RAJENDRA NAROTTAMDAS SHETH & ANR. versus CHANDRA PRAKASH JAIN & ANR.
[2021] 7 S.C.R. 838, Supreme Court of India, 2021
Outcome: Dismissed (Dismissed)
Segment: Issues
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SUPREME COURT REPORTS
[2021] 7 S.C.R.
RAJENDRA NAROTTAMDAS SHETH & ANR.
v.
CHANDRA PRAKASH JAIN & ANR.
(Civil Appeal No. 4222 of 2020)
SEPTEMBER 30, 2021
[L. NAGESWARA RAO, B. R. GAVAI,
B. V. NAGARATHNA, JJ. ]
Insolvency and Bankruptcy Code, 2016 – s. 7 –
Maintainability of – Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 – Limitation Act – s.18 – Loans
were granted by the Financial Creditor-respondent no.2 to the
Corporate Debtor-appellants – The Corporate Debtor was unable
to settle the dues of the Financial Creditor in time – The account of
the Corporate Debtor was declared as Non-Performing Asset (NPA)
– The Financial Creditor issued notice for recovery of all dues
payable – Pursuant to the notice, the Financial Creditor filed an
application before the Debt Recovery Tribunal u/s. 19 of the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993 for recovery of the dues, which was still pending consideration
– Meanwhile, the Financial Creditor filed an application u/s. 7 of
the Insolvency and Bankruptcy Code averring that the Corporate
Debtor owed an amount of Rs. 24.62 crore – There are two issues
that arise for consideration in this appeal before Supreme Court,
the first pertains to the maintainability of the application u/s. 7 of
the Code filed by a power of attorney holder and the second relates
to the question of limitation of the same application u/s.7 of the
Code – Held: As per Rule 4 of the Insolvency
and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016, the financial
creditor is required to make an application for initiating the
corporate insolvency resolution process against the corporate
debtor u/s. 7 of the Code in Form 1 which is required to be signed
by the “person authorized to act on behalf of the financial creditor”
– In the instant case,  general authorisation, in terms of the power
of attorney with respect to all the business and affairs of the Bank,
including commencement of  legal proceedings was given to a person
‘P’ who has filed the application u/s.7 of the Code – Hence,
Application filed u/s 7 of the Code is maintainable – As far as
[2021] 7 S.C.R. 838
838
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limitation is concerned, any suit, appeal or application filed after
the prescribed period of limitation shall be dismissed in spite of
limitation  not being set up as a defence, as per s. 3 of the Limitation
Act – s.238A of the 2016 Code  makes  the provisions of the
Limitation Act applicable to the proceedings before the Adjudicating
Authority, as far as may be – Application u/s 7 has to filed within 3
years from the date of default – In the present case date of default
is 30.09.2014 and the application was filed on 25.04.2019 –
However, Corporate Debtor had placed on record a letter dated
17.11.2018, which detailed the amount repaid till 30.09.2018 and
acknowledged the amount outstanding as on 30.09.2018 – On the
basis of the said letter and the record showing that the Corporate
Debtor had executed various documents amounting to
acknowledgement of the debt even in the financial year 2019-20 –
Therefore, the Application u/s.7 is not time barred by limitation.
Dismissing the appeal, the Court
HELD: 1. Essentially, there are two issues that arise for
consideration in this Appeal. The first pertains to the
maintainability of the application under Section 7 of the Code
filed by a power of attorney holder. The second relates to the
question of limitation. [Para 6][845-E-F]
Maintainability of the application under Section  7 when filed
by a power of attorney holder
2. Initiation of the corporate insolvency resolution process
by a financial creditor is dealt
with under Section 7 of the Code.
Section 7 (2) provides that the financial creditor shall make an
application in such form and manner and accompanied with such
fee as may be prescribed. As per Rule 4 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016,
the financial creditor is required to make an application for
initiating the corporate insolvency resolution process against the
corporate debtor under Section 7 of the Code in Form 1,
accompanied with documents and records required therein. Form
1 is in a tabular form and the financial creditor has to give
particulars of the details sought. Further, the Form is required
to be signed by the “person authorised to act on behalf of the
financial creditor”. [Para 9][846-D-F]
RAJENDRA NAROTTAMDAS SHETH & ANR. v. CHANDRA
PRAKASH JAIN & ANR.
