Case: M/s. Reliance Asset Reconstruction Company Ltd Vs. M/s Hotel Poonja International Pvt. Ltd

substantial difference between the parties as to the true legal position in this matter. 32. In the present case, reliance ought not to be placed on the balance sheet dated 16th August 2017 and letter dated 23 rd April 2019 primarily for two reasons. First, there is no evidence or material to show that the documents were signed before the expiry of the prescribed period of limitation. There is no pleading to the said effect in the application under Section 7 of the IBC filed by the appellant in the statutory form. In fact, the two documents were never relied upon. 33. Secondly, the two documents cannot be construed as admissions that amount to acknowledgment of the jural relationship and existence of liability. The balance sheet dated 16th August 2017 does not acknowledge or admit any debt. Rather, the Corporate Debtor has disputed and denied its liability. Point (d) of the Report of the independent auditor at page 86 of the paper book reads: d) Note No. 28 Claims against the Company under adjudication not acknowledged as debts for reasons stated in point (b) and (c) above. Our opinion is not modified in respect of these matters. Point (d) quoted above read with the immediately preceding sub-paragraph (point c) makes it clear that the Balance Sheet cannot be treated as an acknowledgment of liability. This is also clear from the last sub-heading of Note 27 and Note 28 of the Balance Sheet at page 147 of the paper book, set out hereinbelow: As on the date of this report the matter is pending before the Honble High Court of Karnataka, Bangalore. The Board of Directors have decided that no interest be provided in the books of account for the year ended 31st March 2017. The Board is also of the opinion based on legal advice obtained by it in the matter that no interest be provided in the books till the matter acquires clarity and the entire amount demanded by Reliance except for a sum of Rs.40.00 lakhs be treated as contingent liability not provided for. The Board is also of the opinion that developments subsequent to the decree of the DRT Bangalore have not been considered by Reliance while demanding the amount of Rs.97.12 crores. These developments have a substantial bearing on the case. Note No. 28 Claims against the Company under adjudication not acknowledged as debt: Commercial and other claims Rs. 113.85 crores Previous Year Rs. 72.92 crores 34. The letter dated 23rd April 2019 again is not an acknowledgment and admission of liability. The language and tone of the letter makes it absolutely clear that the liability was denied. The Corporate Debtor contended that it had paid more than the double the amount it had borrowed. Nevertheless, the Corporate Debtor offered a one-time settlement seeking opinion/concurrence of the Appellant with regard to such offer to settle the dispute, which offer was not accepted by the Appellant. The relevant part of the letter dated 23 rd April 2019 is extracted hereinbelow: Since we have agreed to clear the loan account under one time settlement scheme for a sum of Rs. 1.00 crore out of which we have already paid Rs. 40 lakhs, what has remained unpaid is Rs. 60 Lakhs. If you calculate the total amount paid by us till now, it is more than double the amount borrowed by us. Anyhow, we have now decided to offer Rs. 65 Lakhs in full and final settlement of our claim. We therefore, kindly request you to accept our offer for a sum of Rs. 65 Lakhs in full settlement of the claim and close the case. In the event of willingness on your part to accept our said offer for Rs. 65 Lakhs, we undertake to pay it off on or before 30.06.2019. Therefore, please let us have your opinion in the matter at the earliest. 35. The Balance Sheet of the Corporate Debtor dated 16 th August, 2017 and the letter dated 23rd April, 2019, as observed above, do not constitute any acknowledgment of liability and were not even referred to by the Appellant in its application under IBC. It is, therefore, not necessary for this Court to delve into the question of whether Section 18 of the Limitation Act is attracted in the case of a petition under Section 7 of the IBC. 36. At the cost of repetition, it is reiterated that in its application under Section 7 of the IBC, the Appellant declared the date of default as 1st April, 1993. At the highest, limitation started running from 27 th March, 2003, when the Recovery Certificate was issued by the DRT in favour of the Assignor. The NCLAT has rightly held that the application of the Appellant under Section 7 of the IBC barred by limitation. 37. In any case, there are pending proceedings in the DRT, in respect of the dues of the Corporate Debtor. The Appellant has been substituted in place of the Assignor Bank in the execution proceedings in the DRT. There is an amended Certificate issued by the DRT. Orders have, from time to time, been passed in the Execution Proceedings. The Appellant is not without remedy against the Corporate Debtor. 38. As held by this Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited reported in (2018) 1 SCC 353 , the IBC is not intended to be a substitute to a recovery forum. In Transmission Corporation of Andhra Pradesh Limited v. Equipment Conductors and Cables Limited reported in (2019) 12 SCC 697, this Court followed its earlier judgment in Mobilox Innovations Private Ltd. (supra) and observed as hereunder:- In a recent judgment of this Court in Mobilox Innovations Private Limted v. Kirusa Software Private Limited (2018) 1 SCC 353 , this Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked….

