1. Introduction

The case of Deepak Vegpro Pvt. Ltd. v. Shree Hari Agro Industries Ltd. adjudicated by the National Company Law Appellate Tribunal (NCLAT) on October 11, 2022, delves into critical aspects of the Insolvency and Bankruptcy Code, 2016 (IBC). This commentary explores the appellate decision where Deepak Vegpro Pvt. Ltd. (the Appellant), acting as a financial creditor, challenged the dismissal of its Section 7 application against Shree Hari Agro Industries Ltd. (the Respondent). The central issues revolved around the statute of limitations under the Limitation Act, 1963, and the validity of debt acknowledgment in financial statements.

2. Summary of the Judgment

The Appellant filed a Section 7 application under the IBC, claiming a debt of ₹412.52 crores owed by the corporate debtor, Shree Hari Agro Industries Ltd. The Adjudicating Authority (NCLT, Kolkata) dismissed the application on grounds including the debt being time-barred, discrepancies in the claimed amounts, ongoing family disputes impacting the litigation, and lack of demand notices post-assignment of the loan. Deepak Vegpro Pvt. Ltd. appealed this dismissal to the NCLAT.

After a detailed examination of the arguments and evidence presented, the NCLAT upheld the Adjudicating Authority's decision. The Tribunal found that the acknowledgment of debt in the Respondent's balance sheets was insufficient and did not unequivocally support the claimed amount. Additionally, the significant discrepancy between the debt claimed in the Section 7 application and the amounts reflected in financial statements led to the conclusion that the debt was indeed time-barred, thereby rendering the application inadmissible.

3. Analysis

3.1 Precedents Cited

The Judgment extensively referenced several landmark cases to substantiate its reasoning:

• Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal (2021 SCC Online SC 321): Highlighted the necessity for unequivocal acknowledgment of debt in financial statements to extend the limitation period.
• J.C. Budhiraja v. Chairman, Orissa Mining Corporation Ltd. & Anr. [(2008) 2 SCC 444]: Clarified that acknowledgment must involve a conscious affirmation of a jural relationship between creditor and debtor.
• Tilak Ram And Others v. Nathu And Others (AIR 1967 SC 935): Emphasized that statements reflecting jural relationships must intend to acknowledge an existing liability.
• Reliance Assets Reconstruction Company Limited v. Hotel Poonja International Private Limited [(2021) 7 SCC 352]: Reinforced that balance sheet acknowledgments should be clear and unambiguous to extend limitation periods.
• Innoventive Industries Ltd. v. ICICI Bank (2018 1 SCC 407): Supported the notion that acknowledgment of debt above the threshold limit suffices for admitting a Section 7 application.
• Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022 SCC Online SC 841): Established that the Adjudicating Authority must exercise discretion meticulously, considering all relevant factors beyond mere existence of debt.

3.2 Legal Reasoning

The Tribunal's legal reasoning is anchored in two primary considerations:

1. Statute of Limitations: Under Section 18 of the Limitation Act, 1963, acknowledgments of debt must be clear and unequivocal to reset the limitation period. The Appellant's claims were substantially time-barred as the last acknowledgment in the Respondent's balance sheets did not correspond to the amount claimed, failing to reset the limitation clock.
2. Definition of Financial Debt: According to Section 5(8) and Section 3(11) of the IBC, financial debt encompasses liabilities disbursed against consideration for the time value of money, typically involving interest. The Respondent's financial statements lacked entries reflecting accrued interest on the disputed amount, undermining the Appellant's claim of a valid financial debt.

Additionally, the Tribunal found that familial disputes within the Data Family had no bearing on the legal merits of the case but were evident in the Counter-Arguments presented by the Respondent, casting doubt on the genuineness of the Appellant's claims.

3.3 Impact

This Judgment reinforces the stringent requirements for acknowledgment of debt to reset limitation periods under the IBC framework. By scrutinizing the precision and clarity of debt acknowledgments in financial statements, the NCLAT emphasizes the necessity for financial creditors to maintain accurate and unequivocal records. This decision potentially impacts future insolvency proceedings by:

• Encouraging creditors to ensure clear documentation for debt acknowledgment to avoid time-barred claims.
• Highlighting the importance of maintaining consistency between claimed amounts and financial statements.
• Underscoring the discretionary power of Adjudicating Authorities in assessing the validity of insolvency applications.

4. Complex Concepts Simplified

4.1 Section 7 of the IBC

Section 7 allows a financial creditor to initiate the Corporate Insolvency Resolution Process (CIRP) against a corporate debtor if the debtor defaults on a financial debt. For the application to be valid, certain conditions must be met, including the existence of a valid financial debt and the default in payment.

4.2 Limitation Act, 1963

The Limitation Act specifies the time limits within which legal actions must be initiated. Under Section 18, any acknowledgment of debt that indicates the debtor's liability can reset the limitation period, provided the acknowledgment is clear and unequivocal.

4.3 Financial Debt under IBC

As per Section 5(8) and Section 3(11) of the IBC, a financial debt is a liability borrowed with the consideration of the time value of money, typically involving interest payments. It encompasses various forms of borrowing, including secured loans, bonds, and debentures.

5. Conclusion

The NCLAT's decision in Deepak Vegpro Pvt. Ltd. v. Shree Hari Agro Industries Ltd. serves as a critical reminder for financial creditors about the imperatives of clear and consistent debt documentation. By upholding the principle that mere acknowledgment in financial statements is insufficient without clear and precise declaration of the debt, the Tribunal has set a high bar for future insolvency applications under Section 7 of the IBC.

This Judgment underscores the importance of adhering to statutory limitations and maintaining impeccable financial records, thereby ensuring that insolvency proceedings are both fair and procedurally sound.