Suit for recuperation of money can be documented only when there is a default of duty: NCLAT

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI COMPANY APPEAL(INSOLVENCY) NO.521 OF 2020 IN THE MATTER OF: B.S. Krishnan S o Late Somasundaram Chettiar No. 327 Vinayagar Nagar Kasakaranur Salem 636 004 Tamil Nadu. Vs 1. Stressed Assets Stabilization Fund Represented by its Deputy General Manager IDBI Tower Cuffe Parade Mumbai 400 005 2. L.S.P Agro Limited Respondent No. 1 Rep. By IRP No. 22 Ponneri High Road Elanthan Cherry Andarkuppam Check Post Malini New Town Chennai Tamil Nadu 600 103. PRESENT: Respondent No. 2 For Appellant: Mr R. Anand Padmanabhan Advocate For Respondent: Ms. Satya Devi RP R2. Mr. Sidhartha Barua and Mr. Praful Jindal Advocates for R1. JUDGMENT Jarat Kumar Jain. J. The Appellant ‘B.S. Krishnan’ Ex Director of the L.S.P. Agro Ltd. Company filed this Appeal against the order dated COMPANY APPEAL(INSOLVENCY) NO.521 OF 2020 2 25.01.2020 passed by Ld. Adjudicating Authority Special Bench Chennai in CP IBA 210 2019. Whereby Ld. Adjudicating Authority admitted the Application under Section 7 of the Insolvency and Bankruptcy Code 2016 filed by Respondent No. 1 and initiated Corporate Insolvency Resolution Processagainst the Corporate Debtor. Brief facts of this case are that on 06.03.1998 Industrial Development Bank of India granted a term loan facility of aggregate value of Rs. 650 lakhs to the M s L.S.P. Agro Ltd.(INSOLVENCY) NO.521 OF 2020 3 2007. the O.A. was transferred to DRT II and was renumbered as O.A. No. 172 of 4. While the aforesaid loan was pending for repayment the Central Government set up a Trust Stressed Assets Stabilization Funds Respondent No. 1 herein) for acquiring the Stressed Assets of the IDBI. Subsequently a Notification was issued by the Ministry of Home Affairs dated 24.09.2004 notifying SASF as a financial institutions as defined under Section 2(h)(2) of the Recovery Due to the Banks and Financial Institution Act 1993. Thus SASF on behalf of IDBI is competent for initiating CIRP against the Corporate Debtor. It is pleaded that the Corporate Debtor had acknowledged the debt vide One Time Settlement Proposals dated 10.09.2008 27.01.2014 27.05.2014 08.07.2016 30.10.2016 and 14.10.2017 However the Corporate Debtor has not repaid the loan. Therefore on 23.01.2019 the Respondent No. 1filed an Application under Section 7 of the I&B Code before the Adjudicating Authority to initiate the Corporate Insolvency Resolution Processagainst the Corporate Debtor. During the pendency of the Application DRT II has allowed the O.A. on 29.04.2019 in favour of the Financial Creditor and subsequently issued a recovery certificate dated 16.01.2020 in favour of the Respondent No. 1 Financial Creditor) and against the Corporate Debtor for a sum of Rs. 11 05 92 791 alongwith 12% simple interest per annum from the date of institution of O. A. i.e. 06.02.2002 till realisation. COMPANY APPEAL(INSOLVENCY) NO.521 OF 2020 4 The Corporate Debtor has resisted the Application on two grounds that SASF has no locus to file the Application on behalf of the Financial Creditor ‘IDBI’ and the Application is barred by limitation as the loan accounts have been declared NPA before 2001 and the Financial Creditor has not shown any acknowledgement which is within three years from the date of default. Therefore the Financial Creditor cannot get extended period of limitation as provided under Section 18 of the Limitation Act. Ld. Adjudicating Authority held that as per the notification dated 29.09.2004 issued by Central Government IDBI transferred its Stressed Assets to the SASF. Thus SASF being an assignee is Competent to file an Application under Section 7 of the I&B Code for initiating CIRP against the Corporate Debtor. It is also held that there is no acknowledgement of debt however DRT having passed the order for payment on this basis it can be inferred that the debt is not time barred. Therefore admitted the Application under Section 7 of the I&B Code and initiated CIRP and also declared moratorium under Sub Section 1 of Section 14 of the I&B Code. Learned Counsel for the Appellant submitted that the Ld. Adjudicating Authority has erroneously held that DRT has ordered for payment on this basis it can be inferred that the debt is not time barred. Hon’ble Supreme Court in the case of Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company India Ltd. & Anr. 10 SCC 572 held that the Respondent was declared NPA on 21.07.2011. The Bank had filed two O.As before the DRT in 2012 to recover the total debt. Taking into consideration the facts the Supreme Court held that the default having taken place and as the COMPANY APPEAL(INSOLVENCY) NO.521 OF 2020 5 account was declared NPA on 21.07.2011 the Application under Section 7 of the I&B Code filed in 2017 is clearly barred by limitation. In the instant case the loan account of Corporate Debtor was declared NPA before the 2001 thereafter