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3. The authorisation, in terms of the power of attorney, given
by the Financial Creditor to a person ‘P’ who has filed the
application under Section 7 of the Code has been placed on record.
Pursuant to the resolution passed by the board of directors of
the Bank on 06.12.2008, the power of attorney was executed  by
the  general managers in 2011. By way of the said power of
attorney, ‘P’ was appointed by the Bank to act as its constituted
attorney with respect to “all the business and affairs of the Bank
and to conduct and manage and to assist in the conduct and
management of all such businesses and affairs of the Bank, both
within and outside India and to do all acts, deeds and things
necessary or proper for carrying on the business and affairs of the
Bank”. Further, ‘P’ has also been authorised to “commence,
prosecute, endorse, defend, answer and/or oppose any suit or other
legal proceedings including any civil or criminal proceedings in
any Court or Tribunals and any demand touching any matters in
which the Bank may or may hereafter be interested or concerned
and also, … compromise, refer to arbitration, abandon, submit to
judgement or become non- suited, in any such suits or proceedings,
to appoint advocate, solicitors and pleaders as occasion shall require
and to make sign, execute, present and file all applications, plaints,
petitions, written statements, vakalatnamas or any other papers
expedient or necessary …
to be made, signed, executed, presented
or filed”. [Para 10][846-G-H; 847-A-C]
4. In the present case, ‘P’ has been given general
authorization by the Bank with respect to all the business and
affairs of the Bank, including commencement of legal proceedings
before any court or tribunal with respect to any demand and filing
of  all necessary applications in this regard. Such authorisation,
having been granted by way of a power of attorney pursuant to a
resolution passed by the Bank’s board of directors on 06.12.2008,
does not impair P’s authority to file an application under Section
7 of the Code. It is therefore clear that the application has been
filed by an authorised person on behalf of the Financial Creditor
and the objection of the Appellants on the maintainability of the
application on this ground is untenable.[Para 12][848-D-F]
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LIMITATION
5. In the instant case, there is no dispute that the date of
default is 30.09.2014 and the application under Section 7 of the
Code was filed on 25.04.2019. According to the Financial Creditor,
Section 18 of the Limitation Act is applicable in view of the
Corporate Debtor acknowledging its debt by way of letters,
written in and after 2018, giving details of amount repaid,
acknowledging the amount outstanding and requesting
consideration of one-time settlement proposal. It is no more res
integra that Section 18 of the Limitation Act is applicable to
applications filed under Section 7 of the Code. In case the
application under Section 7 is filed beyond the period of three
years from the date of default and the financial creditor furnishes
the required information relating to the acknowledgement of debt,
in writing by the corporate debtor, before the Adjudicating
Authority, with such acknowledgement having taken place within
the initial period of three years from the date of default, a fresh
period of limitation commences and the application can be
entertained, if filed within this extended period. [Para 21][852-F-
G; 853-C-D]
6. There is no dispute that the date of default in this case is
30.09.2014, as mentioned by the financial creditor in its application
under Section 7. A copy of the debit balance confirmation letter
dated 07.04.2016 was filed along with the application. As the
application was filed only on 25.04.2019, which is beyond a period
of three years even after taking into account the debit balance
confirmation letter dated 07.04.2016, the application was barred
by limitation. However, the Corporate Debtor had, in its reply
before the Adjudicating Authority, placed on record a letter dated
17.11.2018, which detailed the amount repaid till 30.09.2018 and
acknowledged the amount outstanding as on 30.09.2018. On the
basis of this letter and the record showing that the Corporate
Debtor had executed various documents amounting to
acknowledgement of the debt even in the financial year 2019-20,
the NCLT was of the opinion that the application was filed within
the period of limitation. The said view was upheld by the NCLAT.
[Para 22][853-D-G]
RAJENDRA NAROTTAMDAS SHETH & ANR. v. CHANDRA
PRAKASH JAIN & ANR.
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7. The burden of prima facie proving occurrence of the
default and that the application filed under Section 7 of the Code
is within the period of limitation, is entirely on the financial creditor.
