NCLAT Upholds CIRP Against Privilege Power; Rejects Sarang Wadhawan's Appeal

The National Company Law Appellate Tribunal at New Delhi, recently upheld the initiation of insolvency proceedings against Privilege Power and Infrastructure Pvt. Ltd. (PPIL), dismissing an appeal filed by its shareholder Sarang Kumar Wadhawan.Chairperson Ashok Bhushan and Memebers Barun Mitra and Arun Baroka held that the CIRP application filed by Unity Small Finance Bank Ltd. (successor to Punjab and Maharashtra Co-operative Bank, or PMC Bank) was well within limitation as the fraud was discovered subsequently. “We are inclined to agree with the arguments of the Financial Creditor that in view of Section 17 of the Limitation Act 1963, period of limitation ought not to run till the discovery of date of default when the Administrator appointed an auditor to conduct re-audit and recasting of PMC Bank's books of accounts which concluded on 27.12.2019.” the tribunal observed. It added that “the petition was filed within the one year of finding of fraud and therefore, not barred under Section 17 of the Limitation Act, 1963.”The case arose from a 2007 overdraft facility of Rs 11.81 crore granted by PMC Bank to PPIL, a group company of embattled Housing Development and Infrastructure Ltd (HDIL). The account was declared non-performing on August 31, 2012. However, following the 2019 RBI intervention into PMC Bank after a massive fraud scandal, a re-audit concluded in December 2019, revealing irregularities in the loan secured by PPIL. The bank's successor, Unity Small Finance Bank, filed a Section 7 (financial creditior) application in 2020 to initiate the Corporate Insolvency Resolution Process (CIRP) against PPIL.Wadhawan, a shareholder in PPIL and one of the accused in the PMC Bank scam, challenged the NCLT's February 2023 order initiating CIRP. He argued that the petition was barred by limitation, as the default dated back to 2012. He further claimed that the loan was part of a fraudulent scheme executed by PMC Bank's former management in collusion with PPIL and that the alleged 2017–2018 facility documents were fabricated to revive a time barred debt.Rejecting these arguments, the NCLAT held that the limitation period was suspended until discovery of fraud in 2019, under Section 17 of the Limitation Act, and that the later security and acknowledgment documents reflected the continuity of the debtor-creditor relationship. “The aforesaid documents indicate that the Corporate Debtor had acknowledged the subsisting relationship between the Corporate Debtor and PMC Bank of that being a debtor and creditor, and continued to maintain an overdraft account with PMC Bank under which it had continued to avail facility from PMC Bank,” the tribunal noted, concluding, “We cannot agree with the arguments of the Appellant that the OD facility of 2007 is different than 2017-2018 OD facility.”The Tribunal subsequently held that the petition was filed well within limitation and therefore dismissed the appeal. Wadhawan, the promoter of HDIL, has been accused of masterminding the ₹6,000-crore PMC Bank fraud, wherein HDIL allegedly secured loans through falsified accounts and diverted funds. He was arrested in 2019 and spent over four years in judicial custody before being released on bail in 2024.For Appellant: Senior Advocate Menaka Guruswamy with advocates Disha Shah, Bhumika Yadav, Rohan Talwar and Avinash Mathew.For Respondents: Advocate Gourav Mitra, Ranuka Iyer and Arpit Paul (for Bank) ; Advocate Dhananjaya Sud for Interim Resolution ProfessionalClick here to read/download order

NCLAT Upholds CIRP Against Privilege Power; Rejects Sarang Wadhawan's Appeal

Sahyaja MS

Tags