ENTRY OF A DEBT IN BALANCE SHEET IS NOT AN ACKNOWLEDGEMENT FOR EXTENTION OF LIMITATION

In a reference of a case V. Padamakumar vs. Stressed Assets Stabilization Fund (SASF) & Anr [CA (AT)(Ins)No. 57/2020] (V. Padma Kumar Case) by the Three Members Bench to  the Five Members Bench of National Company Law Appellate Tribunal, New Delhi (#NCLAT), vide its Judgment dated 22.12.2020 in the case of Bishal Jaiswal v. Asset Reconstruction Company (India) Ltd and Anr [CA (AT) (Ins) No. 385/2020] opined and held that Judgment rendered by Five Hon’ble Members of NCLAT in the Case of V. Padma Kumar Case, do not require reconsideration with respect to whether reflection of debt in a balance sheet is ‘acknowledgement of #debt’ for the purpose of Section 18 of the #Limitation Act 1963 (Limitation Act).

In V. Padama Kumar Case (Supra) wherein the issue was considered explicitly by the Five Hon’ble Members of the NCLAT and it was held that the Books of Accounts are to be prepared as per Section 92 of the Companies Act, 2013. Therefore, it cannot amount to an acknowledgement under Section 18 of the Limitation Act. The acknowledgement to extend the period of limitation should be voluntary and cannot be given under the compulsion of law or with the threat of any penalty or punishment.

Brief facts of the instant case are that the Corporate Power Ltd (Corporate Debtor) had availed the loan from the Infrastructure Finance Co. Ltd., (Consortium Lenders or Banks) for setting up 1080 MW coal-based plant at Chandwa of Latehar District in the State of Jharkhand in two phases. The Corporate Debtor has availed loan facilities aggregating to Rs.5997,80,02,973/- (Rupees Five Thousand Nine Hundred Ninety-Seven Crore Eighty Lakhs Two Thousand Nine Hundred Seventy-Three only) from Consortium Lenders and loan agreements have been executed between the Corporate Debtor and the Consortium Lenders.

However, the Corporate Debtor failed to repay the dues under the facilities granted by the Banks. The Banks had assigned the debt in favour of Asset Reconstruction Company (India) Ltd (Financial Creditor). Therefore, the Financial Creditor has filed the Application under Section 7 of the Insolvency and Bankruptcy Code 2016 (IBC).

NCLT Decision: The National Company Law Tribunal, New Delhi (NCLT) has admitted the Application on the ground that the debt and default are not under-challenge and with respect to the issue of limitation of the said Application it observed that in the Balance Sheet the Corporate Debtor, admitted its liability, which was signed prior to the expiry of three years from the date of default. It is an acknowledgement of debt in terms of Section 18 of the Limitation Act and is therefore, not barred by Limitation. Being aggrieved with the said decision the Corporate Debtor filed the Appeal before the NCLAT.

NCLAT– During the course of arguments before the Three Member Bench of NCLAT (‘Referral Bench’), a Judgment rendered by Five Hon’ble Members of NCLAT in V. Padma Kumar Case (Supra) has been cited. After hearing the contentions of the Parties the NCLAT referred the matter to a Bench of Five Hon’ble Members of NCLAT for reconsidering its Judgment inV. Padma Kumar Case (Supra).

In this view, the Five Hon’ble Members of NCLAT, vide its Judgment dated 22.12.2020 rejected the Referral Bench Order dated 25.09.2020 for reconsideration of the Judgment inV. Padma Kumar. It observed that NCLAT is not a Constitutional Court. It is the creation of a Statute viz. Companies Act, 2013. Therefore, the NCLAT has to apply the law as laid down by the Hon’ble Supreme Court of India and as embodied in the Statutes.

The NCLAT found the reference as incompetent for the following reasons:

1. That the Referral Bench failed to take note of the fact that the Judgment rendered in ‘V. Padmakumar’s Case’ was passed with a majority of 4:1 on the basis of the authoritative pronouncements and binding precedents of the Hon’ble Supreme Court.
2. The Bench observed that the whole mechanism of triggering of corporate insolvency resolution process (CIRP) revolves round the concept of ‘debt’ and ‘default’. Once debt and default are established, the Financial Creditor, the Operational Creditor or the Corporate Person can initiate the CIRP by filing application under Sections 7, 9 or 10 of IBC. The date of default is extendable within the ambit of Section 18 on the basis of an acknowledgement in writing made by the Corporate Debtor before the expiry of period of limitation.
3. In “Jignesh Shah & Anr. vs. Union of India & Anr., (2019)10 SCC 750”, the Hon’ble Apex Court, after noticing various judgments, observed that when time begins to run it can only be extended in the manner provided in the Limitation Act.
4. The NCLAT then referred to the various Supreme Court Judgments to state the circumstances in which a reference of a case will be competent. The noticed that in “Central Board of Dawoodi Bohra Community & Anr. Vs. State of Maharashtra & Anr.”, (2005) 2 SCC 673, it was held that a Bench of co-equal strength can only express an opinion doubting the correctness of the view taken by the earlier Bench of coequal strength.
5. In “Keshav Mills Co. Ltd. vs. CIT (1965) 2 SCR 908”, it was held that nature of infirmity or error would be one of the factors in making a reference. Also referred to the case of “Supreme Court Advocates on Record Association vs. Union of India, (2016) 5 SCC 1”.
6. In ‘Sub-Inspector Rooplal & Anr. Vs. Lt. Governor & Ors.’ (2000)1 SCC 644, it was observed that the judgments of coordinate benches are binding on the Tribunal. Judicial discipline required that the Tribunal follow such judgments.

Therefore, the Bench after considering the aforesaid circumstances and various other Judgments of the Supreme Court held that the Judgment in V. Padmakumar’s Case’ was passed based on the various judicial and binding precedents of the Supreme Court as a settled law on the subject. It is settled that a coordinate bench of a court cannot pronounce a judgment contrary to declaration of law made by another bench therefore it is a matter of judicial discipline for the Referral Bench to follow the Judgment of the Five Members Bench in ‘V. Padmakumar’s Case’ as a binding precedent.

Lakshmi Vishwakarma

Associate

The Indian Lawyer & Allied Services