Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy and Anr. (Supreme Court of India)
No bar to amendment of petition u/s 7 of IBC until final order; judgment and/or decree for money in favour of the financial creditor would give rise to a fresh cause of action
[Dena Bank v. C. Shivakumar Reddy, Civil Appeal No. 1650 of 2020, decided on 4-8-2021]
The main question involved in before the Hon’ble Supreme Court of India was as-
“Whether a petition under Section 7 IBC would be barred by limitation, on the sole ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the appellant Bank, within a period of three years prior to the date of filing of the Section 7 petition, by making a proposal for a one time settlement, or by acknowledging the debt in its statutory balance sheets and books of accounts.
Further other questions involved were-
- Whether a final judgment and decree of DRT in favour of financial creditor, or the issuance of a Certificate of Recovery in favour of financial creditor, would give rise to a fresh cause of action to financial creditor to initiate proceedings under Section 7 IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the Certificate of Recovery.
- Whether there is any bar in law to the amendment of pleadings, in a petition under Section 7 IBC, or to the filing of additional documents, apart from those filed initially, alongwith the Section 7 petition in Form-1.
An Apex Court bench of Justices Indira Banerjee and V Ramasubramanian on 4th August 2021said that an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years. Such acknowledgment can be by way of statement of accounts, balance sheets, financial statements and offer of one-time settlement.
The Apex Court clarified that this is only applicable if there was an acknowledgement of the debt by the corporate debtor before the expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years.
The bench also held that a judgment and/or decree for money in favour of the financial creditor, passed by DRT or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor. The financial creditor can, however, initiate proceedings under Section 7 of IBC for initiation of the Corporate Insolvency Resolution Process within three years from the date of the judgment if the dues of the corporate debtor to the financial debtor remained unpaid.
The Apex Court also observed that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with the application under Section 7 of the IBC in Form-1.
“In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents.
The Apex Court further clarified that depending on the facts and circumstances of the case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order…”
FULL TEXT OF JUDGEMENT/ORDER OF SUPREME COURT
This Appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) is against a judgment and final order dated 18th December 2019 passed by the National Company Law Appellate Tribunal (NCLAT), allowing Company Appeal (AT) (Insolvency) No. 407 of 2019, filed by the Respondents and setting aside an order dated 21st March 2019 passed by the Adjudicating Authority/National Company Law Tribunal (NCLT), Bengaluru, whereby the Adjudicating Authority had Appellant Bank against the Respondent No.2 (Corporate Debtor) under Section 7 of the IBC. The NCLAT held that the said Petition of the Appellant Bank under Section 7 of the IBC, was barred by limitation. The Respondent No.1 is a Director of the Corporate Debtor.
2. By a letter dated 23rd December, 2011 the Appellant Bank had sanctioned Term Loan and Letter of Credit Cum Buyers’ Credit in favour of the Corporate Debtor, with an upper limit of 45.00 Crores.
3. The said Term Loan was to be repaid in 24 quarterly instalments of 187.50 lakhs, which were to commence two years after the date of disbursement, and the entire Term Loan was to be repaid in eight years, inclusive of the implementation period of one year and the moratorium period.
4. The Corporate Debtor executed various documents including Demand Promissory Notes, Letters of General Lien, etc. in favour of the Appellant Bank and also mortgaged its lease hold rights in its immovable property specified in the petition of appeal, by depositing the Title of Deeds of the said immovable property with the Appellant Bank.
5. On 20th September, 2013 the Corporate Debtor defaulted in repayment of its dues to the Appellant Bank. The Loan Account of the Corporate was therefore declared Non Performing Asset (NPA) on 31st December 2013.
6. The Corporate Debtor addressed a letter dated 24th March 2014 to the Appellant Bank, making a request for restructuring the Term Loan. The Appellant Bank did not accede to the request.
7. On 22nd December 2014, the Appellant Bank issued legal notice to the Corporate Debtor as well as the Respondent No.2, calling upon them to make payment of Rs.52.12 crores, claimed to be due from the Corporate Debtor as on 22nd December The Corporate Debtor did not make the payment.
8. On or about 1st January 2015, the Appellant Bank filed an application being A. No.16/2015 under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, now known as the Recovery of Debts and Bankruptcy Act, 1993 and hereinafter referred to as ‘the Debt Recovery Act’ before the Debt Recovery Tribunal (in short, DRT) Bangalore for recovery of its outstanding dues of Rs.52,12,49,438.60 as on 22nd December 2014.
9. By a letter dated 5th January 2015, the Corporate Debtor replied to the said notice dated 22nd December 2014, inter alia, requesting once again, that the loan be restructured. Mr. Dhruv Mehta, Senior Advocate, appearing on behalf of the Appellant Bank submitted that the Corporate Debtor had accepted its liability to the Appellant Bank, by its aforesaid letter dated 5th January 2015.
10. On or about 3rd March 2017, while proceedings were pending in the DRT, the Corporate Debtor gave a proposal for one time settlement of the Term Loan Account, upon payment of Rs.5.50 crores. The proposal was, however, not accepted by the Appellant Bank.
11. On 27th March 2017, the Debt Recovery Tribunal, Bengaluru passed a final judgment and order/decree against the Corporate Debtor in the said O.A. No.16/2015, for recovery of Rs.52,12,49,438.60 with future interest at the rate of 55% per annum, from the date of filing the application till the date of realization.
