Supreme Court of India
KOTAK MAHINDRA BANK LIMITEDversusKEW PRECISION PARTS PRIVATE LIMITED & ORS.
- Citation
- 2022 INSC 800
- Decided
- 5 August 2022
- Disposal
- Appeal(s) allowed
- Bench
- INDIRA BANERJEE
Holding
The Supreme Court held that the petition under Section 7 of the IBC is not barred by limitation; the settlement agreement creates a fresh cause of action, the limitation period can be condoned under Section 5, and the NCLAT’s closure of the CIRP was erroneous.
Summary
Kotak Mahindra Bank Ltd., a financial creditor, filed a petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) to initiate a Corporate Insolvency Resolution Process (CIRP) against Kew Precision Parts Pvt. Ltd. after the debtor defaulted on loans. The debtor had offered a one‑time settlement on 20 December 2018, which the bank accepted, creating a written agreement to pay a time‑barred debt. The NCLAT held the petition barred by limitation, closing the CIRP. The Supreme Court held that the NCLAT erred: the settlement agreement under Section 25(3) of the Contract Act gave rise to a fresh cause of action, the Limitation Act’s Article 137 (three‑year period) applies but can be condoned under Section 5, and the NCLAT failed to give the bank an opportunity to explain the delay as required by Section 7(5)(b) of the IBC. Consequently, the CIRP proceedings were ordered to be reopened and considered afresh. The appeal was allowed.
Issues considered
- The applicability of the Limitation Act, 1963 to an application under Section 7 of the IBC.
- Whether the three‑year limitation period under Article 137 is bar to the petition.
- Whether Section 5 of the Limitation Act can be invoked to condone delay in filing the IBC application.
- The effect of the settlement agreement dated 20 December 2018 under Section 25(3) of the Indian Contract Act on the limitation period.
- The existence and effect of any acknowledgment under Section 18 of the Limitation Act.
- Whether the NCLAT erred in closing the CIRP without complying with Section 7(5)(b) of the IBC.
Legislation cited
- Indian Contract Act, 1872s. 25(3)
- Insolvency and Bankruptcy Code, 2016s. 14, s. 238, s. 238A, s. 7, s. 8, s. 9
- Limitation Act, 1963s. 18, s. 5, s. Article 137 (Schedule)
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002s. 13(2)
Subjects
InsolvencyCorporate Insolvency Resolution ProcessLimitation ActSection 7 IBCSection 25 Contract ActAcknowledgmentSettlement agreementNCLTNCLATSection 5 Limitation ActArticle 137
Judgment
212 [2022]REPORTS
SUPREME COURT 19 S.C.R. 212 [2022] 19 S.C.R.
A KOTAK MAHINDRA BANK LIMITED
v.
KEW PRECISION PARTS PRIVATE LIMITED & ORS.
(Civil Appeal No. 2176 of 2020)
B AUGUST 05, 2022
[INDIRA BANERJEE AND J. K MAHESHWARI, JJ.]
Insolvency and Bankruptcy Code, 2016 – ss. 7, 8, 9, 14, 238A
– The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002 – s. 13 (2) – Limitation
C
Act 1963 – Schedule – Art.137 and ss. 5, 18 – Appellant sanctioned
loan/credit facilities to Respondent and necessary documents were
executed between them on 29.11.2012 – Between 23.11.2012 and
31.12.2013, loan amounts were disbursed – Respondent mortgaged
its assets in favour of the Appellant by memorandum dated
D 13.12.2013 – Respondent defaulted in repaying the dues, hence
declared NPA by the Appellant on 30.09.2015 – On 19.11.2017,
Appellant issued statutory notice u/s. 13(2) of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act 2002 – Respondent admitted its liability to the Appellant
and offered a one-time settlement at two instances – On 20.12.2018
E
settlement was signed and executed – Respondent defaulted in
repayment of settled amount – On 2.01.2019, Appellant filed an
application u/s. 7 of the IBC for initiating Corporate Insolvency
Resolution Process (CIRP) before NCLT – Admitting the application,
NCLT imposed a moratorium in terms of s. 14 of the Insolvency and
F Bankruptcy Code (IBC) – The suspended Directors of the
Respondent filed an appeal before NCLAT contending that the
petition filed by the Appellant was patently barred by limitation –
NCLAT allowing the appeal held that the time when debt of non-
payment of due took place and that of the date of filing application
u/ s. 7 is beyond limitation – Aggrieved, the appellant filed appeal
G
u/s. 62 of IBC, 2016 — Held: NCLAT did not consider the question
of applicability of Section 5 of the Limitation Act for condonation
of delay, to proceedings under Section 7 of the IBC – If no limitation
period is provided anywhere else in the Schedule to the Limitation
Act, Article 137 of the Schedule of the Act would be attracted which
H provides that the period of limitation prescribed for such an
212
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 213
PARTS PRIVATE LIMITED & ORS.
application is three years from the date of accrual of the right to A
apply – CIRP proceedings were closed without giving the Appellant
the opportunity to explain if there was sufficient cause for the delay
in approaching the NCLT – An appeal being the continuation of
original proceedings, the provision of Section 7(5)(b) of the IBC of
notifying the Financial Creditor before rejection of a claim, would
B
be attracted and the Appellant might have got the opportunity to
rectify the defects in its application under Section 7 by filing
additional pleadings and/or documents – Hence, the impugned
judgment and order of the NCLAT is set aside to the extent that the
CIRP proceedings have been closed.