While the decision to admit an application under Section 7 is
typically made on the basis of material furnished by the financial
creditor, the Adjudicating Authority is not barred from examining
the material that is placed on record by the corporate debtor to
determine that such application is not beyond the period of
limitation. Undoubtedly, there is sufficient material in the present
case to justify enlargement of the extension period in accordance
with Section 18 of the Limitation Act and such material has also
been considered by the Adjudicating Authority before admitting
the application under Section 7 of the Code. The plea of Section
18 of the Limitation Act not having been raised by the  Financial
Creditor in the application filed under Section 7 cannot come to
the rescue of the Appellants in the facts of this case. It is clarified
that the onus on the financial creditor, at the time of filing an
application under Section 7, to prima facie demonstrate default
with respect to a debt, which is not time-barred, is not sought to
be diluted herein. In the present case, if the documents
constituting acknowledgement of the debt beyond April, 2016
had not been brought on record by the Corporate Debtor, the
application would
have been fit for dismissal on the ground of
lack of any plea by the Financial Creditor before the Adjudicating
Authority with respect to extension of the limitation period and
application of Section 18 of the Limitation Act. [Paras 23-24][853-
G-H; 854-A-D]
Palogix Infrastructure Private Limited v. ICICI Bank
Limited (2017 SCC Online NCLAT 266) – approved.
Dena Bank v. C. Shivkumar Reddy & Anr. (2021) SCC
Online SC 543; Asset Reconstruction Company (India)
Limited v. Bishal Jaiswal & Anr. (2021) 6 SCC 366;
Noharlal Verma v. District Cooperative Central Bank
Limited, Jagdalpur (2008) 14 SCC 445 : [2008] 14 SCR
774; B.K. Educational Services Private Limited v. Parag
Gupta and Associates (2019) 11 SCC 633 : [2018] 12
SCR 794 – referred to.
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Case Law Reference
(2021) 6 SCC 366
referred to
Para 18
[2008] 14 SCR 774
referred to
Para 19
[2018] 12 SCR 794
referred to
Para 20
CIVIL APPELLATE JURISDICTION: Civil Appeal No.4222 of
2020.
From the Judgment and Order dated 18.12.2020 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No.621 of 2020.
Rana Mukherjee, Sr. Adv., Nalin Tripathi, Nishank Tripathi, Jasmine
Morris, Abhikalp Pratap Singh, Advs. for the Appellants.
Rajesh Srivastava, Alok Kumar, G. N. Reddy, Uday Arora, Advs.
for the Respondents.
The Judgment of the Court was delivered by
L. NAGESWARA RAO, J.
1. Respondent No. 2 filed an application under Section 7 of the
Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as
the‘Code’) which was admitted by the National Company Law Tribunal,
Ahmedabad bench (hereinafter referred to as the ‘NCLT’ or
‘Adjudicating Authority’) on 01.06.2020. The Appellants, who are the
suspended directors of the board of R.K. Infratel Ltd. (hereinafter
referred to as the ‘Corporate Debtor’), filed an appeal which was
rejected by the National Company Law Appellate Tribunal, Delhi
(hereinafter referred to as the ‘NCLAT’). Therefore, this Appeal.
2. The Corporate Debtor is in the business of setting up
underground fiber network in the cities of Surat, Ahmedabad, Vapi,
Silvasa, Ankleswar and in South Gujarat, and providing dedicated dark
fiber, broadband, internet leased line, VPN, point-to-point, wi-fi and
wiMAX
connections and CCTV surveillance services to corporate
entities, financial institutions and other organisations. Respondent No. 2,
Union Bank of India (hereinafter referred to as the ‘Bank’ or ‘Financial
Creditor’), sanctioned a loan of Rs. 4.5 crore which was cleared by the
Corporate Debtor on 08.12.2012. Another loan was granted by the
Financial Creditor for Rs. 3.5 crore which was also repaid on 28.05.2018.
RAJENDRA NAROTTAMDAS SHETH & ANR. v. CHANDRA
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Thereafter, loans were granted by the Financial Creditor to the Corporate
Debtor but the Corporate Debtor was unable to settle the dues of the
Financial Creditor in time. On 30.09.2014, the account of the Corporate
Debtor was declared as non-performing asset (NPA). The Financial
Creditor issued notice for recovery of all dues payable by the Corporate
Debtor on 01.10.2014. Pursuant to the notice, the Financial Creditor
filed an application before the Ahmedabad bench of the Debt Recovery
Tribunal under Section 19 of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 for recovery of the dues, which is still
pending consideration.  
