The Hon'ble NCLAT determined that the annual return and balance sheet entries are required by law and must be made under statutory compulsion. The NCLAT went on to say that because this is necessary and refusal to do so will result in penalties, the entries cannot be considered voluntary and an acknowledgement for the purposes of Section 18 of the Limitation Act.
In the instant case titled Sh G Eswara Rao Vs. Stressed Assets Stabilisation Fund & Anr two issues were raised before the NCLAT for clarification:
Whether the application under Section 7 of the I&B Code barred by limitation?
Whether the order of Decree passed by the Debts Recovery Tribunal-I, Hyderabad on 17th August 2018 can be taken into consideration to hold that application under Section 7 of the I&B Code is within the period of three years as prescribed under Article 137 of Limitation Act, 1963?
With regard to the first issue, NCLAT held that a decree cannot be executed by filing an application under Section 7 of the I&B Code. In this situation, the insolvency resolution process or liquidation proceedings, if filed fraudulently or with malicious intent for any purpose other than the resolution of insolvency or liquidation, will be subject to penal action under Section 65 of the I&B Code.
As on the second issue, the Adjudicating Authority (National Company Law Tribunal) failed to examine the aforementioned information and incorrectly determined that the date of default occurred when the Debts Recovery Tribunal issued its judgement and decree on August 17, 2018.
The court categorically held that:
“In the absence of any acknowledgement under Section 18 of the Limitation Act, 1963, the date of default/NPA occurred prior to 2004 and does not push forward, the term of limitation for filing a moving application under Section 7 of the I&B Code was three years, if counted, ending in 2007. We hold that the application under Section 7 of the I&B Code was barred by limitation, notwithstanding the fact that the claim may not be barred, because the date of the Decree's passing is not the date of default”.
The NCLAT set aside the NCLT's decision, finding that CD had failed to settle the obligation before 2004, resulting in the DRT's application. A DRT decree or any other court order is not a recognition of debt and hence cannot be used to postpone the default date. The NCLAT emphasised that the CIRP initiation time limit begins on the day of default.