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]18. Admittedly, as stated in Part IV of the application filed by the Appellant in the NCLT under Section 7 of the IBC, the account of the Corporate Debtor was declared as Non Performing Asset on 1 st April, 1993, that is, over 15 years before the application under Section 5 was filed in the NCLT.19. It is well settled by a catena of decisions of this Court, that Article 137 of the Limitation Act gets attracted to applications filed under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application under Section 7 of the IBC, the application would be barred under Article 137 of the Limitation Act. At the highest, limitation started ticking on 27th March 2003, when a Recovery Certificate was issued by the DRT. The appellant has not disclosed any material in its application under Section 7 of the IBC to demonstrate that the application is not barred by limitation.20. In B.K. Educational Services Private Limited v. Parag Gupta and Associates reported in (2019) 11 SCC 633 , this Court held:42. It is thus clear that since the Limitation Act is applicable to ap- plications filed under Sections 7 and 9 of the Code from the incep- tion of the Code, Article 137 of the Limitation Act gets attracted. The right to sue, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act,..22. In Radha Export (India) Private Limited v. K.P. Jayaram reported in (2020) 10 SCC 538 , authored by one of us (Justice Indira Banerjee), this Court referred to B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates (supra), and held:35. It was for the applicant invoking the corporate insolvency resolution process, to prima facie show the existence in his favour, of a legally recoverable debt. In other words, the respondent had to show that the debt is not barred by limitation, which they failed to do.23. In its application under Section 7 of the IBC, the Appellant has not shown that the debt due to the Appellant from the Corporate Debtor is not barred by limitation. The right to sue accrued on 1 st April 1993 when the amount of the Corporate Debtor with the Assignor Bank was declared NPA. In Part IV of its application under Section 7 of the IBC, the Appellant declared the date of default as 1 st April, 1993. The claim is apparently barred by limitation. Even the judgment of the DRT in OA No.547/98 was dated 09.04.2001 and the Recovery Certificate was dated 27th March 2003. The Appellants own statement of accounts as on 18th July 2018 is not material to the question of limitation for making an application under Section 7 of the IBC, which is three years from the date of accrual of the right to sue.25. In this case, the Corporate Debtor has not signed any acknowledgement in writing after the settlement of 30 th June 2001, on the basis of which, a Recovery Certificate was issued by the DRT on 27 th March 2003. An arrangement between the Assignor Bank and the Appellant and the consequential substitution of the Appellant as party to the Execution/Recovery proceedings in the DRT does not save limitation to initiate proceedings under Section 7 of IBC. In any case, even the amended Recovery Certificate, relied upon by the Appellant, is dated 13th December, 2012. The application under Section 7 of the IBC was filed almost 6 years after issuance of the amended Recovery Certificate.26. In Vashdeo R. Bhojwani v. Abhyudaya Cooperative Bank Ltd. & Anr., reported in (2019) 9 SCC 158 , this Court had set aside the orders of the NCLT and the NCLAT, holding that the application under Section 7 of the IBC was time barred, as the loan account had been declared Non Performing Asset on 23rd December 1999 and thereafter the Debt Recovery Tribunal had issued a Recovery Certificate dated 24 th December 2001. Insolvency proceedings before the NCLT were admitted on 5th March 2018.27. In Vashdeo R. Bhojwani (supra), this Court rejected the contention that the default was a continuing wrong and Section 23 of the Limitation Act 1963 would apply, relying upon Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan reported in 1959 Supp (2) SCR 476.28. To quote P.B. Gajendragadkar, J in Balakrishna Savalram Pujari Wagmare (supra):-......Section 23 refers not to a continuing right but to a continuing wrong. It is the very essence of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of the said injury. If the wrongful act causes an injury which is complete, there is no continuing wrong even though the damage resulting from the act may continue. If, however, a wrongful act is of such a character that the injury caused by it itself continues, then the act constitutes a continuing wrong. In this connection it is necessary to draw a distinction between the injury caused by the wrongful act and what may be described as the effect of the said injury. It is only in regard to acts which can be properly characterised as continuing wrongs that Section 23 can be invoked. .....31. In Khan Bahadur Shapoor Freedom Mazda v. Durga Prasad Chamaria and Others, reported in AIR 1961 SC 1236 , this Court held :-6. It is thus clear that acknowledgment as prescribed by Section 19 merely renews debt; it does not create a new right of action. It is a mere acknowledgment of the liability in respect of the right in question; it need not be accompanied by a promise to pay either expressly or even by implication. The statement on which a plea of acknowledgment is based must relate to a present subsisting liability though the exact nature or the specific character of the said liability may not be indicated 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 must appear that the statement is