12. On 25th May 2017, the Debt Recovery Tribunal issued a Recovery Certificate No. 2060/2017, in favour of the Appellant Bank for recovery of Rs.52,12,49,438.60 from the Corporate Debtor. Thereafter, on 19th June 2017, Corporate Debtor once again gave the Appellant Bank a proposal for One Time Settlement to mutually settle the loan amount.
13. Mehta appearing for the Appellant Bank pointed out, that the Corporate Debtor had, in its Annual Reports for the financial years 2016- 2017 and 2017-2018, acknowledged its liability in respect of the loan taken by it from the Appellant Bank.
14. On 1st October 2018, the Appellant Bank issued a Demand Notice to the Corporate Debtor in Form-3 contained in the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, hereinafter referred to as the ‘2016 Adjudicating Authority Rules’, and on 12th October 2018, the Appellant Bank filed the Petition being CP(IB) No.244/BB/2018 before the Adjudicating Authority under Section 7 of the IBC in Form-1 given in the Annexure to the 2016 Adjudicating Authority Rules.
15. About three months thereafter, by a Notification being GSR 2(e) dated 2nd January 2019 the Department of Financial Services, Ministry of Finance, Government of India amalgamated Vijaya Bank, Dena Bank and Bank of Baroda.
16. On 9th January 2019, the Appellant Bank filed an application before Adjudicating Authority under Rule 11 of the National Company Law Tribunal Rules 2016 hereinafter referred to as the ‘NCLT Rules’, read with Rule 4 of the 2016 Adjudicating Authority Rules, being A. No.27/2019 dated 9th January 2019 in CP(IB) No.244/BB/2018, for permission to place on record additional documents, including the final judgment and order dated 27.03.2017 of the DRT in OA No.16/2015 and the Recovery Certificate No.2060/2017 dated 25.05.2017 issued by the DRT.
17. On 2nd February 2019, the Corporate Debtor filed its preliminary objection to the Petition filed by the Appellant Bank under Section 7 of the IBC, inter alia, contending that the said Petition was barred by limitation.
18. By an order dated 4th February 2019, the Adjudicating Authority allowed the application of the Appellant Bank being A No. 27/2019 in CP (IB) No.244/BB/2018, and directed the Appellant Bank to file an amended petition enclosing the documents referred to in the Application being I.A. No.27/2019. The Registry was directed to permit the Counsel for the Appellant Bank to amend the Company Petition accordingly.
19. On or about 5th March 2019, the Appellant Bank filed another application under Rule 11 of the NCLT Rules, being I.A. No.131 of 2019 in CP(IB) 244/BB/2018, before the Adjudicating Authority for permission to place on record additional documents, including the letter dated 03.03.2017 of the Corporate Debtor to the Appellant Bank proposing a One Time Settlement, the Annual Report of the Corporate Debtor for the years 2016-2017, the Financial Statement of the Corporate Debtor for the period from 1st April 2016 to 31st March 2017 and the Financial Statement of the Corporate Debtor, for the period from 1st April 2017 to 31st March 2018. By an order dated 6.03.2019 in I.A. No.131 of 2019, the Appellant Bank was permitted to file the documents in the Registry.
20. By an order dated 21st March 2019 the Adjudicating Authority admitted the Petition under Section 7 of the IBC, being CP (IB) 244/BB/2018, and appointed an Interim Resolution Professional. The objection of the bar of limitation, raised on behalf of the Corporate Debtor was considered at length, but rejected by the Adjudicating Authority (NCLT).
21. On 6th April 2019, the Respondent No.1, filed an appeal being CA(AT) (Ins) No.407/2019 before the NCLAT under Section 61 of the IBC. The Appellant Bank filed its written statement supporting the order of the Adjudicating Authority dated 21st March 2019 admitting the Petition of the Appellant Bank under Section 7 of the IBC.
22. After hearing the Appellant Bank, the Respondent No.1 and the Corporate Debtor, the NCLAT set aside the order dated 21st March 2019 passed by the Adjudicating Authority (NCLT) Bengaluru and dismissed the Petition filed by the Appellant Bank under Section 7 of the IBC, holding that the said application was barred by limitation.
23. The issue which arises for consideration of this Court, in this appeal is, whether the NCLAT has erred in law in arriving at the conclusion that, the Petition filed by the Appellant Bank under Section 7 of the IBC was barred by limitation, and setting aside the order dated 21st March 2019 passed by the Adjudicating Authority, admitting the said Petition.
24. In other words, the main question involved in this appeal is, whether a Petition under Section 7 of the IBC would be barred by limitation, on the sole ground that it had been filed beyond a period of 3 years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the Appellant Bank, within a period of three years prior to the date of filing of the Petition under Section 7 of the IBC, by making a proposal for a One Time Settlement, or by acknowledging the debt in its statutory Balance Sheets and Books of Accounts.
25. Another question which arises for the consideration of this Court is, whether a final judgment and decree of the DRT in favour of the Financial Creditor, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action to the Financial Creditor to initiate proceedings under Section 7 of the IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the Certificate of Recover.
