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Sagar Sharma And Another v. Phoenix Arc Private Limited
Factual and Procedural Background
The 1st Respondent, Phoenix ARC Private Limited, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) against Hotel Horizon Private Limited (Corporate Debtor), alleging a default of Rs. 93,86,52,393 as of 25th September 2017. The Adjudicating Authority (National Company Law Tribunal), Mumbai Bench admitted the application on 29th January 2019. The Appellants, who are shareholders and directors of the Corporate Debtor, challenged this admission before the Appellate Tribunal. During proceedings, the Appellants expressed readiness to settle the claim with creditors and offered 70% of the debt amount, negotiating with lenders holding more than 75% voting share, except the 1st Respondent who holds more than 22% voting share and with whom no settlement was reached. Despite extensions granted for settlement efforts, no resolution was finalized, and the appeal was heard on merit.
Legal Issues Presented
- Whether an application under Section 7 of the I&B Code is maintainable during the pendency of a Joint Lenders Forum decision or finalization of a corrective action plan.
- Whether the claim of the 1st Respondent (Financial Creditor) is barred by limitation under the Limitation Act, 1963.
- Whether the Appellant’s claim is barred by limitation and if the Corporate Debtor can raise such a plea to deny the debt’s payability.
Arguments of the Parties
Appellants' Arguments
- The Appellants contended that the petition filed under Section 7 of the I&B Code should not be entertained during the pendency of the Joint Lenders Forum and the corrective action plan finalization.
- They also argued that the claim of the 1st Respondent was barred by limitation.
- The Appellants sought to settle the claim, offering 70% of the debt amount and negotiating with major creditors.
Respondent's Arguments
- The 1st Respondent maintained that the application under Section 7 was valid and not barred by limitation.
- They relied on the assignment of debt rights from IDFC Limited and the mortgage deed securing the loan.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court first examined whether a Section 7 application is maintainable during the pendency of a Joint Lenders Forum decision or corrective action plan. It found no bar under the I&B Code except as provided under Section 11(c), and thus held the petition under Section 7 is maintainable in such circumstances.
Regarding limitation, the Court analyzed the loan agreements and transactions between the Corporate Debtor and various financial institutions including IDFC Limited, HDFC Limited, and Union Bank of India. The Court noted the assignment of debt rights to the 1st Respondent and the declaration of the account as Non-Performing Asset in March 2015.
The Court applied the Limitation Act, 1963, specifically Part II, Other Applications, which prescribes a three-year limitation period for applications where no other period is specified, starting from when the right to apply accrues. Since the I&B Code came into force on 1st December 2016, the right to apply accrued on that date, and hence the Section 7 application was not barred by limitation.
Further, the Court considered the mortgage deed dated 27th November 2009 and the assignment of debt rights, holding that the Financial Creditor’s claim related to immovable property is subject to a 12-year limitation period under Article 61 of the Limitation Act. Therefore, the claim is not barred by limitation.
Holding and Implications
The appeal was found to be devoid of merit and was accordingly dismissed. No relief was granted to the Appellants.
The direct effect of this decision is the upholding of the admission of the Section 7 application filed by the 1st Respondent against the Corporate Debtor. No new precedent was set by this ruling.
SUDHANSU JYOTI MUKHOPADHAYA, J. The 1st Respondent Phoenix ARC Private Limited filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short, the I&B Code) against Hotel Horizon Private Limited (Corporate Debtor) alleging Company Appeal (AT)(Ins) No. 177 of 2019 default of Rs.93,86,52,393 as on 25th September, 2017. After notice and hearing the parties by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai by 29th January, 2019 admitted the application, which is under challenge in this appeal.
2. When the matter was taken up, the learned counsel appearing on behalf of the Appellants (Shareholders/Directors) submitted that the Appellants are ready to settle the claim with the creditors and may offer something more than what could have been given by a successful resolution applicant. Such submission was recorded on 22nd February, 2019 but when the matter was subsequently taken up on 15th March, 2019, the learned counsel appearing on behalf of the Appellants submitted that they have already taken up the matter for settlement with Union Bank of India and HDFC Bank Ltd., who have more than 75% of the voting share. However, it was accepted that the 1st Respondent Phoenix ARC Pvt. Ltd., who filed the application under Section 7 of the I&B Code and has more than 22% of the voting share, no offer has been given or settlement made. It was also informed that the Appellants have already offered 70% of the debt amount and are still negotiating. However, as there is no settlement finally reached between the parties and the matter remains pending for a long period the case was heard on 8th July, 2019 and the following order was passed: Heard the parties. Judgment reserved. However, on the request of the counsel for the Appellants, we allow further two weeks time to the Appellant to settle the matter and bring the same to Company Appeal (AT)(Ins) No. 177 of 2019 the notice of this Appellate Tribunal, failing which, the judgment will be pronounced.
3. We have noticed the stand taken by the parties and heard the appeal on merit.
4. It was submitted that during the pendency of the matter before the Joint Lenders Forum and finalization of corrective action plan, the petition under Section 7 of the I&B Code has been filed at the instance of 1st Respondent (Financial Creditor) which according to applicant cannot be entertained. However, in absence of any bar to entertain an application under Section 7 except in terms of Section 11(c) of the I&B Code, we hold that petition under Section 7 is maintainable even during the pendency of decision of a Joint Lenders Forum or finalization of the corrective action plan.
5. Next it was contended that the claim of the applicant 1st Respondent as made in the application under Section 7 was barred by limitation.
6. However, on perusal of the record, the following facts emerge --, The Corporate Debtor approached the IDFC Limited (IDFC) in March, 2008 and requested for financial facilities which was acceded to by the IDFC. The IDFC and the Corporate Debtor executed various loan documents pursuant to which IDFC sanctioned and advanced a term loan of Rs.55,00,00,000/- (Rupees Fifty-five Crores) in favour of the Corporate Debtor. In November, 2009, the Corporate Debtor again sought for further financial assistance from IDFC Limited and HDFC Limited and a Rupee Term Loan Agreement was entered into with the Corporate Debtor on 20th November, 2009 for an additional amount of Rs.22,00,00,000/- (Rupees Company Appeal (AT)(Ins) No. 177 of 2019 Twenty-two Crores) which was repaid by the Corporate Debtor in quarterly instalments commencing from 15th July, 2012.
7. Thereafter, the Corporate Debtor sought financial assistance from IDFC, HDFC and Union Bank of India and a Facility Agreement (Secured Term Loan Agreement) was executed on 24th May, 2012 between the aforesaid three Banks and the Corporate Debtor for advancement of further amount of Rs.46,00,00,000/- (Rupees Forty-six Thousand Crores). IDFC also executed an Inter-creditor Agreement dated 24th May, 2012 as well as Security Trustee Agreement dated 24th May, 2012.
8. The Term Loan I was repaid by the Corporate Debtor to IDFC and the claim of the 1st Respondent does not constitute any part of the said Term Loan.
9. The 2nd Term Loan was secured by a Deed of Mortgage with a further charge dated 27th November, 2009. The 2nd Term Loan was repaid partly to the tune of Rs.17,10,20,020/-(Rupees Seventeen Crores Ten Lakhs Twenty Thousands and Twenty only) (out of Rs. 22,00,00,000/-) and the outstanding amount as claimed by the Assignee (Appellant) is Rs.9,35,15,240/- (Rupees Nine Crores Thirty five Lakhs Fifteen Thousand and Two hundred Forty only).
10. No amount has been repaid by the Corporate Debtor pursuant to Term Loan III and the outstanding amount is Rs.84,51,37,153/- (Rs.46,00,00,000/- being the principal amount + interest @ of 3.5% as on 25th September, 2017) is payable.
11. The IDFC Ltd. assigned all rights, title and interest in the debt owed by the Corporate Debtor in favour of the 1st Respondent (Phoenix ARC Private Limited Assignee) vide Assignment Agreement dated 11th September, 2014. Company Appeal (AT)(Ins) No. 177 of 2019 The account of the Corporate Debtor was declared Non-Performing Asset (NPA) on 11th March, 2015.
12. It is not in dispute that the Limitation Act, 1963 is applicable to the applications filed under the I&B Code. For filing the application under Section 7 of the I&B Code, Part II Other Applications of Third Division of schedule of Limitation Act is applicable as quoted below: PART II OTHER APPLICATIONS Description of application Period of Limitation Time from which period being to run
137. Any other application for which no period of limitation is provided elsewhere in this division Three years When the right to apply accrues.
13. Admittedly, I&B Code has come into force since 1st December, 2016, therefore, the right to apply accrued to 1st Respondent on 1st December, 2016. Therefore, we hold that the application under Section 7 was not barred by limitation.
14. The next question is whether the claim of the Appellant is barred by the limitation. If it is barred by limitation then the Corporate Debtor has right to take plea that the debt is not payable. In the present case, we find that the immovable property of the Corporate Debtor was mortgaged in favour of the Financial Creditor by Deed of Mortgage and a further charge was made on 27th November, 2009 by the Corporate Debtor in favour of IDFC Ltd.. Thereafter by assignment agreement debt payable by Corporate Debtor to IDFC was assigned on 11th September, 2014. Company Appeal (AT)(Ins) No. 177 of 2019
15. The Financial Creditor has right to get immovable property mortgaged and thereafter may transfer the mortgage assets for a valuable consideration for which 12 years of limitation has been prescribed for filing a suit relating to immovable property under Article 61 of Part V of the First Division of the Schedule of Limitation Act. Therefore, we hold that the claim of the 1st Respondent is not barred by limitation.
16. As the appeal is devoid of merit, no relief can be granted. It is accordingly dismissed. No costs. [Justice S.J. Mukhopadhaya] Chairperson [ Justice A.I.S. Cheema ] Member (Judicial) [ Kanthi Narahari ] Member (Technical) New Delhi 5th September, 2019 /ns/
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