When Acknowledgment Of Debt By Repeated One-Time Settlement Proposals Is Not Controverted, Petition U/S 7 Of IBC Can Be Entertained: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) has held that when no contrary facts are presented by the Corporate Debtor to the arguments advanced by the Financial Creditor that multiple One Time Settlement (OTS) proposals made by the Corporate Debtor extended the limitation period with each new proposal, it cannot be contended that an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code), based on the Corporate Debtor's acknowledgment of liability through such OTS proposals, is not maintainable provided it is filed within three years from the date of the last OTS proposal. Brief Facts: Rajasthan Financial Corporation (Respondent No. 1) registered under the State Financial Corporation Act, 1951 (Act) sanctioned a loan of Rs. 3.50 Crores to Ruby Buildestates Limited (Corporate Debtor) in July 2009, disbursing Rs. 2.40 Crores on 17.07.2009. The loan was repayable in 19 Equal Quarterly Instalments (EQIs) of Rs.18.67 Lakhs after a six-month moratorium, with the first EQI due on 16.01.2010. However, on 13.01.2010, during the moratorium, the Respondent issued a demand notice under Section 30 of the Act, claiming default and recalling the entire loan with Rs. 15.32 Lakhs interest. On 23.02.2010, Respondent No. 1 took physical possession of the mortgaged property under Section 29 of the State Financial Corporation Act, 1951, and issued an auction notice for 16.06.2010. This was challenged by homebuyers before the Rajasthan High Court in W.P. No. 7116/2010, resulting in an ex-parte stay on 26.05.2010. Despite High Court directions to consider the Corporate Debtor's One Time Settlement (OTS) proposals, Respondent No. 1 rejected them without consideration and failed to initiate recovery proceedings within the limitation period, giving rise to the present dispute on limitation in initiating Corporate Insolvency Resolution Process (CIRP). Contentions: The Appellant submitted that the Respondent No. 1 acknowledged in its application under Section 5 of the Limitation Act, 1963, that the petition was barred by limitation. However, the Adjudicating Authority condoned the delay and excluded time under Section 14 of the Limitation Act without being satisfied of the essential criteria of due diligence and continuity of proceedings against the same party for similar reliefs. It was further submitted that the Financial Creditor, having issued a demand notice under Section 29, was duty-bound to diligently pursue its remedies under Section 31 of the State Financial Corporation Act, 1951 to recover the debt, rather than allowing the claim to languish beyond the permissible period, rendering the present proceedings untenable and barred by limitation. Per contra, the Respondent submitted that the moratorium period applies solely to the repayment of principal amount instalments, whereas no such moratorium extends to the repayment of interest, which the appellant was obligated to service as per the loan agreement. It was further submitted that the appellant's admission in the appeal acknowledging multiple settlement proposals by the Corporate Debtor effectively negates their objections to the company petition under Section 7 of the Code. It was also contended that the omission of the date of default in Column-2, Part IV of Form-I is merely a technical defect and does not render the petition non-maintainable if the information is available from other material on record. Lastly, the appellant's acknowledgment of liability under the loan agreement, admitted up to 16.05.2017, extends the limitation period to 15.05.2020. This acknowledgment, through repeated settlement proposals, confirms the debt remained alive, and thus, the company petition by Respondent No. 1 is within the statutory timeframe. Observations: The Tribunal observed that considering the last OTS by the Appellant dated 16.05.2017 as an acknowledgment of debt, the limitation period extended up to 15.05.2020. Thus, the Company Petition could have been filed by 15.05.2020, whereas it was filed by Respondent No. 1 on 12.08.2021. The Tribunal observed that despite four specific opportunities, the Appellant failed to file a rejoinder affidavit and later sought adjournment. Hence, no contrary facts were presented against the submissions of the Respondent No. 1. The Tribunal accepted the claims of the Respondent No. 1 regarding OTS letters, including the last OTS dated 16.05.2017, which extended the limitation period to 15.05.2020, and further considered the Apex Court's suo moto order dated 10.01.2020 in Writ Petition (C) No. 03 of 2020 extending limitation from 15.03.2020 to 28.02.2022. As the Company Petition was filed on 12.08.2021, it was held to be within the limitation period. ...

When Acknowledgment Of Debt By Repeated One-Time Settlement Proposals Is Not Controverted, Petition U/S 7 Of IBC Can Be Entertained: NCLAT

Mohd Malik Chauhan

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