3. On 25.04.2019, the Financial Creditor filed an application under
Section 7 of the Code, which was admitted on 01.06.2020.  The Financial
Creditor averred, in the application filed under Section 7 of the Code,
that the Corporate Debtor owed an amount of Rs. 24.62 crore as on
31.03.2019. The Financial Creditor submitted documents in support of
its claim, including a debit balance confirmation letter dated 07.04.2016
signed by the Corporate Debtor. On the other hand, the Corporate Debtor
contended that the application was time-barred. It was further contended
by the Corporate Debtor that the application under Section 7 filed by the
Financial Creditor was legally untenable, as proceedings before the Debt
Recovery Tribunal, including a counter claim by the Corporate Debtor,
were still pending consideration.  After examining the material on record,
the Adjudicating Authority held, by an order dated 01.06.2020, that
the application under Section 7 was not barred by limitation. The
Adjudicating Authority referred to the debit balance confirmation letter
dated 07.04.2016 and regular credit entries made after 07.04.2016 till
May, 2018 to come to the said conclusion. A letter by the Corporate
Debtor dated 17.11.2018 giving details of the amount repaid till 30.09.2018
and acknowledging the outstanding amount as on 30.09.2018 was also
referred to by the NCLT. In addition, the reply of the Corporate Debtor
was relied upon wherein payment of an amount of Rs. 16.17 lakh during
the financial year 2019-20 was admitted. The Adjudicating Authority
rejected the contention of the Corporate Debtor that the application filed
by the power of attorney holder on behalf of the Financial Creditor was
not maintainable.
4. The Corporate Debtor reiterated its stand that the application
under Section 7 of the Code was barred by limitation before the NCLAT.
According to the Corporate Debtor, the payments made by it to the
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Bank after its account was declared as NPA could not extend the period
of limitation. It was further contended by the Corporate Debtor that the
“cut back offer” cannot be taken into account for attracting Section 19
of the Limitation Act, 1963 (hereinafter referred to as the ‘Limitation
Act’). It was argued on behalf of the Corporate Debtor that Section 18
of the Limitation Act is also not applicable to the facts of this case. The
further argument of the Corporate Debtor was that the power of attorney
in favour of the individual who has signed the application under Section
7 of the Code had been granted prior to the Code coming into force
without any specific authorisation to initiate proceedings under the Code,
and therefore, the application was not maintainable.
5. The NCLAT examined the power of attorney given by the
Bank to Mr. Praveen Kumar Gupta and found no merit in the argument
of the Corporate Debtor that the application under Section 7 of the Code
was not maintainable as it was filed by a power of attorney holder. In so
far as limitation is concerned, the NCLAT referred to all the documents
as well as the “cut back arrangement” relied on by the NCLT to hold
that the application under Section 7 of the Code was filed within the
prescribed time. It was further observed by the NCLAT that the Corporate
Debtor could not demonstrate any error in the order of the Adjudicating
Authority. Accordingly, the NCLAT dismissed the appeal of the Corporate
Debtor.
6. Essentially, there are two issues that arise for consideration in
this Appeal. The first pertains to the maintainability of the application
under Section 7 of the Code filed by a power of attorney holder. The
second relates to the question of limitation.
Maintainability of the application under Section 7 when filed
by a power of attorney holder
7. Mr. Rana Mukherjee, learned Senior Counsel appearing for
the Appellants, submitted that the application filed on behalf of the
Financial Creditor under Section 7 of the Code was on the basis of a
power of attorney. He relied upon a judgment of the NCLAT in Palogix
Infrastructure Private Limited v. ICICI Bank Limited1 in which it
was held that an ‘authorised person’, distinct from a ‘power of attorney
holder’, can file an application under Section 7 and that a ‘power of
attorney holder’ is not competent to file an application on behalf of a
1 2017 SCC Online NCLAT 266
RAJENDRA NAROTTAMDAS SHETH & ANR. v. CHANDRA
PRAKASH JAIN & ANR. [L. NAGESWARA RAO, J.]
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financial creditor. According to Mr. Mukherjee, the defect in filing of the
application by an unauthorised person is not curable. Assuming it is
curable, the Financial Creditor failed to rectify the defect within the time
stipulated under Section 7 (5) of the Code, in spite of an order passed by
the Adjudicating Authority on 22.01.2020 granting time to the Financial
Creditor. He submitted that the person who filed the application under
Section 7 of the Code is not the authorised representative of the Financial
Creditor and therefore, the application was liable to be dismissed.
