In the case of Bimalkumar Manubhai Savalia v. Bank of India and Others (decided as per order dated March 5, 2020), the National Company Law Appellate Tribunal ("NCLAT") held that any actions brought before the Debt Recovery Tribunal ("DRT") pursuant to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act") or for the recovery of debts owed to banks and financial institutions will not extend. By filing an appeal against an order dated September 20, 2019 ("Impugned Order") made by the Ahmedabad bench of the National Company Law Tribunal ("NCLT") regarding an application made by Bank of India ("Respondent No. 1") under section 7 (initiation of corporate insolvency resolution process by the financial creditor) of the National Company Law Tribunal Act ("NCLAT Act"), the shareholder and director of the corporate debtor M/s. Radheshyam Agro Products Private Limited ("RPL") On August 30, 2018, the RPL was accused of defaulting on a lending arrangement, which led to the filing of the application. The NCLT had now admitted this application against RPL via the contested order.
In the instant case titled Bimalkumar Manubhai Savalia v. Bank of India and Another the issue raised for clarification before the NCLAT was:
Whether the SARFAESI Act's DRT proceedings and debts owed to banks and financial institutions caused the limitation period for the application submitted by Respondent No. 1 under the IBC to be extended?
With regard to this issue, To decide whether the Application filed by Respondent No. 1 was within the limitation period, the NCLAT cited the Supreme Court's decision in B.K. Educational Services Private Limited v. Parag Gupta and Associates [(2019) 11 SCC 633]. The date of the mortgage, according to the NCLT, was November 18, 2010, NCLAT noted. Additionally, it was revealed that the first OTS offer, for INR 12 crores, was made on April 28, 2016. On June 1st, 2016, the OTS offer was subsequently revised to INR 14.56 crores. Last but not least, on March 31, 2017, the guarantor had credited Respondent No. 1's loan account. The NCLAT stated that because Respondent No. 1 had not accepted the OTS, this could not be regarded as an acceptance of debt under Section 18 of the Limitation Act of 1963 ("Limitation Act"), which governs the consequences of a written acknowledgement. The NCLAT rejected Respondent No. 1's argument that the phrase "without prejudice" was not used in the second letter or amended OTS offer and that, as a result, the new OTS offer could be viewed as a recognition of debt.
The NCLAT argued that applications made according to Sections 7 and 9 of the IBC (application for commencement of corporate insolvency resolution process by operational creditor) would not be covered by Article 19 of the Limitation Act (impact of payment on account of debt or of interest on legacy). Instead, as the Supreme Court has previously concluded, applications under Sections 7 and 9 of IBC would be subject to Article 137 of the Limitation Act (any other application for which no period of limitation is given elsewhere in the third division-applications). As a result, NCLAT refuted the notion that the limitation period would be extended and afterwards count from April 1, 2017.
The claim of Respondent No. 1 that the Appellant's application under Section 17 of the SARFAESI Act should be regarded as an acknowledgment of debt for the purposes of limitation was likewise refuted. The NCLAT read the justifications for the aforementioned application and noted that the appellant had raised technical issues therein. Such technical grounds, among others, included the borrower's failure to receive notices as required by Section 13(2) of the SARFAESI Act. The NCLAT stated that such arguments or objections could not be taken as the Appellant acknowledging a debt.
The NCLAT categorically stated that,
“We have perused the Application filed by the Appellant before the DRT, Ahmedabad and at page 25 of the Reply filed by Respondent No. 1, sub-para 2 of paragraph-5 that "the Respondent Bank states that the Principal Company had availed various facilities from the Respondent- Bank." Further the Respondent No. 2 sanctioned the said facilities towards hypothecation, mortgage of movable and immovable properties owned by the borrower Guarantor, Mortgager as per the Respondent No. 1. In the grounds of the Application, the Applicant (Appellant herein) has taken the technical grounds that the notices have not been served on all the borrower as per Section 13(2) of 'SARFAESI' Act and also taken various other objections which cannot be presumed that there is an acknowledgment by the Appellant herein to the Bank. Therefore, even on this count, the Respondent No. 1 failed to establish the Application filed within the period of limitation. In view of the judgment of the Hon'ble Supreme Court in the matter of "B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates" (supra), we are of the view that Application is barred by limitation.”