theLimitation Act, 1908. In my opinion, both these statementshave to be read together. The balance-sheet is meant to bepresented and passed by the shareholders and is generallyaccompanied by the Directors’ report to the shareholders.Therefore in understanding the balance-sheets and inexplaining the statements in the balance-sheets, the balance-sheets together with the Directors’ report must be takentogether to find out the true meaning and purport of thestatements. Counsel appearing for petitioning creditorcontended that under the statute the balance-sheet was aseparate document and as such if there was unequivocalacknowledgement on the balance-sheet the statement of theDirectors’ report should not be taken into consideration. It istrue the balance-sheet is a statutory document and perhapsis a separate document but the balance-sheet not confirmedor passed by the shareholders cannot be accepted as correct.Therefore, in order to validate the balance-sheet, it must beduly passed by the shareholders at the appropriate meetingand in order to do so it must be accompanied by a report, ifany, made by the Directors. Therefore, even though thebalance-sheet may be a separate document these twodocuments in the facts and circumstances of the case shouldbe read together and should be construed together. It washeld by the Supreme Court in the case of L.C.Mills v. Aluminium Corpn. of India Ltd., (1971) 1 SCC 67 : AIR1971 SC 1482, that it was clear that the statement on whichthe plea of acknowledgement was founded should relate to asubsisting liability as the section required and it should bemade before the expiration of the period prescribed underthe Act. It need not, however, amount to a promise to pay foran acknowledgement did not create a new right of action butmerely extended the period of limitation. The statement neednot indicate the exact nature or the specific character of theliability. The words used in the statement in question must,however, relate to a present subsisting liability and indicate ABC

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the existence of a jural relationship between the parties suchas, for instance, that of a debtor and a creditor and theintention to admit such jural relationship. Such an intentionneed not, however, be in express terms and could be inferredby implication from the nature of the admission and thesurrounding circumstances. Generally speaking, a liberalconstruction of the statement in question should be given.That of course did not mean that where a statement was madewithout intending to admit the existence of jural relationship,such intention should be fastened on the person making thestatement by an involved and far-fetched reasoning. In orderto find out the intention of the document by whichacknowledgement was to be construed the document as awhole must be read and the intention of the parties must befound out from the total effect of the document read as awhole. …”

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D121. In South Asia Industries (P) Ltd. v. General KrishnaShamsher Jung Bahadur Rana (supra), this Court observed:-

“46. Shri Rameshwar Dial argued that statements in thebalance-sheet of a company cannot amount toacknowledgement of liability because the balance-sheet isEmade under compulsion of the provisions in the CompaniesAct. There is no force in this argument. In the first place, section18 of the Limitation Act, 1963, requires only that theacknowledgement of liability must have been made in writing,but it does not prescribe that the writing should be in anyparticular kind of document. So, the fact that the writing isFcontained in a balance-sheet is immaterial. In the secondplace, it is true that section 131 of the Companies Act, 1913(section 210 of the Companies Act, 1956) makes it compulsorythat an annual balance sheet should be prepared and placedbefore the Company by the Directors, and section 132 (sectionG211 of the Companies Act, 1956) requires that the balance-sheet should contain a summary, inter alia, of the currentliabilities of the company. But, as pointed out by Bachawat J.in Bengal Silk Mills v. Ismail Golam Hossain Ariff, AIR 1962Cal 115 although there was statutory compulsion to preparethe annual balance-sheet, there was no compulsion to make E

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any particular admission, and a document is not taken out ofthe purview of section 18 of the Indian Limitation Act, 1963(section 19 of the Indian Limitation Act, 1908) merely on theground that it is prepared under compulsion of law or indischarge of statutory duty. Reference may also be made tothe decisions in Raja of Vizianagram v. Vizianagram MiningCo. Ltd., AIR 1952 Mad 136, Jones v. Bellgrove PropertiesLtd., (1949) 1 All ER 498; and Lahore Enamelling andStamping Co. v. A.K. Bhalla, AIR 1958 Punj 341, in whichstatements in balance-sheets of companies were held to amountto acknowledgements of liability of the companies.