8. On the other hand, the Financial Creditor contended that the
power of attorney was executed in favour of Mr. Praveen Kumar Gupta,
which was perused by both the Adjudicating Authority and the NCLAT
to conclude that the application was filed by the authorised person. 
Mr. Alok Kumar, the learned Counsel appearing for the Financial Creditor,
also relied upon the judgment in Palogix Infrastructure (supra) and
argued that a person authorised by way of a power of attorney can file
an application under Section 7 of the Code. 
9. Initiation of the corporate insolvency resolution process by a
financial creditor is dealt with under Section 7 of the Code. Section 7 (2)
provides that the financial creditor shall make an application in such
form and manner and accompanied with such fee as may be prescribed.
As per Rule 4 of the Insolvency and Bankruptcy
(Application to
Adjudicating Authority) Rules, 2016 (hereinafter, ‘the 2016 Rules’), the
financial creditor is required to make an application for initiating the
corporate insolvency resolution process against the corporate debtor under
Section 7 of the Code in Form 1, accompanied with documents and
records required therein. Form 1 is in a tabular form and the financial
creditor has to give particulars of the details sought. Further, the Form is
required to be signed by the “person authorised to act on behalf of the
financial creditor”.
10. The authorisation, in terms of the power of attorney, given by
the Financial Creditor to Mr. Praveen Kumar Gupta who has filed the
application under Section 7 of the Code has been placed on record.
Pursuant to the resolution passed by the board of directors of the Bank
on 06.12.2008, the power of attorney was executed by the general
managers in 2011. By way of the said power of attorney, Mr. Praveen
Kumar Gupta was appointed by the Bank to act as its constituted attorney
with respect to “all the business and affairs of the Bank and to
conduct and manage and to assist in the conduct and management
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of all such businesses and affairs of the Bank, both within and
outside India and to do all acts, deeds and things necessary or
proper for carrying on the business and affairs of the Bank”. Further,
Mr. Praveen Kumar Gupta has also been authorised to “commence,
prosecute, endorse, defend, answer and/or oppose any suit or other
legal proceedings including any civil or criminal proceedings in
any Court or Tribunals and any demand touching any matters in
which the Bank may or may hereafter be interested or concerned
and also, … compromise, refer to arbitration, abandon, submit to
judgement or become non-suited, in any such suits or proceedings,
to appoint advocate, solicitors and pleaders as occasion shall
require and to make sign, execute, present and file all applications,
plaints, petitions, written statements, vakalatnamas or any other
papers expedient or necessary … to be made, signed, executed,
presented or filed”.
11. The NCLAT in its judgment in Palogix Infrastructure (supra)
held that a ‘power of attorney holder’ is not competent to file an application
under Section 7 on behalf of the financial creditor. However, the NCLAT
made certain further observations, as reproduced below:
“41. In so far as the present case is concerned, the ‘Financial
Creditor’-Bank has pleaded that by Board’s Resolutions dated
30th May, 2002 and 30th October, 2009, the Bank authorised
its officers to do needful in the legal proceedings by and
against the Bank. If general
authorisation is made by any
‘Financial Creditor’ or ‘Operational Creditor’ or ‘Corporate
Applicant’ in favour of its officers to do needful in legal
proceedings by and against the ‘Financial Creditor’ /
’Operational Creditor’ / ‘Corporate Applicant’ in favour of
its officer, mere use of word ‘Power of Attorney’ while
delegating such power will not take away the authority of
such officer and for all purposes it is to be treated as an
‘authorization’ by the ‘Financial Creditor’ / ‘Operational
Creditor’ / ‘Corporate Applicant’ in favour of its officer, which
can be delegated even by designation. In such case, officer
delegated with power can claim to be the ‘Authorized
Representative’ for the purpose of filing any application under
section 7 or Section 9 or Section 10 of ‘I &B Code’.”
RAJENDRA NAROTTAMDAS SHETH & ANR. v. CHANDRA
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The NCLAT was of the opinion that general authorisation given
to an officer of the financial creditor by means of a power of attorney,
would not disentitle such officer to act as the authorised representative
of the financial creditor while filing an application under Section 7 of the
Code, merely because the authorisation was granted through a power of
attorney. Moreover, the NCLAT in Palogix Infrastructure (supra) has
held that if the officer was authorised to sanction loans and had done so,
the application filed under Section 7 of the Code cannot be rejected on
the ground that no separate specific authorisation letter has been issued
by the financial creditor in favour of such officer. In such cases, the
corporate debtor cannot take the plea that while the officer has power
to sanction the loan, such officer has no power to recover the loan amount
or to initiate corporate insolvency resolution process, in spite of default
in repayment. We approve the view taken by the NCLAT in Palogix
Infrastructure (supra).