there is no acknowledgement of debt within three years and a decree order passed by the DRT cannot forward the date of default. Thus the Application under Section 7 of the I&B Code filed on 23.01.2019 is apparently time barred and therefore impugned order is liable to be set 10. Per Contra Learned Counsel for the Respondent No.1 supports the impugned order and submitted that Ld. Adjudicating Authority justly proceeded with the Application under Section 7 of the I&B Code and admitted the same while taking into consideration the final decree order dated 29.04.2019 passed by DRT. It is also submitted that Hon’ble Supreme Court in the Case of Vasudev R Bhojwani Vs. Abhyuda Cooperative Bank Ltd. & Anr. reported in 9 SCC 158 held that Right to sue accrues when a default was occurred further the Court observed that upon issuance of a recovery certificate limitation would have begun ticking. In the premises it can be understood that when a recovery certificate is issued by Competent Authority and there is non payment by the debtor in terms of the recovery certificate right to sue accrues on such non payment default of the debtor applying the said proposition in the facts of the instant case passing of final decree order dated 29.04.2019 and subsequently issuance of recovery certificate dated 16.01.2020 and default on part of the Corporate Debtor to make payment of debt decretal amount resulted in accrual of COMPANY APPEAL(INSOLVENCY) NO.521 OF 2020 6 right to sue in favour of the Respondent No. 1. Accordingly Ld. Adjudicating Authority committed no error in admitting the Application under Section 7 of the I&B Code against the Corporate Debtor. Thus no interference is called for by this Appellate Tribunal. 11. After hearing learned counsel for the parties we have gone through the record. 12. The Application under Section 7 of the I&B Code for initiation CIRP against the debtor is maintainable only when a default has occurred. Hon’ble Supreme Court in the Case of B.K. Education Services Pvt. Ltd. Vs. Parag Gupta & Associates 2019 11 SCC 633 held that “ the right to sue accrues” when a default occurs. If the default has occurred over three years prior to date of filing of the application under Section 7 of the I&B Code the application would be barred under Article 137 of the Limitation Act. The date of right to sue can be extended only when the debt is acknowledged by the Corporate Debtor within limitation of three years. Admittedly in this case the Appellant has committed default and the loan account declared as NPA before 2001 and thereafter IDBI filed O.A. No. 702 before DRT I. The Respondent No. 1 has not placed on record any document of acknowledgement of debt within limitation of three years as observed by the Ld. Adjudicating Authority in the impugned order that: “Though we are of the view that no acknowledgement is present to show that this debt is not time barred” 13. Now we have considered whether date of default can be shift forward on the basis of the order passed by the DRT II. COMPANY APPEAL(INSOLVENCY) NO.521 OF 2020 7 14. For this issue it is useful to refer the Judgment of five Members Bench of this Appellate Tribunal in the Case of V. Padamkumar Vs. Stressed Asset Stabilization Fund & Anr. C.A.(AT) No. 57 of 2020 Para No. 16 to 18 and 23 as under: 16. Appreciating the aforesaid Judgment of the Hon’ble Patna High Court the Hon’ble Supreme Court in “Jignesh Shah and another vs. Union of India and another”observed that the aforesaid judgments correctly hold that a suit for recovery based upon a cause of action that is within limitation cannot in any manner impact the separate and independent remedy of a winding up proceeding. Thus while holding so the Hon’ble Supreme Court held that the date of default to be taken into consideration for computing the period of limitation of application under Section 7. As the decision of Hon’ble Supreme Court is binding we hold that mere filing of a suit for recovery or a decree passed by a Court cannot shift forward the date of default. 17. A suit for recovery of money can be filed only when there is a default of dues. Even if the decree is passed the date of default cannot be shift forward to the date of decree or date of payment for execution as a decree can be executed within specified period i.e. 12 years. If it is executable within the period of limitation one cannot allege that there is a default of decree or payment of dues. 18. Therefore we hold that a Judgment or a decree passed by a Court for recovery of money by Civil Court Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the ‘I&B Code’. 