47. Shri Rameshwar Dial referred to the decision of the PrivyCouncil in Consolidated Agencies Ltd. v. Bertram Ltd., (1964)3 All ER 282. We shall advert to this decision presently whenwe deal with another argument of Shri Rameshwar Dial, andit is sufficient to state so far as the argument underconsideration is concerned that even in this decision of thePrivy Council it has been recognised that balance-sheets couldin certain circumstances amount to acknowledgements ofliability. It cannot, therefore, be said as a general propositionof law that statements in balance-sheets of a company cannotoperate at all as acknowledgements of liability as contendedby Shri Rameshwar Dial.”

122. In Hegde & Golay Limited v. State Bank of India reportedin ILR 1987 Kar 2673, the Karnataka High Court held:

“43. The acknowledgement of liability contained in thebalance-sheet of a company furnishes a fresh starting pointof limitation. It is not necessary, as the law stands in India,that the acknowledgement should be addressed andcommunicated to the creditor.”

123. In Reliance Asset Reconstruction Co. Ltd. v. Hotel PoonjaInternational Pvt. Ltd.[22], the Appellant had relied on two documents inthe Paper Book, that is, (i) the Balance Sheet of the Corporate Debtordated 16[th] August, 2017 and (ii) a letter dated 23[rd] April, 2019 issued bythe Corporate Debtor to contend that the proceedings under Section 7of the IBC were not barred by limitation, as limitation would start running

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Aafresh for a period of three years from the respective dates of thosedocuments in acknowledgment of liability.

124. This Court, however, did not accept the balance sheet dated16[th] August, 2017 and 23[rd] April, 2019 for two reasons, the first reasonbeing that there was no evidence or materials to show that the documentsBhad been signed before the expiry of the prescribed period of limitation.In addition, the Court found that there had been no pleading with regardto the alleged acknowledgement in the application under Section 7 of theIBC. This Court also found that the two documents could not be construedas admission that amounted to acknowledgement of the jural relationshipand the existence of liability, since the balance sheet dated 16[th] August,C2017 did not acknowledge or admit any liability. Rather the CorporateDebtor had disputed and denied its liability. Similarly, the letter dated 23[rd]April, 2019 was also found not be an acknowledgment or admission ofliability. On the other hand, the language of the letter made it absolutelyclear that the liability had in fact been denied.D

125. Significantly, in Reliance Asset Reconstruction (supra), theloan had been sanctioned by Vijaya Bank in May 1986. The loan amountwas declared NPA on 1[st] April 1993, an original application moved underthe Debt Recovery Act was compromised in 2001 and the DRT hadissued a Recovery Certificate in May 2003. Vijaya Bank assigned itsEReliance Asset Reconstruction in May 2011 after which amendedRecovery Certificate was issued in December 2012. The petition underSection 7 of the IBC was, however filed on 27[th] July 2018.

126. The finding of the NCLAT that there was nothing on recordto suggest that the ‘Corporate Debtor’ acknowledged the debt withinFthree years and agreed to pay debt is not sustainable in law, in view ofthe Statement of Accounts/Balance sheets/Financial Statements for theyears 2016-2017 and 2017-2018 and the offer of One Time Settlementreferred to above including in particular, the offer of One Time Settlementmade on 3[rd] March, 2017.

G127. Section 18 of the Limitation Act speaks of anAcknowledgment in writing of liability, signed by the party against whomsuch property or right is claimed. Even if the writing containing theacknowledgment is undated, evidence might be given of the time whenit was signed. The explanation clarifies that an acknowledgment may besufficient even though it is accompanied by refusal to pay, deliver, performH

or permit to enjoy or is coupled with claim to set off, or is addressed to aperson other than a person entitled to the property or right. ‘Signed’ is tobe construed to mean signed personally or by an authorised agent.

128. In the instant case, Rs.111 lakhs had been paid towardsoutstanding interest on 28[th] March, 2014 and the offer of One TimeSettlement was within three years thereafter. In any case, NCLAToverlooked the fact that a Certificate of Recovery has been issued infavour of Appellant Bank on 25[th] May 2017. The Corporate Debtor didnot pay dues in terms of the Certificate of Recovery. The Certificate ofRecovery in itself gives a fresh cause of action to the Appellant Bank toinstitute a petition under Section 7 of IBC. The petition under Section 7IBC was well within three years from 28[th] March 2014.