12. In the present case, Mr. Praveen Kumar Gupta has been given
general authorisation by the Bank with respect to all the business and
affairs of the Bank, including commencement of legal proceedings before
any court or tribunal with respect to any demand and filing of all necessary
applications in this regard. Such authorisation, having been granted by
way of a power of attorney pursuant to a resolution passed
by the Bank’s
board of directors on 06.12.2008, does not impair Mr. Gupta’s authority
to file an application under Section 7 of the Code. It is therefore clear
that the application has been filed by an authorised person on behalf of
the Financial Creditor and the objection of the Appellants on the
maintainability of the application on this ground is untenable.
Limitation
13. Mr. Rana Mukherjee, learned Senior Counsel appearing for
the Appellants, contended that the date of default is shown as 30.09.2014
in the application filed under Section 7 of the Code. He submitted that
the application under Section 7 filed on 25.04.2019 was barred by
limitation as it was not filed within three years from the date of default.
He further argued that apart from the debit balance confirmation letter
dated 07.04.2016, no other document extending the period of limitation
has been filed along with the application under Section 7 of the Code.
No other information has been provided by the Financial Creditor to
show that the application under Section 7 was filed within the period of
limitation. The balance sheet referred to by the Financial Creditor in the
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application relates to the financial year 2015-2016 which does not save
the period of limitation. He argued that the application ought to have
been rejected at the threshold in view of the absence of any pleading or
proof that the application was filed within limitation.  Reliance was placed
by him on a judgment of this Court in Babulal Vardharji Gurjar v. Veer
Gurjar Aluminium Industries Private Limited & Anr.2.
14. In response, Mr. Alok Kumar, learned Counsel appearing for
the Financial Creditor, submitted that no error was committed by the
Adjudicating Authority in admitting the application filed under Section 7
of the Code, after perusing the documents filed by the Financial Creditor
along with the application. It was further submitted that the material
placed on record by the Corporate Debtor before the Adjudicating
Authority clearly shows acknowledgement of the debt till the year 2019.
Therefore, the application under Section 7 filed on 25.04.2019 cannot be
said to be beyond the period of limitation in terms of Section 18 of the
Limitation Act.
15. Section 7 (1) of the Code enables a financial creditor to file an
application for initiating corporate insolvency resolution process against
a corporate debtor before the adjudicating authority when a default has
occurred. Sub-section (2) thereof provides that the application shall be
in the form and manner as prescribed. Sub-section (3) obligates the
financial creditor to furnish the record of default
recorded with the
information utility or such other record or evidence of default as may be
specified, along with the application. On the basis of records of an
information utility or on the basis of other evidence furnished by the
financial creditor under sub-section (3), the Adjudicating Authority within
a period of 14 days shall ascertain the existence of a default, as stipulated
under sub-section (4).  According to sub-section (5), the Adjudicating
Authority may admit the application filed under sub-section (2), where
the Adjudicating Authority is satisfied that a default has occurred, the
application filed is complete and no disciplinary proceedings are pending
against the proposed resolution professional.  As per sub-section (6), the
corporate insolvency resolution process shall commence from the date
of admission of the application.
16. Rule 4 of the 2016 Rules prescribes that the application under
Section 7 of the Code shall be filed in Form 1, accompanied by documents
2 (2020) 15 SCC 1
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and records required therein and as specified in the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016. Regulation 2-A of the said Regulations
permits the financial creditor to furnish, as evidence of default, (a)
certified copy of entries in the relevant account in the bankers’ book as
defined in clause (3) of section 2 of the Bankers’ Books Evidence Act,
1891, and (b) an order of a court or tribunal that has adjudicated upon
the non-payment of a debt, where the period of appeal against such
order has expired. Form 1 is in a printed format and in five parts, wherein
the financial creditor shall give his particulars, the particulars of the
corporate debtor, the proposed interim resolution professional and the
financial debt. The date on which the default has occurred shall be
provided by the financial creditor as required in Part IV. In Part V of
Form 1, the financial creditor is required to furnish documents as listed
therein as well as other documents that may be relevant to prove the
existence of financial debt, the amount and the date of default.