23. In the present case as we find that the account of the ‘Corporate Debtor’ was declared NPA on 31st October 2002 and decree was passed on 19th June 2009 31st August 2009 we hold that the application under Section 7 filed by ‘M s. Stressed Assets Stabilization Fund is barred by limitation and was not maintainable. In the light of the aforesaid Judgement we have considered the facts of this case it is clear that the Corporate Debtor committed default and the COMPANY APPEAL(INSOLVENCY) NO.521 OF 2020 8 loan account declared as NPA before 2001 and thereafter there is no acknowledgement of debt within limitation of three years and it is clear that the Judgment decree passed by the DRT II on 29.04.2019 cannot shift forward the date of default for the purpose of computing the period for filing an Application under Section 7 of the I&B Code. Thus we hold that the Application under Section 7 of the I&B Code filed by the Respondent No. 1 on 23.01.2019 against the M s L.S.P. Agro Ltd.is barred by limitation and was not maintainable. However Ld. Adjudicating Authority erroneously held that: “This Bench can even admit this Insolvency and Bankruptcy Application based on the direction given the DRT against the Corporate Debtor by taking the order passed by the DRT for initiation of CIRP into consideration. For the DRT having passed the order for payment we safely infer that this debt is not time barred therefore we hereby admit this Insolvency Bankruptcy Application”. In view of the aforesaid findings we have no other option but to set aside the impugned order dated 25.01.2020. The Application preferred by the Respondent No. 1 under Section 7 of the I&B Code is dismissed. The Respondent No. 2 is released from rigours of the moratorium and is allowed to function through its Board of Directors from immediate effect. The Interim Resolution Professional shall hand over the records to the Board of Directors. 18. The matter is remitted back to the Ld. Adjudicating Authority to decide fees and costs of ‘CIRP’ payable to IRP RP which shall be borne by the Respondent No. 2(INSOLVENCY) NO.521 OF 2020 9 Thus the Appeal is allowed with aforesaid observations. However no order as to costs. Member(Dr. Ashok Kumar Mishra) MemberNew Delhi 17th March 2021 COMPANY APPEAL(INSOLVENCY) NO.521 OF 2020 

Summary: The date of right to sue can be extended only when the debt is acknowledged by the Corporate Debtor within a limitation of three years. The judgment passed by the NCLAT New Delhi (principle bench), in its decision in   B.S. Krishnan v. Stressed Assets Stabilization Fund (COMPANY APPEAL (AT) (INSOLVENCY) NO.521 OF 2020)   by Hon’ble Shri  Justice Jarat Kumar Jain The facts of the case was such that – Industrial Development Bank of India on 06.03.1998 granted a term loan facility of the aggregate value of Rs. 650 lakhs and Rs. 400 lakhs on 09.06.2000  to the M/s L.S.P. Agro Ltd. /Corporate Debtor. Which the M/s L.S.P. Agro Ltd. /Corporate Debtor defaulted in repayment of loan facilities and even failed to comply with the directions made in the recall notice to regularise the account and make payment of the outstanding dues to the IDBI. In response, SASF filed an application before DRT for Initiation of CIRP on behalf of IDBI which gets transferred to DRT II. Thus the Appellant filed this appeal against the order passed by the Adjudicating Authority. The Appellant has opposed the Application on two grounds that SASF has no locus to record the Application for the benefit of the Financial Creditor/IDBI and the Application is banned by limitation as the advance records have been pronounced NPA before 2001 and the Financial Creditor/IDBI has not shown any affirmation which is inside a long time from the date of default. Hence, the Financial Creditor can’t get an all-encompassing time of limitation as given under Section 18 of the Limitation Act. NCLT held that as per the notification dated 29.09.2004 issued by Central Government IDBI transferred its Stressed Assets to the SASF. Thus, SASF being an assignee is Competent to file an application for initiating CIRP against the Corporate Debtor. “It is also held that there is no acknowledgment of deb”t however, DRT having passed the order for payment, on this basis, it can be inferred that the debt is not time-barred. The Appellant Counsel submitted that in the case of Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company India Ltd. The apex court held that where the default has been taken place and the account was already declared as NPA then the application for CIRP cannot be entertained as barred by limitation. And in the instant case, the credit record of Corporate Debtor was proclaimed NPA before 2001, from there on, there is no affirmation of obligation inside three years furthermore, the order passed by the DRT can’t advance the date of default. The Hon’ble Supreme Court in the Case of B.K. Education Services Pvt. Ltd. Vs. Parag Gupta &amp; Associates held that “ the right to sue accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application under Section 7 of the I&amp;B Code; the application would be barred under Article 137 of the Limitation Act. The date of right to sue can be extended only when the debt is acknowledged by the Corporate Debtor within the limitation of three years”.