129. In Jignesh Shah and Another v. Union of India (supra),this Court relied upon a judgment of the Patna High Court in FerroAlloys Corporation Limited v. Rajhans Steel Limited[23], the relevantportion whereof is extracted hereinbelow:-

“….In my opinion, the contention lacks merit. Simply becausea suit for realization of the debt of the petitioner Companyagainst Opposite Party 1 was instituted in the Calcutta HighCourt on its Original Side, such institution of the suit and thependency thereof in that Court cannot enure for the benefitof the present winding-up proceeding. The debt havingbecome time-barred when this petition was presented in thisCourt, the same could not be legally recoverable through thisCourt by resorting to winding-up proceedings because thesame cannot legally be proved under Section 520 of the Act.It would have been altogether a different matter if the petitioner-Company approached this Court for windingup of theopposite party No.1, after obtaining a decree from the CalcuttaHigh Court in Suit No.1073 of 1987, and the decree remainingunsatisfied, as provided in clause (b) of sub-section (1) ofSection 434.”

130. In effect, this Court speaking through Nariman J., approvedthe proposition that an application under Section 7 or 9 of the IBC maybe time barred, even though some other recovery proceedings mighthave been instituted earlier, well within the period of limitation, in respect AB

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Aof the same debt. However, it would have been a different matter, if theapplicant had approached the Adjudicating Authority after obtaining afinal order and/or decree in the recovery proceedings, if the decreeremained unsatisfied. This Court held that a decree and/or finaladjudication would give rise to a fresh period of limitation for initiation ofthe Corporate Insolvency Resolution Process.B

131. It is true that the finding of Patna High Court in Ferro AlloysCorporation Limited v. Rajhans Steel Limited (supra) was renderedin the context of Section 434(1)(b) of the Companies Act 1956, whichprovided that a company would be deemed to be unable to pay its debtsif execution or other process issued on a decree or order of any Court orCTribunal in favour of a creditor of the company was returned unsatisfiedin whole or in part.

132. We see no reason why the principles should not apply to anapplication under Section 7 of the IBC which enables a financial creditorto file an application initiating the Corporate Insolvency ResolutionDProcess against a Corporate Debtor before the Adjudicating Authority,when a default has occurred. As observed earlier in this judgment, on aconjoint reading of the provisions of the IBC quoted above, it is clearthat a final judgment and/or decree of any Court or Tribunal or anyArbitral Award for payment of money, if not satisfied, would fall withinEthe ambit of a financial debt, enabling the creditor to initiate proceedingsunder Section 7 of the IBC.

133. It is not in dispute that the Respondent No.2 is a CorporateDebtor and the Appellant Bank, a Financial Creditor. The question is,whether the petition under Section 7 of the IBC has been instituted withinF3 years from the date of default. ‘Default’ is defined in Section 3(12) tomean “non-payment’ of a debt which has become due and payable whetherin whole or any part and is not paid by the Corporate Debtor”.

134. It is true that, when the petition under Section 7 of IBC wasfiled, the date of default was mentioned as 30[th] September 2013 and31[st] December 2013 was stated to be the date of declaration of theGAccount of the Corporate Debtor as NPA. However, it is not correct tosay that there was no averment in the petition of any acknowledgmentof debt. Such averments were duly incorporated by way of amendment,and the Adjudicating Authority rightly looked into the amended pleadings.

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135. As observed above, the Appellant Bank filed the Petitionunder Section 7 of the IBC on 12[th] October 2018. Within three months,the Appellant Bank filed an application in the NCLT, for permission toplace additional documents on record including the final judgment andorder/decree dated 27.3.2017 in O.A. 16/2015 and the RecoveryCertificate dated 25.5.2017, enabling the Appellant Bank to recover Rs.52crores odd. The judgment and order/decree of the DRT and the RecoveryCertificate gave a fresh cause of action to the Appellant Bank to initiatea petition under Section 7 of the IBC.

136. On or about 5[th] March 2019, the Appellant Bank filed anotherapplication for permission to place on record additional documentsincluding inter alia financial statements, Annual Report etc. of the periodfrom 1[st] April 2016 to 31[st] March 2017, and again, from 1[st] April 2017 to31[st] March 2018 and a letter dated 3[rd] March 2017 proposing a OneTime Settlement. This application was also allowed on 6[th] March 2021.The Adjudicating Authority, took into consideration the new documentsand admitted the petition under Section 7 of the IBC.