26. A third issue which arises for adjudication of this Court is, whether there is any bar in law to the amendment of pleadings, in a Petition under Section 7 of the IBC, or to the filing of additional documents, apart from those filed initially, along with the Petition under Section 7 of the IBC in Form-1.
27. Mehta appearing on behalf of the Appellant Bank submitted that the Adjudicating Authority had passed its order dated 21st March 2019, admitting the Petition of the Appellant Bank under Section 7 of the IBC, after taking into consideration the documents filed by the Appellant Bank along with its interim applications being I.A. No. 27 of 2019 and I.A. No.131 of 2019, and arriving at the finding that the Petition filed by the Appellant Bank under Section 7 of the IBC was not barred by limitation.
28. Mehta submitted that NCLAT has allowed the appeal of the Respondent No.1, set aside the order of the Adjudicating Authority, and dismissed the Petition of the Appellant Bank under Section 7 of IBC, recording a finding that there was nothing on record that suggested that the Corporate Debtor had acknowledged its debt to the Appellant Bank. The Appellate Authority has ignored the documents filed by the Appellant Bank along with I.A. No.131 of 2019, which had duly been allowed by the Adjudicating authority.
29. Mehta pointed out that, the NCLAT cited the judgments of this Court in Jignesh Shah and Anr. v. Union of India and Anr.1 and Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. and Anr.2 and held that the account of the Corporate Debtor having been declared as NPA on 31st December 2013, the Petition under Section 7 of the IBC, filed after five years was barred by limitation.
30. Mehta argued that the NCLAT had returned a finding that there was nothing on record to show that the Corporate Debtor had admitted its debt to the Appellant Bank, overlooking relevant materials on record, including:
(i) Admission of the Corporate Debtor of payment of 111 lakhs on 28th March, 2014 towards interest on the loan.
(ii) Letter dated 5th January, 2015 of the Corporate Debtor to the Appellant Bank, in response to the Demand Notice, acknowledging its liability to the Appellant Bank.
(iii) A statement of objection filed by the Corporate Debtor in the DRT, Bangalore on or about 9th December 2015, denying the Appellant Bank’s claim of Rs.52,04,438 as baseless, but admitting that part of the amount was dua.
(iv) The Financial Statements and Balance Sheets of the Corporate Debtor for the years 2016-2017 (year ending 31st March 2017) and for the years 2017-2018 (year ending 31st March 2018).
(v) Offer made by the Corporate Debtor on 03.03.2017 to settle its dues to the Appellant Bank on one time payment of 5.5 crores.
(vi) Final judgment and decree/order dated 27th March, 2017 passed by the DRT, Bengaluru, in favour of the Appellant Bank for an amount of 52,12,49,438.60 in O.A. No.16/2015, with future interest at 16.55% per annum and the Recovery certificate No.2060/2017 issued by the DRT on 25th May 2017.
31. Mehta argued that the Corporate Debtor had admitted having paid Rs.111 lakhs towards interest on 28th March, 2014. This showed that the loan was alive and there was a subsisting jural relationship. On 03.03.2017, within three years, the Corporate Debtor had submitted a proposal for One Time Settlement (OTS) of its Term Loan Account with the Appellant Bank. In doing so, the Corporate Debtor had acknowledged its liability to the Appellant Bank. The Petition under Section 7 of the IBC was filed well within three years from the date of such acknowledgement.
32. Mehta also pointed out that on 27th March 2017 the DRT, Bengaluru had passed a final judgment and order/decree for an amount of Rs.52,12,49,438.60 in favour of the Appellant Bank in O.A. No.16/2015 along with future interest at 16.55% per annum with monthly rests, from the date of application till the date of realisation, and had issued a Recovery Certificate No.2060 of 2017, dated 25th May 2017 for realisation of the said amount from the Corporate Debtor and the Respondent No.1. The Appellant Bank filed the Petition under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process well within 3 years from the aforesaid dates.
33. Mehta also submitted that the Corporate Debtor had in its financial statements for the period from 1st April 2016 to 31st March 2017 and the period from 1st April 2017 to 31st March 2018, admitted that the Corporate Debtor had defaulted in repayment of its loan to the Appellant Bank. The financial statements of the Corporate Debtor, for the period from 1st April 2017 to 31st March 2018 reflect dues of Rs.67 crores to the Appellant Bank along with interest as on 31st March 2018, but excluding penal interest.
34. Mehta argued that the Corporate Debtor had thus admitted the existence of jural relationship of debtor and creditor, between the Corporate Debtor and the Appellant Bank, which is evident from the documents referred to above. In their objections filed in this Court, the Respondents have admitted that they deposited Rs.111 lakhs in the current account of the Corporate Debtor with the Appellant Bank on 28th March 2014, thereby acknowledging that the jural relationship of debtor and creditor between the Corporate Debtor and the Appellant Bank continued after 31st December, 2013.
35. Mehta has also referred to the Counter Affidavit filed by the Respondent No.1 and the Corporate Debtor, where they admitted that the Corporate Debtor had sent a letter dated 3rd March 2017 to the Appellant Bank, offering to make payment of Rs.5.5 crores by way of One Time Settlement. Moreover, the judgment and order/decree dated 27th March, 2017 passed by the DRT and the Recovery Certificate No.2060/2017 referred to above, which gave rise to a fresh cause of action to the Appellant Bank to initiate proceedings against the Corporate Debtor under Section 7 of the IBC, are matters of record and in any case, duly admitted.