17. The date of default in the Babulal Vardharji Gurjar
case(supra) was 08.07.2011, being the date of the NPA. The particulars
of financial debt with documents and evidence on record as required in
Part V of the application were not furnished by the financial creditor.
As no foundation was laid in the
application suggesting any
acknowledgement or any other date of default, the financial creditor
was not permitted to make submissions at a later stage to the effect that
the application filed was with the limitation period.  In the said fact
situation, this Court in Babulal Vardharji Gurjar (supra) held that Section
18 of the Limitation Act and the principles thereof were not applicable.
In Dena Bank v. C. Shivkumar Reddy & Anr.3, this Court had occasion
to deal with the pleadings and the documents required to be filed at the
time of making of an application under Section 7 of the Code. It was
observed therein that the financial creditor can only fill in the particulars
as mentioned in Form 1 and there is no scope for elaborate pleadings.
This Court was of the view that an application under Section 7 cannot
be compared with a plaint in a suit. It was further held in the said judgment
that there is no bar for filing of documents as required under Section 7,
until a final order either admitting or dismissing the application has been
passed.  While concluding, this Court had opined that in case of inordinate
delay, the Adjudicating Authority, at its discretion, may allow or decline
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the request of the applicant to file additional pleadings and / or documents
before passing the final order.
18.While examining the question of maintainability of an application
filed under Section 7 of the Code in the absence of a plea regarding the
acknowledgement of liability, this Court in Asset Reconstruction
Company (India) Limited v. Bishal Jaiswal & Anr.4, gave an
opportunity to the financial creditor to amend its pleadings before the
NCLAT on payment of costs of Rs.1 lakh. In the said case, the corporate
debtor’s account was declared as NPA from 2010. The NCLT admitted
the application under Section 7 on the ground that there was a continuing
cause of action. The NCLAT dismissed the appeal of the corporate
debtor on the ground that limitation would commence from the date on
which the Code came into force, i.e., 01.12.2016. This Court remanded
the matter back to the NCLAT to re-examine the question of limitation.
After remand, the NCLAT allowed the appeal filed by the corporate
debtor on the ground that the three years’ period from the date of the
corporate debtor’s account being classified as NPA, prescribed under
Section 137 of the Limitation Act, had expired on 30.12.2017. In the
appeal filed against the order passed by the NCLAT before this Court,
the financial creditor argued that there was acknowledgement on the
part of the corporate debtor. On the other hand, the corporate debtor
contended that there was no pleading either before the NCLT or
the
NCLAT regarding the acknowledgement of liability extending limitation.
An application was filed by the financial creditor before this Court to
amend the pleadings, arguing that such amendment could be permitted
by this Court. Noting that the financial creditor had been remiss in pleading
acknowledgement of liability but given the staggering amounts allegedly
due, the financial creditor was given an opportunity to amend its pleadings
before the NCLAT in support of its contention that there was
acknowledgement of liability, subject to payment of costs.
19. Any suit, appeal or application filed after the prescribed period
of limitation shall be dismissed in spite of limitation not being set up as a
defence, as per Section 3 of the Limitation Act. Section 238A of the
Code makes the provisions of the Limitation Act applicable to the
proceedings before the Adjudicating Authority, as far as may be.
Therefore, the Adjudicating Authority is duty-bound to scrutinise the
application filed under Section 7 of the Code and come to a conclusion
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on whether such application is barred by limitation, even in the absence
of any plea with respect to limitation. (See: Noharlal Verma v. District
Cooperative Central Bank Limited, Jagdalpur5)
20. There can be no doubt that it is the responsibility of the financial
creditor to give all particulars relating to the debt due and the date of
default, along with the requisite documents, at the time of filing of an
application under Section 7 of the Code. A plain reading of Section 7,
Rule 4 of the 2016 Rules and Form 1 makes it clear that the Adjudicating
Authority may admit an application under Section 7 only if he is satisfied
that a default has occurred. The definition of ‘default’ under
Section 3 (12) of the Code refers to non-payment of debts which are
“due and payable” in law, meaning thereby that an application under
Section 7 of the Code is maintainable only with respect to debts that are
not time-barred. (See: B.K. Educational Services Private Limited v.
