Case Title: State Bank of India v. Krishidhan Seeds Private Limited
The Supreme Court observed that, “(i) The provisions of Section 18 of the Limitation Act are not alien to and are applicable to proceedings under the IBC; and (ii) An acknowledgement in a balance sheet without a qualification can furnish a legitimate basis for determining as to whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default.”
The facts, in brief, are that the respondent received credit facilities from the appellant commencing from 30 November 2006. According to the appellant, as on 24 June 2013, the outstanding amount under the credit facilities extended to the respondent totaled to Rs 102.4 crores. In lieu of these credit facilities, the respondent provided securities in favour of the appellant. The respondent allegedly failed to honour the terms of these credit facilities and defaulted on their repayments. Hence, the respondent’s account with the appellant was classified as a Non-Performing Asset on 10 June 2014. Post this, various attempts were made by the Bank to seek recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 and Recovery of Debts Due to Banks and Financial Institutions Act 1993, while continuing to engage in negotiations with the respondent.
In January 2016, the Respondent offered an OTS (one-time settlement) to the Appellant Bank and the arrangement was agreed to stand at Rs 61 crores in lieu of its debts. However, in September 2017 the Respondent unilaterally changed the figures to Rs 40.6 crores.
Aggrieved by the same, the Bank filed an application for initiation of the CIRP on the ground that there was a default on the part of the respondent in paying a financial debt in the amount of approximately Rs 189 crores since the account was declared NPA in 2014.
The application was rejected by NCLT on the grounds that:-
(i) The respondent’s loan account was declared to be an NPA on 10 June 2014, while the proceeding under Section 7 was instituted on 19 September 2018 beyond a period of three years from the date on which the right to apply accrued;
(ii) In the decision in the case of V Padmakumar v Stressed Assets Stabilisation Fund and Another, the NCLAT has held that a statement contained in the balance sheet cannot be treated as an acknowledgement of liability under Section 18 of the Limitation Act 1963; and
(iii) The proposal for OTS which was submitted by the respondent on 18 September 2017 was also beyond three years from the date of default.
The above order was also upheld by NCLAT and it was observed that the application for initiation of CIRP was barred by limitation since it was filed beyond four years from the date of default. This legal principle has also been observed by the Apex Court in Sesh Nath Singh v Baidyabati Sheoraphuli Coop. Bank Ltd.
However, in this case, the Bench while allowing an extension in the limitation based its decision on the observations made in Rajendra Narottamdas Sheth and Another v Chandra Prakash Jain and Another wherein it has been held that
“25. We have already held that the burden of prima facie proving the occurrence of the default and that the application filed under Section 7 of the Code is within the period of limitation, is entirely on the financial creditor. While the decision to admit an application under Section 7 is typically made on the basis of material furnished by the financial creditor, the Adjudicating Authority is not barred from examining the material that is placed on record by the corporate debtor to determine that such application is not beyond the period of limitation. Undoubtedly, there is sufficient material in the present case to justify the enlargement of the extension period in accordance with Section 18 of the Limitation Act and such material has also been considered by the Adjudicating Authority before admitting the application under Section 7 of the Code. The plea of Section 18 of the Limitation Act not having been raised by the Financial Creditor in the application filed under Section 7 cannot come to the rescue of the Appellants in the facts of this case…..”
Therefore, in the light of the above, the Court set aside the impugned judgments of NCLT and NCLAT and observed that:-
The provisions of Section 18 of the Limitation Act are not alien to and are applicable to proceedings under the IBC; and
An acknowledgement in a balance sheet without qualification can furnish a legitimate basis for determining whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default.