Limitation period expired, NCLT Chennai dismisses application under section 7 of IBC

A Division Bench of the National Company Law Tribunal, Chennai (NCLT) in a matter, while acknowledging that in order to ascertain ‘debt’ and ‘default’, the Adjudicating Authority has to arrive at a conclusion only based upon the documents placed on record by the parties, dismissed an Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 as the Financial Creditor failed to place on record any document to substantiate that the debts fell within the limitation period. This post discusses the background of the case in order to elucidate the contours of the dispute and analyzes the ruling pronounced by the NCLT.  [Asset Reconstruction Company India Limited v. Bharani Properties and Developers Private Limited, REED 2021 NCLT Chen 06531] 

The Indian Overseas Bank had sanctioned a Term Loan amounting to Rs. 30 crore to Anandram Developers Pvt. Ltd. (ADPL), the principal borrower in respect of whom Liquidation proceedings are pending before NCLT. In order to secure the said loan, M/s Bharani Properties and Developers Pvt. Ltd. (Corporate Debtor/Respondent) executed Guarantee Agreement in favour of Indian Overseas Bank for the repayment of said term loan. Upon failure to repay the due amount by ADPL, on 31 December 2007, the Indian Overseas Bank classified the account of ADPL as Non-Performing Asset (NPA) and thereafter, on 10 February 2015, assigned the Term Loan to Asset Reconstruction Company India Ltd. (Financial Creditor/Applicant).

Similarly, Oriental Bank of Commerce had sanctioned a Term Loan amounting to Rs. 30 crore and also a Funded Interest Loan of Rs. 2.06 crore to ADPL. In order to secure the said loan, the Corporate Debtor executed Guarantee Agreements for repayments of Term Loan and Funded Interest Loan respectively, in favour of Oriental Bank of Commerce. Upon failure to repay the due amount by ADPL, the Oriental Bank of Commerce classified the Term Loan account of ADPL as NPA on 31 August 2007 and the Funded Interest Loan account on 30 September 2009. Thereafter, on 28 March 2014, the Oriental Bank of Commerce assigned both the Term Loan and Funded Interest Loan to the Financial Creditor.

The Financial Creditor had filed O.A No. 430 of 2014 before the Debt Recovery Tribunal, Chennai (DRT) on 4 June 2012 in respect of claims from ADPL and Corporate Debtor for a total sum of Rs. 22.77 crore, which came to be allowed by DRT vide order dated 31 October 2016. Further, the Financial Creditor also filed O.A No. 29 of 2016 in respect of claims from ADPL and Corporate Debtor for a total sum of Rs. 56.49 crore, which came to be allowed by DRT vide order dated 13 March 2018.

Hence, Financial Creditor submitted that as per the above orders by DRT, the Corporate Debtor defaulted in payment of sum of Rs. 88.83 crore as on 31 December 2018. The present Application under section 7 of Insolvency and Bankruptcy Code, 2016 (IBC) by Financial Creditor for the purpose of initiating the Corporate Insolvency Resolution Process (CIRP) against Corporate Debtor was filed before NCLT on 14 December 2018.

The NCLT noted that the Hon’ble National Company Law Appellate Tribunal in State Bank of India v. Athena Energy Ventures Pvt Ltd., REED 2020 NCLAT Del 11541 and Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure Ltd. & Others, REED 2019 NCLAT Del 09505 has made it clear that CIRP can be simultaneously initiated against two Corporate Guarantors or for that matter in relation to Principal Borrower and the Corporate Guarantor as in the present case.

It is however, pertinent to mention that the Financial Creditor did not specify the Date of Default which was crucial for determining whether the claim was saved/ barred by Limitation. Further, no pleading was made by the Financial Creditor as to how the present Application fell within the limitation period. The NCLT noted that the date of default in the present case was the date of classification of ADPL’s account as NPA on 31 December 2007. Although the time spent in the SARFAESI proceedings can be excluded in terms of section 14 of Limitations Act, 1963 for the purpose of calculating period of limitation for an Application filed under section 7 of IBC as held in Sesh Nath Singh & Anr. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. & Anr., REED 2021 SC 03007, even considering the said ruling, the Indian Overseas Bank filed O.A. before DRT on 4 June 2012, i.e., after expiry of almost five years from date of NPA.

Further, the Supreme Court in the matter of Asset Reconstruction Company India Ltd v. Bishal Jaiswal, REED 2021 SC 04535, has held that the balance sheet entry made in the Books of Account, under the facts and circumstances of the case on being examined, would amount of acknowledgment of debt under Section 18 of Limitations Act. However, in the present case, the Financial Creditor did not place on record any of the balance sheets of the Corporate Debtor in order to rebut the contentions on the aspect of Limitation.

Hence, in view of the foregoing, the NCLT concluded that the debts as claimed by the Financial Creditor were time barred and the Financial Creditor failed to place on record any document to substantiate that the debts fell within the limitation period and accordingly, dismissed the present Application.