36. Relying on the judgments of this Court in Sesh Nath Singh and v. Baidyabati Sheoraphuli Cooperative Bank Ltd. And Anr.3, Laxmi Pat Surana v. Union Bank of India and Ors.4 and Asset Reconstruction Company (India) Limited. v. Bishal Jaiswal and Ors.5 Mr. Mehta argued that Section 18 of the Limitation Act applied to proceedings under the IBC. This issue was no longer res integra.
37. On the other hand, Goutham Shivshankar appearing on behalf of the Respondents, submitted that under the scheme of the IBC, NCLAT is the final forum for determination of facts. Mr. Shivshankar argued that there is a factual determination by the NCLAT that records reveal no acknowledgement of debt for the purpose of extending limitation.
38. Shivshankar contended the NCLAT has duly dealt with the question of acknowledgement holding:
“In the present case there is nothing on record to suggest that the ‘Corporate Debtor’ acknowledged the debt within three years and agreed to pay the debt. The application moved by ‘Corporate Debtor’ to restructure the debt or payment of the interest does not amount to acknowledgement of debt. There is nothing on record to suggest that the ‘Corporate Debtor’ or its authorized representative by its signature has accepted or acknowledged the debt within three years from the date of default or from the date when the account was declared NPA, i.e. on 31st December 2013. The Balance Sheet of the ‘Corporate Debtor’ for the year 2016-2017 filed after 31st March 2017 cannot be termed to be a document of acknowledgment in terms of section 18 of the Limitation Act.”
39. According to Shivshankar, the NCLAT was entirely right in coming to the factual conclusion that the Petition of the Appellant Bank under Section 7 of the IBC was barred by limitation. Mr. Shivshankar argued that NCLT arrived at this conclusion on the basis of facts and materials on record and it cannot be said that the conclusion is perverse or otherwise warrants intervention of this Court in a Second Appeal, restricted to questions of law under Section 62 of the IBC.
40. Shivshankar argued that this appeal has been filed on the basis of documents that were brought on record before the Adjudicating Authority (NCLT) at a belated stage, in a manner contrary to the provisions of IBC and the law laid down by this Court.
41. Shivshankar emphatically argued that Appellant Bank filed its Petition under Section 7 of the IBC on 12th October 2018, about five years after the date of default and was thus well beyond the period of limitation of three years, under Article 137 of the Schedule to the Limitation Act.
42. Shivshankar pointed out that the Petition under Section 7 of the IBC mentions the date of default as 30th September 2013, and 31st December 2013 as the date of declaration of the account of the Corporate Debtor as NPA. There was no averment in the petition of any acknowledgement of debt which extended the period of limitation.
43. Shivshankar argued that, under Section 7(3) of the IBC, a Financial creditor is required to furnish “record of the default recorded with the information utility or record of evidence of default as may be specified” and “ any other information as may be specified by the Board”.
44. Shivshankar further argued that as per Section 7(4) of the IBC, the NCLT was required to “ascertain the existence of default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3)” within “fourteen days of the receipt of the application”. Mr. Shivshankar further argued that under Section 7(5) of the IBC, it was open to the NCLT to allow seven days to the financial creditor to rectify any defect in its application.
45. Shivshankar argued the Adjudicating Authority (NCLT), instead of proceeding in the manner expressly stipulated in the IBC and without adhering to the time lines stipulated therein, delayed the adjudication of the question of admissibility of the petition under Section 7 of the IBC by four months, and allowed the Appellant Bank to introduce documents at a belated stage and these documents were considered by the NCLT despite vehement objections by the Respondents.
46. Shivshankar further argued that on 2nd February 2019, Corporate Debtor filed its preliminary objection to the petition under Section 7 of the IBC, taking, a specific objection that the petition was time barred since the date of default was admittedly stated to be 30th September 2013. However, the NCLT after hearing arguments on 8th February 2019, adjourned the matter with a direction on Counsel appearing for the Appellant Bank, to file a gist of the case as also a copy of the order passed by the Karnataka High Court, in a Writ Petition filed by the Corporate Debtor, whereby the execution of the judgment and/or order/decree of the DRT in O.A. 16 of 2015 had been stayed.
47. Shivshankar submitted that, taking advantage of the limited liberty granted to the Appellant Bank by the Adjudicating Authority to file a gist of the case and some orders/judgments, the Appellant Bank in abuse of the process of the Tribunal, filed I.A. No. 131 of 2019, introducing a whole new set of documents and setting up an entirely new case for extension of limitation, on the ground of alleged acknowledgement of debt.
48. Shivshankar argued that I.A. No.131 of 2019 was supported by an affidavit. The documents listed above were introduced for the first time. Even at this stage all the documents were not filed. Some of the documents were never filed in the NCLT and were first brought on record in the reply filed before NCLAT.
49. Shivshankar submitted that on 6th March 2019 the NCLT passed an order, permitting learned counsel for the Appellant Bank to file a set of documents in the Registry, after serving copies thereof on the Respondents, and posted the case on 18th March 2019. Mr. Shivshankar argued that the Respondents had specifically objected to the belated filing of additional documents. However, the NCLT completely ignored the objections raised on behalf of the Respondents and passed its order dated 21st March 2019, admitting the petition under Section 7 of the IBC.
