In accordance with Section 62 of the 2016 Insolvency and Bankruptcy Code, the current case was filed as an appeal. The appeal was filed in opposition to the decision made by the National Company Law Appellate Tribunal (NCLAT), which found that the Appellant Bank's Section 7 of the IBC petition was time-barred. The Hon'ble Supreme Court's decision also addresses the question of whether belatedly filing additional documents under IBC is permitted and clarifies what constitutes and does not constitute an acknowledgement of the debt by the Corporate Debtor.
In the instant case titled Dena Bank vs. C. Shivakumar Reddy. The issues raised for clarification before the Supreme Court were:
Whether a petition filed under Section 7 of the IBC would be time-barred?
Whether the law prohibits the modification of pleadings in any way?
With regard to the first issue, the court concluded that an acceptance of liability expressed in a balance statement can equate to an acknowledgement of debt while relying on the cases Asset Reconstruction Company (India) Limited v. Bishal Jaiswal and Anr., Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, and Re Pandem Tea Co. Ltd. Therefore, entries in a corporate debtor's books of accounts and/or balance sheets would qualify as an acknowledgement for purposes of Section 18 of the Limitation Act. As long as the recognition is made before the statute of limitations expires, it need not be accompanied by an express or implied promise to pay. In light of the findings in Ferro Alloys Corporation Limited v. Rajhans Steel Limited, the Court determined that the Recovery Certificate and the DRT order/decree provided the Appellant Bank with a new basis for filing a petition under Section 7 of the IBC. The Court further concluded that a Time Settlement offer delivered in time for a live claim to expire can be interpreted as a recognition that Section 18 of the Limitation Act will apply.
With regard to the second issue, The court ruled that other than the papers that were initially filed with the application under Section 7 of the IBC in Form-1, there is no legal restriction on the revision of pleadings in an application under Section 7 of the IBC or the filing of additional documents. It cannot be argued that the Adjudicating Authority erred in any way by allowing the Appellant Bank to file new papers in the absence of any specific provision that either forbids or limits the filing of further documents in terms of time. However, it goes without saying that when there has been an excessive amount of delay, the adjudicating authority may, at its discretion, decline an applicant's request to file additional pleadings and/or documents and instead proceed to issue a final order depending on the facts and circumstances of the case.
The Court categorically stated that,
" There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with the application under Section 7 of the IBC in Form-1. In the absence of any express provision that either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents. Needless, however, to mention that depending on the facts and circumstances of the case, when there is an inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order. In our considered view, the decision of the Adjudicating Authority to entertain and/or to allow the request of the Appellant Bank for the filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal.”
The current ruling rightly draws attention to a common misconception that bankruptcy procedures have an adversarial nature and can be used as a stand-in for coercive recovery proceedings. Instead, the purpose of insolvency procedures is to assist the corporate debtor in rising above its financial difficulties and getting back on its feet. Given the IBC's favourable legislative impact, a highly technical strategy for dealing with corporate insolvencies need to be avoided. The corporate debtor's revival must be the adjudicating body's first priority.