The National Company Law Appellate Tribunal (NCLAT), Chennai Bench comprising Justice M. Venugopal and Ms. Shreesha Merla was hearing an appeal on Monday and held that timely acknowledgements of debt extend the limitation period for initiating insolvency proceedings under the Insolvency and Bankruptcy Code, and the Adjudicating Authority's discretion to evaluate claims of debt and default was upheld.
In the present case, the appellant, who held the status of a suspended director and shareholder within M/s. A.L. Sudershan Constructions Company Limited lodged an appeal against a significant order passed by the Adjudicating Authority on May 6, 2022. This order pertained to an application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, by a financial creditor (the 1st respondent). The Adjudicating Authority's order, which was contested in this case, not only admitted the said application but also appointed an Interim Resolution Professional (IRP) as a consequence.
In its order, the Adjudicating Authority put forth a comprehensive examination of the facts. It observed that the financial creditor was claiming a default amount of Rs. 239,51,53,055.83, and the appellant's contention regarding unaccounted sales of assets did not impact the application's merit. The Adjudicating Authority highlighted that disputes about the quantum of the claim do not hinder the application's acceptance. It further affirmed that the application's claim exceeded the threshold stipulated in Section 4 of the Insolvency and Bankruptcy Code, and hence, the application was deemed valid. The Adjudicating Authority also noted that its role primarily involved ascertaining the presence of financial debt and default, along with ensuring that the claim surpassed the defined threshold. In this context, the Supreme Court's judgment in Innoventive Industries Limited v. ICICI Bank and Another, REED 2017 SC 08563 was cited as support for its view, leading to the eventual admission of the application.
In response to the Adjudicating Authority's decision, the appellant raised multifaceted submissions to challenge its validity. The core contention revolved around the assertion that the claim was barred by limitation, with reference to Article 137 of the Limitation Act. The appellant contended that the limitation period ended on June 10, 2009, while the application was filed on February 29, 2020. This argument was primarily based on the date of default in 2006. Furthermore, concerns were raised about the financial creditor's alleged failure to account for asset sales and the existence of pending suits and arbitration proceedings.
However, the financial creditor countered these claims with arguments of their own. They pointed out the appellant's repeated acknowledgements of liability and their offers for a one-time settlement. The financial creditor emphasized that the appellant's submissions lacked merit and appeared to be an attempt to misuse the legal process. They cited various acknowledgements within balance sheets and other correspondences as strong evidence of the appellant's acknowledgement of debt.
The Interim Resolution Professional (IRP), a party involved in the insolvency process, also presented his perspective. The IRP highlighted the actions taken to manage the affairs of the corporate debtor during the resolution process. This included appointing auditors and legal representation, as well as safeguarding records. The IRP acknowledged the appellant's tendency to misuse legal proceedings and detailed efforts to maintain control during the resolution process.
The case revolved around intricate disputes concerning the acknowledgement of debt, the concept of limitation, the credibility of the financial creditor's claims, and the legality of the Adjudicating Authority's order. Acknowledgement clauses within balance sheets and various correspondences were a focal point in the arguments, with the financial creditor citing them as valid acknowledgements of debt. On the other hand, the appellant's arguments were rooted in claims of limitation, ongoing legal actions, and asset sales.
Ultimately, the National Company Law Appellate Tribunal (NCLAT) provided a comprehensive analysis of various legal aspects related to insolvency proceedings. It elaborated on the maintainability of applications, the significance of acknowledgement of debt, the discretion of courts, and the role of the resolution professional in assessing the validity of claims. The NCLAT concluded by dismissing the appeal against the Adjudicating Authority's decision, thereby affirming the admission of the Section 7 application. This judgment emphasized the importance of timely acknowledgements and upheld the Authority's discretion in evaluating claims of debt and default.
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