50. Shivshankar submitted that the Respondents immediately appealed to the NCLAT, inter alia contending that the Adjudicating Authority had erred in permitting the Appellant Bank to substantially improve upon its original petition filed under Section 7 of the IBC, by filing additional documents and making out an entirely new case, after the expiry of fourteen days specified in Section 7 for ascertainment of default. Mr. Shivshankar submitted that it was in this background that the NCLAT made the factual finding at Paragraph 4 of the impugned order, that there was nothing on record to say that there was any acknowledgement of debt, renewing or extending limitation.
51. Shivshankar argued that it is now well settled that the Limitation Act applies to proceedings under the IBC. Mr. Shivshankar also agreed that Section 18 of the Limitation Act would apply to proceedings in the NCLT under Section 7 of the IBC. However, he argued that, what falls for consideration in this appeal, is whether the Appellant Bank had placed sufficient materials on record, with its petition under Section 7 of the IBC, to attract Section 18 of the Limitation Act.
52. Shivshankar finally argued that Section 62 of the IBC, under which this appeal has been filed, is restricted to questions of law, unlike an appeal to the NCLAT from an order of the Adjudicating Authority (NCLT), which is an appeal both on facts and in law.
53. Shivshankar cited the judgment of this Court in Nazir Mohamed v. J. Kamala & Ors.6, authored by one of us (Indira Banerjee J.) where this Court held:-
“To be a question of law “involved in the case”, there must be first, a foundation for it laid in the pleadings, and the question should emerge from the sustainable findings of fact, arrived at by Courts of facts, and it must be necessary to decide that question of law for a just and proper decision of the case. (emphasis supplied)
54. There can be no dispute with the proposition that, to be a question of law involved in the case, there must be first a foundation laid in the pleadings, and the question should emerge from the sustainable findings of fact, arrived at by Courts of facts, as reiterated by this Court in Nazir Mohamad v. J. Kamala (supra), rendered in the context of a second appeal under Section 100 of the Civil Procedure Code.
55. Shivshankar next cited the judgment of this Court in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited7, where this Court speaking through Maheshwari J., held:
“35. Apart from the above and even if it be assumed that the principles relating to acknowledgment as per Section 18 of the Limitation Act are applicable for extension of time for the purpose of the application under Section 7 of the Code, in our view, neither the said provision and principles come in operation in the present case nor do they enure to the benefit of Respondent 2 for the fundamental reason that in the application made before NCLT, Respondent 2 specifically stated the date of default as “8-7-2011 being the date of NPA”. It remains indisputable that neither has any other date of default been stated in the application nor has any suggestion about any acknowledgment been made. As noticed, even in Part V of the application, Respondent 2 was required to state the particulars of financial debt with documents and evidence on record. In the variety of descriptions which could have been given by the applicant in the said Part V of the application and even in residuary Point 8 therein, nothing was at all stated at any place about the so-called acknowledgment or any other date of default.
35.1. Therefore, on the admitted fact situation of the present case, where only the date of default as “8-7-2011” has been stated for the purpose of maintaining the application under Section 7 of the Code, and not even a foundation is laid in the application for suggesting any acknowledgment or any other date of default, in our view, the submissions sought to be developed on behalf of Respondent 2 at the later stage cannot be permitted. It remains trite that the question of limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. Indisputably, in the present case, Respondent 2 never came out with any pleading other than stating the date of default as “8-7-2011” in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgment. In this view of the matter, reliance on the decision in Mahabir Cold Storage [Mahabir Cold Storage v. CIT, 1991 Supp (1) SCC 402] does not advance the cause of Respondent 2.”
56. Relying on the aforesaid judgment, Mr. Shivshankar contended that the foundation for a plea of extension of limitation by virtue of acknowledgment of debt should be in the pleadings and cannot be developed at a later stage. Shivshankar emphatically argued that in this case, there was no foundation in the pleadings for a case of extension of limitation under Section 18 of the Limitation Act.
57. Relying on Babulal Vardharji Gurjar (supra) Mr. Shivshankar argued that subsequent improvement in pleadings, at the fag-end of the NCLT proceedings, ought not to have been Mr. Shivshankar further argued that, in any case, a proper construction of the documents relied upon by the Appellant Bank would show that they do not amount to acknowledgment under Section 18 of the Limitation Act, which requires that any acknowledgment must be made “before the expiration of the period of limitation for a suit or application”.
58. Shivshankar cited a Full Bench judgment of Allahabad High Court in Munshi Lal v. Hira Lal & Anr.8, where the High Court held:-
“Now, it is clear that a document said to constitute an acknowledgment has to be construed in the context in which it is given and that, where its language is not clear in itself, the context may be examined to see what it is to which the words refer. That is not to say that any equivocation in an acknowledgment can be cured by ascertaining what the probable intention of the acknowledgor was. That is quite a different thing. But, where, after examining in the light of the context what it was that the person giving the acknowledgment was actually referring to the conclusion follows that it is an unequivocal acknowledgment of a right, then that acknowledgment is sufficient to satisfy section 19 of the Limitation Act.”