made with the intention to admit such jural relationship. Such intention can be inferred by implication from the nature of the admission, and need not be expressed in words. If the statement is fairly clear then the intention to admit jural relationship may be implied from it. The admission in question need not be express but must be made in circumstances and in words from which the court can reasonably infer that the person making the admission intended to refer to a subsisting liability as at the date of the statement. In construing words used in the statements made in writing on which a plea of acknowledgment rests oral evidence has been expressly excluded but surrounding circumstances can always be considered. Stated generally courts lean in favour of a liberal construction of such statements though it does not mean that where no admission is made one should be inferred, or where a statement was made clearly without intending to admit the existence of jural relationship such intention could be fastened on the maker of the statement by an involved or far-fetched process of reasoning. Broadly stated that is the effect of the relevant provisions contained in Section 19, and there is really no substantial difference between the parties as to the true legal position in this matter.. In the present case, reliance ought not to be placed on the balance sheet dated 16th August 2017 and letter dated 23 rd April 2019 primarily for two reasons. First, there is no evidence or material to show that the documents were signed before the expiry of the prescribed period of limitation. There is no pleading to the said effect in the application under Section 7 of the IBC filed by the appellant in the statutory form. In fact, the two documents were never relied upon.33. Secondly, the two documents cannot be construed as admissions that amount to acknowledgment of the jural relationship and existence of liability. The balance sheet dated 16th August 2017 does not acknowledge or admit any debt. Rather, the Corporate Debtor has disputed and denied its liability.Point (d) quoted above read with the immediately preceding sub-paragraph (point c) makes it clear that the Balance Sheet cannot be treated as an acknowledgment of liability. This is also clear from the last sub-heading of Note 27 and Note 28 of the Balance Sheet at page 147 of the paper book, set out hereinbelow:As on the date of this report the matter is pending before the Honble High Court of Karnataka, Bangalore. The Board of Directors have decided that no interest be provided in the books of account for the year ended 31st March 2017. The Board is also of the opinion based on legal advice obtained by it in the matter that no interest be provided in the books till the matter acquires clarity and the entire amount demanded by Reliance except for a sum of Rs.40.00 lakhs be treated as contingent liability not provided for.The Board is also of the opinion that developments subsequent to the decree of the DRT Bangalore have not been considered by Reliance while demanding the amount of Rs.97.12 crores. These developments have a substantial bearing on the case.Note No. 28 Claims against the Company under adjudication not acknowledged as debt:Commercial and other claims Rs. 113.85 croresPrevious Year Rs. 72.92 crores34. The letter dated 23rd April 2019 again is not an acknowledgment and admission of liability. The language and tone of the letter makes it absolutely clear that the liability was denied. The Corporate Debtor contended that it had paid more than the double the amount it had borrowed. Nevertheless, the Corporate Debtor offered a one-time settlement seeking opinion/concurrence of the Appellant with regard to such offer to settle the dispute, which offer was not accepted by the Appellant.35. The Balance Sheet of the Corporate Debtor dated 16 th August, 2017 and the letter dated 23rd April, 2019, as observed above, do not constitute any acknowledgment of liability and were not even referred to by the Appellant in its application under IBC. It is, therefore, not necessary for this Court to delve into the question of whether Section 18 of the Limitation Act is attracted in the case of a petition under Section 7 of the IBC.36. At the cost of repetition, it is reiterated that in its application under Section 7 of the IBC, the Appellant declared the date of default as 1st April, 1993. At the highest, limitation started running from 27 th March, 2003, when the Recovery Certificate was issued by the DRT in favour of the Assignor. The NCLAT has rightly held that the application of the Appellant under Section 7 of the IBC barred by limitation.37. In any case, there are pending proceedings in the DRT, in respect of the dues of the Corporate Debtor. The Appellant has been substituted in place of the Assignor Bank in the execution proceedings in the DRT. There is an amended Certificate issued by the DRT. Orders have, from time to time, been passed in the Execution Proceedings. The Appellant is not without remedy against the Corporate Debtor.38. As held by this Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited reported in (2018) 1 SCC 353 , the IBC is not intended to be a substitute to a recovery forum. In Transmission Corporation of Andhra Pradesh Limited v. Equipment Conductors and Cables Limited reported in (2019) 12 SCC 697, this Court followed its earlier judgment in Mobilox Innovations Private Ltd. (supra) and observed as hereunder:-In a recent judgment of this Court in Mobilox Innovations Private Limted v. Kirusa Software Private Limited (2018) 1 SCC 353 , this Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked….