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Attorney(S)
  • Mr. Rohan Agrawal i/b Mr. Nishit Dhruva, Mr. Prakash Shinde & Ms. Swati i/b MDP & Partners, Advocates, for the Financial Creditor:
  • Dr. SK Jain, Practising Company Secretary a/w Mr. Yahya Batatawala, Advocate, for the Corporate Debtor.
Judges
  • Ravikumar Duraisamy, Member (Technical)
Acts
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Mr. Rohan Agrawal i/b Mr. Nishit Dhruva, Mr. Prakash Shinde & Ms. Swati i/b MDP & Partners, Advocates, for the Financial Creditor:
  • Dr. SK Jain, Practising Company Secretary a/w Mr. Yahya Batatawala, Advocate, for the Corporate Debtor.
Judges
  • Ravikumar Duraisamy, Member (Technical)
Acts
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Smart Summary

Factual and Procedural Background

This Company Petition was filed by UCO Bank, the Financial Creditor, under section 7 of the Insolvency & Bankruptcy Code, 2016 (IBC), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Deegee Orchards Private Limited, the Corporate Debtor. The petition was filed on 11.09.2019 on the ground that the Corporate Debtor defaulted on payment of principal and interest amounting to over Rs. 67.72 crore as of 30.06.2014, the date of default. The Financial Creditor had extended various credit facilities to the Corporate Debtor through multiple sanction letters between 2005 and 2013. The Corporate Debtor responded with a request for debt restructuring and proposed a one-time settlement (OTS) in 2018, which was not accepted by the Financial Creditor. The Financial Creditor filed a rejoinder asserting the existence of debt and default prior to the petition filing. The matter proceeded before the National Company Law Tribunal, Mumbai Bench-IV.

Legal Issues Presented

  1. Whether the petition filed under section 7 of the IBC is barred by limitation given the date of default was 30.06.2014 and the petition was filed on 11.09.2019?
  2. Whether the one-time settlement proposal submitted after the period of limitation can revive the claim or be relied upon for the purpose of limitation?
  3. Whether the time spent pursuing proceedings under the SARFAESI Act can be excluded in computing the limitation period for filing the petition under section 7 of the IBC?

Arguments of the Parties

Financial Creditor's Arguments

  • The Financial Creditor contended that the Corporate Debtor defaulted on payment of principal and interest as of 30.06.2014, which constituted a valid debt and default.
  • It was argued that the petition was within limitation, especially considering a judgment obtained on 14.10.2019 from the Debts Recovery Tribunal, which could shift the limitation period forward.
  • The Financial Creditor denied any restructuring of debt, stating only an OTS proposal was under consideration and emphasized that the Adjudicating Authority's role is limited to ascertaining the occurrence of default in a summary manner.
  • It was submitted that the time spent pursuing proceedings under the SARFAESI Act should be excluded from the limitation period calculation, relying initially on a judgment in Sesh Nath Singh.

Corporate Debtor's Arguments

  • The Corporate Debtor submitted that it had requested debt restructuring and placed an OTS deposit in a no-lien account in 2018, which was to be returned if the OTS was not accepted.
  • It argued that the Financial Creditor suppressed the existence of ongoing OTS negotiations and prematurely filed the petition before the OTS decision.
  • The Corporate Debtor contended that the petition is barred by limitation as the default date was over five years prior to filing, and the OTS proposal submitted after limitation period cannot revive the claim.
  • It relied on judgments holding that documents or acknowledgments after the expiry of the limitation period cannot revive the right to sue.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
BK Educational Services v Parag Gupta & Associates, (2019) 11 SCC 633 Applicability of Article 137 of the Limitation Act to IBC applications; limitation period of 3 years from date of default; condonation of delay under section 5 of Limitation Act. Established that the right to apply under section 7 accrues on default and limitation begins then; applications filed after 3 years are barred unless delay is condoned.
Gaurav Hargovindbhai Dave v Asset Reconstruction Company (India) Limited, (2019) 10 SCC 572 Confirmation that Article 137 of the Limitation Act applies to section 7 applications under IBC. Reinforced that limitation for IBC petitions is governed by Article 137.
Jignesh Shah v Union of India, (2019) 10 SCC 750 Similar confirmation on applicability of Article 137 of the Limitation Act to IBC petitions. Supported the limitation principle applied to the present petition.
Vashdeo R Bhojwani v Abhyudaya Cooperative Bank Limited, (2019) 9 SCC 158 Reiterated that applications filed after 3 years from default are barred unless delay is condoned under section 5 of Limitation Act. Supported limitation bar on the present petition.
Sagar Sharma & another v Phoenix ARC Private Limited, (2019) 10 SCC 353 Clarified that the IBC commencement date does not trigger limitation; limitation runs from date of default as per Article 137. Confirmed limitation calculation from date of default, not from IBC enactment.
Sesh Nath Singh & another v Baidyabati Sheoraphuli Cooperative Bank Limited, Company Appeal (AT) (Insolvency) No. 672 of 2019 Initially held that time spent under SARFAESI proceedings can be excluded from limitation under section 14(2) of Limitation Act. Initially relied upon by Financial Creditor but later overruled by a larger bench of NCLAT.
Ishrat Ali v Cosmos Cooperative Bank Limited, Company Appeal (AT) (Insolvency) No.1121 of 2019 Held that proceedings under section 13(2) or 13(4) of SARFAESI Act are not civil proceedings and thus time under these cannot be excluded under section 14(2) of Limitation Act. Overruled Sesh Nath Singh; time under SARFAESI proceedings cannot be excluded for limitation.
Sampuran Singh & others v Niranjan Kaur & others, (1999) 2 SCC 679 Section 18 of Limitation Act requires acknowledgment before expiry of limitation period to revive limitation. Held that acknowledgment after expiry of limitation does not revive limitation; applied to reject OTS proposal as not reviving limitation.
Munish Kumar Bhunsali & another v Kotak Mahindra Bank & another, Company Appeal (AT) (Insolvency) No.1349/2019 One-time settlement proposals made after limitation period cannot be relied upon to revive or extend limitation. Applied to support Corporate Debtor's contention that OTS proposal dated 2018 is ineffective to revive claim.
V Hotels Limited v Asset Reconstruction Company (India) Limited, Company Appeal (AT) (Insolvency) No.525/2019 Confirmed that documents or acknowledgments after limitation expiry cannot be relied upon; section 18 of Limitation Act cannot aid if no prior acknowledgment. Supported limitation bar on the petition in absence of timely acknowledgment.

Court's Reasoning and Analysis

The Court first examined the limitation issue, noting that the date of default was 30.06.2014 and the petition was filed more than five years later on 11.09.2019. It applied the principle from BK Educational Services and other Supreme Court judgments that Article 137 of the Limitation Act, 1963 applies to section 7 IBC petitions, prescribing a three-year limitation period from the date of default. The Court rejected the Financial Creditor's argument that the limitation period was extended by a judgment from the Debts Recovery Tribunal, as well as the initial reliance on exclusion of SARFAESI proceedings time, which was overruled by a larger bench of the NCLAT in Ishrat Ali.

The Court also considered the Corporate Debtor’s contention that the OTS proposal dated 01.08.2018, submitted after the limitation period expired, could not revive the claim. It relied on the Supreme Court precedent in Sampuran Singh which held that an acknowledgment must occur before expiry of the limitation period to revive the claim. Since no such acknowledgment existed before the accounts were declared NPA and the OTS was after limitation, the petition was held barred by limitation.

Accordingly, the Court concluded that the petition was time-barred and failed on limitation grounds without addressing merits.

Holding and Implications

The Court rejected the petition filed by UCO Bank against Deegee Orchards Private Limited on the ground that it is barred by limitation under Article 137 of the Limitation Act, 1963.

This decision directly affects the parties by dismissing the insolvency petition for being time-barred. No new legal precedent was established beyond the application and reaffirmation of existing limitation principles under the IBC and Limitation Act. The Court clarified that observations made should not be construed as opinions on the merits of the case, and the Financial Creditor’s rights before other judicial forums remain unaffected.

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    Uco Bank Financial Creditor v. Deegee Orchards Private Limited Corporate Debtor.

    Per: Rajasekhar V.K., Member (Judicial)

    1. This is a Company Petition filed under section 7 of the Insolvency & Bankruptcy Code, 2016 (IBC) by UCO Bank(Financial Creditor), seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Deegee Orchards Private Limited (Corporate Debtor). IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV CP (IB) 3402/MB.IV/2019 ___________________________________________________________________________________ Page 2 of 10

    2. The Corporate Debtor is a private company limited by shares and incorporated on 29.05.1997 under the Companies Act, 1913, with the Registrar of Companies, Maharashtra, Mumbai. Its Corporate Identity Number (CIN) is U01100MH1997PTC108323. Its registered office is at Deegee House, Jaistambh Chowk, Rallies Plot, Amravati 444 601, within the State of Maharashtra. Therefore, this Bench has jurisdiction to deal with this petition.

    3. The present petition was filed on 11.09.2019 before this Adjudicating Authority on the ground that the Corporate Debtor failed to make payment of a sum of 43,04,08,269.00 (Rupees forty-three crore four lakh eight thousand two hundred and sixty-nine only) as principal and 24,68,45,038.28 (Rupees twenty-four crore sixty-eight lakh forty-five thousand and thirty-eight and paise twenty-eight only)as interest as on 30.06.2014, which is stated to be the date of default.

    4. The case of the Financial Creditor is as follows: - (a) The Financial Creditor had extended various facilities to the Corporate Debtor as follows: - (1) Vide sanction letter dated 30.05.2005: cash credit of 10.35 crore; warehouse funding of 12.50 crore; bank guarantee of 0.50 crore. (2) Vide sanction letter dated 04.10.2006: cash credit-I of 10.35 crore; cash credit-II of 14.00 crore; bill discounting facility of 5.00 crore; bank guarantee of 0.50 crore; Total non- fund based limit of 0.50 crore. (3) Vide sanction letter dated 07.03.2008: working capital fund based for existing activity under sole banking cash credit of IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV CP (IB) 3402/MB.IV/2019 ___________________________________________________________________________________ Page 3 of 10 40.00 crore; working capital (non-fund based) of 0.50 crore; bill discounting facility of 5.00 crore; bank guarantee of 0.50 crore. (4) Vide sanction letter dated 05.11.2008: cash credit of 50.00 crore; sub-limit of cash credit: 10.00 crore; bank guarantee of 1.00 crore; Total non-fund based limit of 0.50 crore. (5) Vide sanction letter dated 25.11.2011: total fund-based limit of 40.00 crore; Total non-fund based limit of 1.00 crore. (6) Vide sanction letter dated 23.12.2013: working capital term loan restructured limit: 33.83 crore; working capital fund based: 6.17 crore. Total fund-based facility: 40.00 crore.

    5. The underlying documents have been placed on record as Exhibit E-

    1 to Exhibit E-6 at pp.34-101. The rate of interest charged is 11.70% per annum. The total debt due and payable to the Financial Creditor is 67,72,53,307.28 (Rupees sixty-seven crore seventy-two lakh fifty-three thousand three hundred and seven and paise twenty- eight only), as mentioned at page 101-A of the Petition. The other connected documents such as certificates of registration of charge, demand promissory notes, agreement to pledge the goods, balance confirmation letter dated 30.06.2013, etc, have also been placed on record as Exhibits H to Exhibits I-55 at pp.1703-2084 of the Paper Book.

    6. The Financial Creditor has served copies of the petition on the Corporate Debtor vide registered letter dated 26.08.2019, which was received by the Corporate Debtor on 29.08.2019. Court Notice dated 24.09.2019 was also issued, which has been served on the IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV CP (IB) 3402/MB.IV/2019 ___________________________________________________________________________________ Page 4 of 10 Corporate Debtor by registered post on 30.09.2019. Affidavit of service dated 07.10.2019 has been placed on record.

    7. Dr SK Jain, learned authorised representative, appeared on behalf of the Corporate Debtor, and made his submissions along with Mr Yahya Batatawala, learned Counsel.

    8. In its reply filed on 04.11.2019 before this Adjudicating Authority, the Corporate Debtor has submitted as follows:- (a) The Corporate Debtor had requested restructuring of its debt vide its letter dated 07.12.2017. There were negotiations held in this behalf. In furtherance thereof, the Financial Creditor advised the Corporate Debtor to make a deposit of 25.00 lakh into a no- lien account for considering one-time settlement (OTS). (b) The Corporate Debtor arranged for the said deposit from a third party and deposited the same with the Financial Creditor on 01.08.2018, with the understanding that if the OTS was not arrived at, the Financial Creditor would return the amount deposited in the no-lien account. (c) Since the OTS proposal was taking time, the Corporate Debtor requested the Financial Creditor vide letter dated 09.09.2019 to return the said sum of 25.00 lakh and undertook to deposit the same upon hearing from the Financial Creditor.Subsequent to the filing of the present petition on 11.09.2019, the Corporate Debtor sent another letter dated 25.09.2019 seeking refund of the amount of 25.00 lakh. (d) The Financial Creditor has suppressed the factum of OTS proposals, and the petition was filed even before a decision on the OTS was communicated. IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV CP (IB) 3402/MB.IV/2019 ___________________________________________________________________________________ Page 5 of 10

    9. The Financial Creditor has filed a rejoinder, broadly stating that there is debt and default before the filing of the present petition. There was no restructuring, and there was only an OTS proposal that was being considered by the Financial Creditor. The Adjudicating Authority is only required to ascertain and record its satisfaction in a summary adjudication as to the occurrence of default, before admitting the petition.

    10. We have heard the arguments of both sides and perused the records.

    11. Before we proceed to the question of whether there is a debt and default,we need to address the question of limitation, given that the date of default is stated to be 30.06.2014.

    12. InBK Educational Services v Parag Gupta & Associates,1the Honble Supreme Court held as follows:

    42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. The right to sue, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, section 5 of the Limitation Act may be applied to condone the delay in filing such application.

    13. In Gaurav Hargovindbhai Dave v Asset Reconstruction Company (India) Limited & another,2and Jignesh Shah v Union of India,3the Honble 1(2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528 : 2018 SCC OnLine SC 1921 at page 664

    2 (2019) 10 SCC 572 : 2019 SCC OnLine SC 1239 at page 574

    3 (2019) 10 SCC 750 : (2020) 1 SCC (Civ) 48 : 2019 SCC OnLine SC 1254 at page 763 IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV CP (IB) 3402/MB.IV/2019 ___________________________________________________________________________________ Page 6 of 10 Supreme Court observed that applications under section 7 would fall only within Article 137 of the Limitation Act, 1963.

    14. Article 137 of the Limitation Act, 1963 stipulates a limitation period of three years from the date on which the right to apply accrues.

    15. In Vashdeo R Bhojwani v Abhyudaya Cooperative Bank Limited & another,4 the Honble Supreme Court quoted the BK Educational Services (supra)judgment and stated that if the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, section

    5 of the Limitation Act may be applied to condone the delay in filing such application.

    16. In Sagar Sharma & another v Phoenix ARC Private Limited & another,5the Honble Supreme Court emphasised that the date of coming into force of the IBC does not and cannot form a trigger point of limitation for applications filed under the Code. It further reiterated that since applications are petitions which are filed under the Code, it is Article 137 of the Limitation Act which will apply to such applications.

    17. Learned Counsel for the Financial Creditor submitted the Financial Creditor had obtained judgment dated 14.10.2019 in OA No.115/2015 filed by it against the Corporate Debtor before the Debts Recovery Tribunal, Nagpur, wherein the Corporate Debtor has been directed to pay to the Financial Creditor a sum of 4(2019) 9 SCC 158 : (2019) 4 SCC (Civ) 308 : 2019 SCC OnLine SC 1159 at page 159

    5 (2019) 10 SCC 353 : 2019 SCC OnLine SC 1332 at page 354 IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV CP (IB) 3402/MB.IV/2019 ___________________________________________________________________________________ Page 7 of 10 46,82,01,845.20 with simple interest at 9% per annum. He submitted that this would have the effect of shifting forward the period of limitation.

    18. Learned Counsel for the petitioner quoted the judgment dated 22.11.2019 of the Honble NCLAT in Sesh Nath Singh & another v BaidyabatiSheoraphuli Cooperative Bank Limited & another,6to advance his proposition that the time bona fide spent in pursuing the application filed by the Financial Creditor under SARFAESI Act, 2002 has to be excluded in computing the period of limitation in terms of section 14(2) of the Limitation Act, 1963. However, this judgment is no longer good law in the light of the judgment of a larger Bench of the Honble NCLAT dated 12.03.2020 in Ishrat Ali v Cosmos Cooperative Bank Limited & another,7wherein the Honble NCLAT held that an action taken by the Financial Creditor under section 13(2) or section 13(4) of the SARFAESI Act, 2002 cannot be termed to be a civil proceeding before a court of first instance or appeal or revision before an appellate court. Therefore, the action taken under section 13(2) of the SARFAESI Act, 2002 cannot be counted for the purpose of exclusion of the period of limitation under section 14(2) of the Limitation Act, 1963. In this light, the Honble NCLAT held that the decision rendered in Sesh Nath Singh did not lay down the correct law.