59. Shivshankar further pointed out that the Corporate Debtor’s reply dated 5th January 2015 to the legal notice issued by the Appellant Bank, the reply filed by the Corporate Debtor in O. S. No.16/2015 before the DRT, Bengaluru, the OTS Proposal dated 3rd March 2017, OTS Proposal dated 19th June 2017 and the Balance Sheets/Annual Reports of the Corporate Debtor and a group company of the Corporate Debtor, namely Kaveri Telecom Products Limited, for the financial years 2016-17 and 2017-18 are irrelevant for the purpose of Section 18 of the Limitation Act and many of those documents were in response to suggestions made by the Appellant Bank seeking willingness to restructure the account of the Respondents. Moreover, payment of outstanding interest of Rs.111 lakhs was made in March 2014 that is over four years before the date of filing of the petition under Section 7 of the IBC.
60. Shivshankar also argued that the letter dated 24th March 2014 written by the Corporate Debtor was not on record in the proceedings before the Adjudicating Authority. The document was introduced for the first time along with the reply filed by the Appellant Bank before the NCLAT. This document cannot be considered as part of the records at all.
61. Shivshankar finally submitted that the communications from the Respondents were only to buy peace and end the litigation and cannot, therefore, be construed as acknowledgment of debts for the purpose of Section 18 of the Limitation Act.
62. Referring to the judgment of this Court in Gaurav Hargovindbhai Dave (supra), Mr. Shivshankar argued that a proposal for One Time Settlement cannot be construed as an acknowledgment of debt for the purpose of Section 18 of the Limitation Act.
63. Shivshankar drew our attention to the fact that a review petition was pending in this Court against the decision in Gaurav Hargovindbhai Dave (supra). Admittedly, however, the effect of the judgment has not been stayed. Until and unless the review application is allowed and the judgment is reversed, it would operate as a precedent.
64. Shivshankar finally cited Jignesh Shah (supra) where this Court observed:-
“The aforesaid judgments correctly hold that a suit for recovery based upon a cause of action that is within limitation cannot in any manner impact the separate and independent remedy of a winding-up proceeding. In law, when time begins to run, it can only be extended in the manner provided in the Limitation Act. For example, an acknowledgment of liability under Section 18 of the Limitation Act would certainly extend the limitation period, but a suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding-up proceeding is to be filed, by somehow keeping the debt alive for the purpose of the winding-up proceeding.”
65. Shivshankar concluded his arguments with the submission that the Petition under Section 7 of the IBC was not based on the Recovery Certificate issued by the DRT or the judgment and order of the DRT. Therefore, there could be no question of reckoning limitation from the date of failure to make payment in terms of the Recovery Certificate.
66. The IBC is an Act “to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto”.
67. The IBC aims at promoting, inter alia, investments and also resolution of insolvency of Corporate As per its Statement of Objects and Reasons “the objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development”.
68. Under the scheme of the IBC, the Insolvency Resolution Process begins, when a default takes place, in the sense that a debt becomes due and is not paid. Some of the relevant provisions of the IBC, are set out hereinbelow for convenience:
“3. Definitions.—In this Code, unless the context otherwise requires,—
(6) “claim” means—
(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;
(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;
(7) “corporate person” means a company as defined in clause (20) of Section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of Section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider;
(8) “corporate debtor” means a corporate person who owes a debt to any person;
…..
(10) “creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder;
(11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;
(12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not 5[paid] by the debtor or the corporate debtor, as the case may be;
4. Application of this Part.—(1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees:
Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.
5. Definitions.—In this Part, unless the context otherwise requires—
***
(7) “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;
(8) “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes—
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire-purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;
(e) receivables sold or discounted other than any receivables sold on non-recourse basis;
(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;
(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;
6. Persons who may initiate corporate insolvency resolution process.
—Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter.
7. Initiation of corporate insolvency resolution process by financial creditor.—(1) A financial creditor either by itself or jointly with 15[other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has
Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6-A) of Section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is less:
Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less:
Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission.]
Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.
(2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be
(3) The financial creditor shall, along with the application furnish—
(a) record of the default recorded with the information utility or such other record or evidence of default as may be specified;
(b) the name of the resolution professional proposed to act as an interim resolution professional; and
(c) any other information as may be specified by the Board.
(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3):
Provided that if the Adjudicating Authority has not ascertained the existence of default and passed an order under sub-section (5) within such time, it shall record its reasons in writing for the same.]
(5) Where the Adjudicating Authority is satisfied that—
(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or
(b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application:
Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.
(6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5).
(7) The Adjudicating Authority shall communicate—
(a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor;
(b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be.
8. Insolvency resolution by operational creditor.—(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.
(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor—
(a) existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;
(b) the payment of unpaid operational debt—
(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or
(ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate
Explanation.—For the purposes of this section, a “demand notice” means a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred.”
12. Time-limit for completion of insolvency resolution process.—(1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.
(2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of sixty-six per cent of the voting shares.
(3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject-matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days:
Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once:
Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor:
Provided also that where the insolvency resolution process of a corporate debtor is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.
12-A. Withdrawal of application admitted under Section 7, 9 or 10.— The Adjudicating Authority may allow the withdrawal of application admitted under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified.
13. Declaration of moratorium and public announcement.—(1) The Adjudicating Authority, after admission of the application under Section 7 or Section 9 or Section 10, shall, by an order—
(a) declare a moratorium for the purposes referred to in Section 14;
(b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under Section 15; and
(c) appoint an interim resolution professional in the manner as laid down in Section 16.
(2) The public announcement referred to in clause (b) of sub-section (1) shall be made immediately after the appointment of the interim resolution professional.
14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely—
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
Explanation.—For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period.]
(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.
(2-A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.
(3) The provisions of sub-section (1) shall not apply to—
(a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;]
(b) a surety in a contract of guarantee to a corporate ]
(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:
Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.
15. Public announcement of corporate insolvency resolution process.
—(1) The public announcement of the corporate insolvency resolution process under the order referred to in Section 13 shall contain the following information, namely:—
(a) name and address of the corporate debtor under the corporate insolvency resolution process;
(b) name of the authority with which the corporate debtor is incorporated or registered;
(c) the last date for submission of claims, as may be specified;
(d) details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims;
(e) penalties for false or misleading claims; and
(f) the date on which the corporate insolvency resolution process shall close, which shall be the one hundred and eightieth day from the date of the admission of the application under Sections 7, 9 or Section 10, as the case may
(2) The public announcement under this section shall be made in such manner as may be specified.
16. Appointment and tenure of interim resolution professional.—(1) The Adjudicating Authority shall appoint an interim resolution professional on the insolvency commencement
(2) Where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor, as the case may be, the resolution professional, as proposed respectively in the application under Section 7 or Section 10, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against
(3) Where the application for corporate insolvency resolution process is made by an operational creditor and—
(a) no proposal for an interim resolution professional is made, the Adjudicating Authority shall make a reference to the Board for the recommendation of an insolvency professional who may act as an interim resolution professional;
(b) a proposal for an interim resolution professional is made under sub- section (4) of Section 9, the resolution professional as proposed, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.
(4) The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority under sub-section (3), recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending.
(5) The term of the interim resolution professional shall continue till the date of appointment of the resolution professional under Section 22.
17. Management of affairs of corporate debtor by interim resolution professional.—(1) From the date of appointment of the interim resolution professional,—
(a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional;
(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional;
(c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional;
(d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional.
18. Duties of interim resolution professional.—(1) The interim resolution professional shall perform the following duties, namely—
(a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to—
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under Sections 13 and 15;
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;
(e) file information collected with the information utility, if necessary; and
(f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including—
(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;
(ii) assets that may or may not be in possession of the corporate debtor;
(iii) tangible assets, whether movable or immovable;
(iv) intangible assets including intellectual property;
(v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;
(vi) assets subject to the determination of ownership by a court or authority;
(g) to perform such other duties as may be specified by the Board.
Explanation.—For the purposes of this section, the term “assets” shall not include the following, namely—
(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the corporate debtor; and
(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.
20. Management of operations of corporate debtor as going concern.
—(1) The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.
21. Committee of creditors.—(1) The interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of
(2) The committee of creditors shall comprise all financial creditors of the corporate debtor:
Provided that a financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub-section (6-A) or sub- section (5) of Section 24, if it is a related party of the corporate debtor, shall not have any right of representation, participation or voting in a meeting of the committee of creditors:
Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares or completion of such transactions as may be prescribed, prior to the insolvency commencement date.
22. Appointment of resolution professional.—(1) The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of
(2) The committee of creditors, may, in the first meeting, by a majority vote of not less than sixty-six] per cent of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.
(3) Where the committee of creditors resolves under sub-section (2)—
(a) to continue the interim resolution professional as resolution professional subject to a written consent from the interim resolution professional in the specified form], it shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority; or
(b) to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional along with a written consent from the proposed resolution professional in the specified
(4) The Adjudicating Authority shall forward the name of the resolution professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board.
(5) Where the Board does not confirm the name of the proposed resolution professional within ten days of the receipt of the name of the proposed resolution professional, the Adjudicating Authority shall, by order, direct the interim resolution professional to continue to function as the resolution professional until such time as the Board confirms the appointment of the proposed resolution professional.
23. Resolution professional to conduct corporate insolvency resolution process.—(1) Subject to Section 27, the resolution professional shall conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the corporate insolvency resolution process period:
Provided that the resolution professional shall continue to manage the operations of the corporate debtor after the expiry of the corporate insolvency resolution process period, until an order approving the resolution plan under sub-section (1) of Section 31 or appointing a liquidator under Section 34 is passed by the Adjudicating Authority.
(2) The resolution professional shall exercise powers and perform duties as are vested or conferred on the interim resolution professional under this Chapter.
(3) In case of any appointment of a resolution professional under sub-sections (4) of Section 22, the interim resolution professional shall provide all the information, documents and records pertaining to the corporate debtor in his possession and knowledge to the resolution professional.
25. Duties of resolution professional.—(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.
(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely—
(a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;
(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi- judicial or arbitration proceedings;
(c) raise interim finances subject to the approval of the committee of creditors under Section 28;
25-A. Rights and duties of authorised representative of financial creditors.—(1) The authorised representative under sub-section (6) or sub- section (6-A) of Section 21 or sub-section (5) of Section 24 shall have the right to participate and vote in meetings of the committee of creditors on behalf of the financial creditor he represents in accordance with the prior voting instructions of such creditors obtained through physical or electronic means.
(2) It shall be the duty of the authorised representative to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represemts.
(3) The authorised representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior instructions:
Provided that if the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share:
Provided further that if any financial creditor does not give prior instructions through physical or electronic means, the authorised representative shall abstain from voting on behalf of such creditor.
(3-A) Notwithstanding anything to the contrary contained in sub-section (3), the authorised representative under sub-section (6-A) of Section 21 shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote:
Provided that for a vote to be cast in respect of an application under Section 12-A, the authorised representative shall cast his vote in accordance with the provisions of sub-section (3).
(4) The authorised representative shall file with the committee of creditors any instructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional, as the case may be.
Explanation.—For the purposes of this section, the “electronic means” shall be such as may be specified.]
27. Replacement of resolution professional by committee of creditors.—(1) Where, at any time during the corporate insolvency resolution process, the committee of creditors is of the opinion that a resolution professional appointed under Section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under this section.
(2) The committee of creditors may, at a meeting, by a vote of sixty-six per of voting shares, resolve to replace the resolution professional appointed under Section 22 with another resolution professional, subject to a written consent from the proposed resolution professional in the specified form.
(3) The committee of creditors shall forward the name of the insolvency professional proposed by them to the Adjudicating Authority.
(4) The Adjudicating Authority shall forward the name of the proposed resolution professional to the Board for its confirmation and a resolution professional shall be appointed in the same manner as laid down in Section 16.
(5) Where any disciplinary proceedings are pending against the proposed resolution professional under sub-section (3), the resolution professional appointed under Section 22 shall continue till the appointment of another resolution professional under this section.
30. Submission of resolution plan.—(1) A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under Section 29-A to the resolution professional prepared on the basis of the information memorandum.
(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan—
(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor;
(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than—
(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53; or
(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of Section 53,
whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of Section 53 in the event of a liquidation of the corporate
Explanation 1.—For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.
Explanation 2.—For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor—
(i) where a resolution plan has not been approved or rejected by the Adjudicating Authority;
(ii) where an appeal has been preferred under Section 61 or Section 62 or such an appeal is not time barred under any provision of law for the time being in force; or
(iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;]
(c) provides for the management of the affairs of the corporate debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for the time being in force;
(f) conforms to such other requirements as may be specified by the Board.
Explanation.—For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.
(3) The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in sub-section (2).
(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of Section 53,including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board:
Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, where the resolution applicant is ineligible under Section 29-A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:
Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of Section 29-A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of Section 29-A:
Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of Section 12, and the corporate insolvency resolution process shall be completed within the period specified in that sub-section.]
Provided also that the eligibility criteria in Section 29-A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.
(5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered:
Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor.
(6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating
31. Approval of resolution plan.—(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan:
Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.
(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution
(3) After the order of approval under sub-section (1),—
(a) the moratorium order passed by the Adjudicating Authority under Section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.
(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later:
Provided that where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.]
33. Initiation of liquidation.—(1) Where the Adjudicating Authority,—
(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under Section 12 or the fast track corporate insolvency resolution process under Section 56, as the case may be, does not receive a resolution plan under sub-section (6) of Section 30; or
(b) rejects the resolution plan under Section 31 for the non-compliance of the requirements specified therein,
it shall—
(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;
(ii) issue a public announcement stating that the corporate debtor is in liquidation; and
(iii) require such order to be sent to the authority with which the corporate debtor is registered.
(2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors approved by not less than sixty-six per cent of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
Explanation.—For the purposes of this sub-section, it is hereby declared that the committee of creditors may take the decision to liquidate the corporate debtor, any time after its constitution under sub-section (1) of Section 21 and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum.
(3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
(4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
(5) Subject to Section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority…”.
69. The scheme of the IBC is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the Corporate Insolvency Resolution Process begins. Where any corporate debtor commits default, a financial creditor, an operational creditor or the corporate debtor itself may initiate Corporate Insolvency Resolution Process in respect of such corporate debtor in the manner as provided in Chapter II of the IBC.
70. The provisions of the IBC are designed to ensure that the business and/or commercial activities of the Corporate Debtor are continued by a Resolution Professional, post imposition of a moratorium, which would give the Corporate Debtor some reprieve from coercive litigation, which could drain the Corporate Debtor of its financial resources. This is to enable the Corporate Debtor to improve its financial health and at the same time repay the dues of its creditors.
71. Under Section 7(2) of the IBC, read with the Statutory 2016 Adjudicating Authority Rules, made in exercise of powers conferred, inter alia, by clauses (c) (d) (e) and (f) of sub-section (1) of Section 239 read with Sections 7, 8, 9 and 10 of the IBC, a financial creditor is required to apply in the prescribed Form 1 for initiation of the Corporate Insolvency Resolution Process, against a Corporate Debtor under Section 7 of the IBC, accompanied with documents and records required therein, and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, hereinafter referred to as the 2016 IB Board of India Regulation.
72. Statutory Form 1 under Rule 4(1) of the 2016 Adjudicating Authority Rules comprises Parts I to V, of which Part I pertains to particulars of the Applicant, Part II pertains to particulars of the Corporate Debtor and Part III pertains to particulars of the proposed Interim Resolution Professional. Parts IV and V which require particulars of Financial Debt with Documents, Records and Evidence of default, is extracted hereinbelow:
PART IV