137. Even assuming that documents were brought on record at alater stage, as argued by Mr. Shivshankar, the Adjudicating Authoritywas not precluded from considering the same. The documents werebrought on record before any final decision was taken in the Petitionunder Section 7 of IBC.

138. A final judgment and order/decree is binding on the judgmentdebtor. Once a claim fructifies into a final judgment and order/decree,upon adjudication, and a certificate of Recovery is also issued authorizingthe creditor to realize its decretal dues, a fresh right accrues to the creditorto recover the amount of the final judgment and/or order/decree and/orthe amount specified in the Recovery Certificate.

139. The Appellant Bank was thus entitled to initiate proceedingsunder Section 7 of the IBC within three years from the date of issuanceof the Recovery Certificate. The Petition of the Appellant Bank, wouldnot be barred by limitation at least till 24[th] May, 2020.

140. While it is true that default in payment of a debt triggers theright to initiate the Corporate Resolution Process, and a Petition underSection 7 or 9 of the IBC is required to be filed within the period oflimitation prescribed by law, which in this case would be three yearsfrom the date of default by virtue of Section 238A of the IBC read with A

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AArticle 137 of the Schedule to the Limitation Act, the delay in filing aPetition in the NCLT is condonable under Section 5 of the LimitationAct unlike delay in filing a suit. Furthermore, as observed above Section14 and 18 of the Limitation Act are also applicable to proceedings underthe IBC.

B141. Section 18 of the Limitation Act cannot also be construedwith pedantic rigidity in relation to proceedings under the IBC. This Courtsees no reason why an offer of One Time Settlement of a live claim,made within the period of limitation, should not also be construed as anacknowledgment to attract Section 18 of the Limitation Act. In GauravHargovindbhai Dave (supra) cited by Mr. Shivshankar, this Court hadCno occasion to consider any proposal for one time settlement. Be that asit may, the Balance Sheets and Financial Statements of the CorporateDebtor for 2016-2017, as observed above, constitute acknowledgementof liability which extended the limitation by three years, apart from thefact that a Certificate of Recovery was issued in favour of the AppellantDBank in May 2017. The NCLT rightly admitted the application by itsorder dated 21[st] March, 2019.

142. To sum up, in our considered opinion an application underSection 7 of the IBC would not be barred by limitation, on the groundthat it had been filed beyond a period of three years from the date ofEdeclaration of the loan account of the Corporate Debtor as NPA, ifthere were an acknowledgement of the debt by the Corporate Debtorbefore expiry of the period of limitation of three years, in which case theperiod of limitation would get extended by a further period of three years.

143. Moreover, a judgment and/or decree for money in favour ofFthe Financial Creditor, passed by the DRT, or any other Tribunal or Court,or the issuance of a Certificate of Recovery in favour of the FinancialCreditor, would give rise to a fresh cause of action for the FinancialCreditor, to initiate proceedings under Section 7 of the IBC for initiationof the Corporate Insolvency Resolution Process, within three years fromthe date of the judgment and/or decree or within three years from theGdate of issuance of the Certificate of Recovery, if the dues of theCorporate Debtor to the Financial Debtor, under the judgment and/ordecree and/or in terms of the Certificate of Recovery, or any part thereofremained unpaid.

144. There is no bar in law to the amendment of pleadings in anHapplication under Section 7 of the IBC, or to the filing of additional

documents, apart from those initially filed along with application underSection 7 of the IBC in Form-1. In the absence of any express provisionwhich either prohibits or sets a time limit for filing of additional documents,it cannot be said that the Adjudicating Authority committed any illegalityor error in permitting the Appellant Bank to file additional documents.Needless however, to mention that depending on the facts andcircumstances of the case, when there is inordinate delay, the AdjudicatingAuthority might, at its discretion, decline the request of an applicant tofile additional pleadings and/or documents, and proceed to pass a finalorder. In our considered view, the decision of the Adjudicating Authorityto entertain and/or to allow the request of the Appellant Bankfor thefiling of additional documents with supporting pleadings, and to considersuch documents and pleadings did not call for interference in appeal.

145. For the reasons discussed above, the impugned judgmentand order is unsustainable in law and facts. The appeal is accordinglyallowed, and the impugned judgment and order of the NCLAT is setaside.

Nidhi Jain

Appeal allowed.

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