    19. In Sampuran Singh & others v Niranjan Kaur & others,8the Honble Supreme Court laid down that for section 18 of the Limitation Act,

    6 Company Appeal (AT) (Insolvency) No. 672 of 2019decided on 22.11.2019

    7 Company Appeal (AT) (Insolvency) No.1121 of 2019 decided on 12.03.2020 8(1999) 2 SCC 679at page 684 IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV CP (IB) 3402/MB.IV/2019 ___________________________________________________________________________________ Page 8 of 10 1963, to be attracted, the acknowledgment, if any, has to be prior to the expiration of the prescribed period for filing the suit, in other words, if the limitation has already expired, it would not revive under this section. It is only during subsistence of a period of limitation, if any, such document is executed, that the limitation would be revived afresh from the said date of acknowledgment.

    20. The Learned Authorised Representative for the Corporate Debtor placed reliance also on the judgment of the Honble NCLAT in Munish Kumar Bhunsali & another v Kotak Mahindra Bank & another,9to support his contention that a one-time settlement proposal given after the period of limitation has expired, cannot be relied upon by the Bank. It is pertinent to mention here that in the present case, as in the case of Munish Kumar Bhunsali (supra), the Financial Creditor did not accept the OTS dated 01.08.2018given by the Corporate Debtor. Therefore, the judgment in this case rightly comes to the rescue of the Corporate Debtor in the present case also. In any case, even this OTS was submitted well after the period of limitation had come to an end.

    21. Learned Authorised Representative for the Corporate Debtor invited our attention to the judgment of the Honble NCLAT in V Hotels Limited v Asset Reconstruction Company (India) Limited,10wherein the judgment of the Honble Supreme Court was referred to in support of the contention that any document or acknowledgement after the completion of the period of limitation cannot be relied upon. Further, in the absence of any record of acknowledgement, the 9Company Appeal (AT) (Insolvency) No.1349/2019decided on 08.01.2020 10Company Appeal (AT) (Insolvency) No.525/2019decided on11.12.2019 IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV CP (IB) 3402/MB.IV/2019 ___________________________________________________________________________________ Page 9 of 10 Appellant cannot derive any advantage of section 18 of the Limitation Act. The Honble NCLAT went on to hold that the application under section 7 of the IBC was barred by limitation, the accounts of the Corporate Debtor having been declared as NPA on 01.12.2008.

    22. In sum (a) The date of default is 30.06.2014. (b) The balance confirmation letter placed on record is dated 30.06.2013.11 (c) The letter informing the Corporate Debtor about the accounts having become NPA is dated 13.11.2014.12 (d) There is nothing on record to show that there is any acknowledgement of debt after the accounts were declared as NPA on 13.11.2014. (e) The OTS proposal is dated 01.08.2018,13i.e., long after the expiry of the prescribed period of limitation.

    23. Applying the ratio of the judgments of the Honble Supreme Court in BK Educational Services (supra), Gaurav Hargovindbhai Dave (supra), Jignesh Shah (supra), Vashdeo R Bhojwani (supra), Sagar Sharma (supra) andSampuran Singh (supra), and those of the Honble NCLAT in Ishrat Ali (supra), Munish Kumar Bhunsali (supra), and V Hotels Limited (supra),and the fact that the judgment in Sesh Nath (supra) no longer represents the correct law, we hold that the present petition filed by

    11 See page 19 of the Petition 12See p.2117 of the Petition 13See page 14 of the reply IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH-IV CP (IB) 3402/MB.IV/2019 ___________________________________________________________________________________ Page 10 of 10 UCO Bank against Deegee Orchards Private Limited is barred by limitation.

    24. Therefore, for the reasons stated above, the present petition fails and the same is rejected.

    25. We make it clear that any observations made in this order should not be construed as expressing opinion on merits. The right of the petitioner before any other judicial forum shall not be prejudiced on grounds of dismissal of the present petition by this Adjudicating Authority.

    26. Let a copy of this order be communicated to the parties in terms of section 7(5)(b) of the IBC. Sd/- Sd/- Ravikumar Duraisamy Rajasekhar V.K. Member (Technical) Member (Judicial) 06.07.2020

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    Uco Bank Financial Creditor v. Deegee Orchards Private Limited Corporate Debtor.
    (Jul 6, 2020)