Parag Gupta and Associates6) The primary obligation of making out a
prima facie case of default is on the financial creditor. There is no
necessity for the corporate debtor to provide any information at the stage
of admission of the application under Section 7 of the Code, as the burden
of showing non-payment of a legally recoverable debt, which is not time-
barred, is on the financial creditor.  At the same time, it is clear from the
judgments of this Court in
Asset Reconstruction (supra) and Dena Bank
(supra) that non-furnishing of information by the financial creditor at the
time of filing an application under Section 7 of the Code need not
necessarily entail in dismissal of the application. An opportunity can be
provided to the financial creditor to provide additional information required
for satisfaction of the Adjudicating Authority with respect to the
occurrence of the default.
21. In the instant case, there is no dispute that the date of default
is 30.09.2014 and the application under Section 7 of the Code was filed
on 25.04.2019. According to the Financial Creditor, Section 18 of the
Limitation Act is applicable in view of the Corporate Debtor
acknowledging its debt by way of letters, written in and after 2018, giving
details of amount repaid, acknowledging the amount outstanding and
requesting consideration of one-time settlement proposal. Sub-section
(1) of Section 18 of the Limitation Act reads as under:
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18. Effect of acknowledgement in writing. – (1) Where, before
the expiration of the prescribed period for a suit or application
in respect of any property or right, an acknowledgement of
liability in respect of such property or right has been made in
writing signed by the party against whom such property or
right is claimed, or by any person through whom he derives
his title or liability, a fresh period of limitation shall be
computed from the time when the acknowledgement was so
signed.
It is no more res integra that Section 18 of the Limitation Act is
applicable to applications filed under Section 7 of the Code. In case the
application under Section 7 is filed beyond the period of three years
from the date of default and the financial creditor furnishes the required
information relating to the acknowledgement of debt, in writing by the
corporate debtor, before the Adjudicating Authority, with such
acknowledgement having taken place within the initial period of three
years from the date of default, a fresh period of limitation commences
and the application can be entertained, if filed within this extended period.
22. There is no dispute that the date of default in this case is
30.09.2014, as mentioned by the financial creditor in its application under
Section 7. A copy of the debit balance confirmation letter dated 07.04.2016
was filed along with the application. As the application was filed only on
25.04.2019, which is beyond a period of three years
even after taking
into account the debit balance confirmation letter dated 07.04.2016, the
application was barred by limitation. However, the Corporate Debtor
had, in its reply before the Adjudicating Authority, placed on record a
letter dated 17.11.2018, which detailed the amount repaid till 30.09.2018
and acknowledged the amount outstanding as on 30.09.2018. On the
basis of this letter and the record showing that the Corporate Debtor
had executed various documents amounting to acknowledgement of the
debt even in the financial year 2019-20, the NCLT was of the opinion
that the application was filed within the period of limitation. The said
view was upheld by the NCLAT.
23. We have already held that the burden of prima facie proving
occurrence of the default and that the application filed under Section 7
of the Code is within the period of limitation, is entirely on the financial
creditor. While the decision to admit an application under Section 7 is
typically made on the basis of material furnished by the financial creditor,
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the Adjudicating Authority is not barred from examining the material
that is placed on record by the corporate debtor to determine that such
application is not beyond the period of limitation. Undoubtedly, there is
sufficient material in the present case to justify enlargement of the
extension period in accordance with Section 18 of the Limitation Act
and such material has also been considered by the Adjudicating Authority
before admitting the application under Section 7 of the Code. The plea
of Section 18 of the Limitation Act not having been raised by the Financial
Creditor in the application filed under Section 7 cannot come to the rescue
of the Appellants in the facts of this case. It is clarified that the onus on
the financial creditor, at the time of filing an application under Section 7,
to prima facie demonstrate default with respect to a debt, which is not
time-barred, is not sought to be diluted herein. In the present case, if the
documents constituting acknowledgement of the debt beyond April, 2016
had not been brought on record by the Corporate Debtor, the application
would have been fit for dismissal on the ground of lack of any plea by
the Financial Creditor before the Adjudicating Authority with respect to
extension of the limitation period and application of Section 18 of the
Limitation Act.
24. In view of the aforesaid, the Appeal is dismissed. 
Ankit Gyan
Appeal dismissed.