Allowing the appeal, the Court C
HELD:
1.1 It is the case of the Appellant Financial Creditor that
on 12th December 2018 the Corporate Debtor made an offer of
one- time settlement at Rs.15 Crores. This offer was not accepted. D
On 19th December 2018, the Corporate Debtor revised its offer
to Rs.20 Crores for one time settlement. This offer was also not
accepted. On 20th December 2018, the Corporate Debtor again
revised its offer for one time settlement. This time the Corporate
Debtor offered to settle the outstanding dues of the Financial
Creditor upon payment of Rs. 24,55,00,000/- to be paid within E
31st December 2018. This offer was accepted, and terms of
settlement were signed. [Para 27][226-D-F]
1.2 From Section 25 of the Indian Contract Act, it is clear
that any agreement to pay a time barred debt, would be
enforceable in law, within three years from the due date of F
payment, in terms of such agreement. It appears that Section
25(3) of the Indian Contract Act was not brought to the notice of
the NCLAT. The NCLAT also did not consider the aforesaid
Section. [Para 29][228-B]
1.3 Section 25(3) applies only where the debt is one which G
would be enforceable against the Defendants, but for the law of
limitation. Where a debt is not binding on the Defendant for other
reasons, and consequentially not enforceable against him, there
is no question of applicability of Section 25(3). [Para 32][228-F-
G]
H
214 SUPREME COURT REPORTS [2022] 19 S.C.R.
A 1.4 There is a distinction between acknowledgment under
Section 18 of the Limitation Act, 1963 and a promise within the
meaning of Section 25 of the Contract Act. Both promise and
acknowledgment in writing, signed by a party or its agent
authorised in that behalf, have the effect of creating a fresh starting
of limitation. The difference is that an acknowledgment under
B
Section 18 of the Limitation Act has to be made within the period
of limitation and need not be accompanied by any promise to pay.
If an acknowledgment shows existence of jural relationship, it
may extend limitation even though there may be a denial to pay.
On the other hand, Section 25(3) is only attracted when there is
C an express promise to pay a debt that is time barred or any part
thereof. Promise to pay can be inferred on scrutinising the
document. Only the promise should be clear and unconditional.
[Para 33][228-G-H; 229-A-B]
1.5 The scheme of the IBC is to ensure that when a default
D 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
E IBC. 35. [Para 34][229-C]
1.6 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
F 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 [Para 35][229-D-E]
1.7 IBC has overriding effect over other laws. Section 238
G of the IBC provides that the provisions of the IBC shall have
effect, notwithstanding anything inconsistent therewith contained
in any other law, for the time being in force, or any other
instrument, having effect by virtue of any such law. [Para 44][232-
G-H; 233-A]
H
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 215
PARTS PRIVATE LIMITED & ORS.
1.8 The IBC is a beneficial legislation for equal treatment A
of all creditors of the Corporate Debtor, as also the protection of
the livelihoods of its employees/workers, by revival of the
Corporate Debtor through the entrepreneurial skills of persons
other than those in its management, who failed to clear the dues
of the Corporate Debtor to its creditors. It only segregates the B
interests of the Corporate Debtor from those of its promoters/
persons in management. [Para 46][233-B-C]
1.9 There is no specific period of limitation prescribed in
the Limitation Act, 1963, for an application under the IBC, before
the Adjudicating Authority (NCLT). An application for which no C
period of limitation is provided anywhere else in the Schedule to
the Limitation Act, is governed by Article 137 of the Schedule to
the said Act. Under Article 137 of the Schedule to the Limitation
Act, the period of limitation prescribed for such an application is
three years from the date of accrual of the right to apply. [Para
55][236-B-C] D
1.10 As per Section 18 of Limitation Act, an
acknowledgement of present subsisting liability, made in writing
in respect of any right claimed by the opposite party and signed
by the party against whom the right is claimed, has the effect of
commencing a fresh period of limitation from the date on which E
the acknowledgement is signed. Such acknowledgement need
not be accompanied by a promise to pay expressly or even by
implication. However, the acknowledgement must be made before
the relevant period of limitation has expired. [Para 62][238-B-C]
F
1.11 An acknowledgement made in writing within the period
of limitation extends the period of limitation. In this case, there
was no acknowledgement of debt within three years from the
period on which the account of the Corporate Debtor was declared
NPA or within three years from the date on which the loan facilities
were recalled. [Para 66][240-B] G
1.12 The Appellate Tribunal (NCLAT) found that there was
no acknowledgement of debt within the period of limitation of
H
216 SUPREME COURT REPORTS [2022] 19 S.C.R.
A three years. Holding the application of the Appellant Financial
Creditor, under Section 7 of the IBC, to be barred by limitation,
the Appellate Authority (NCLAT) allowed the appeal. [Para
68][240-E-F]
1.13 The Appellate Tribunal (NCLAT) also did not notice
B the terms of settlement stated to have been executed on 20th
December 2018, possibly because the attention of the NCLAT
was not drawn to any terms of the settlement. The Appellate
Tribunal (NCLAT) did not, therefore, have the occasion to
consider whether Section 25(3) of the Contract Act would be
attracted. The Appellate Tribunal (NCLAT), as observed above,
C proceeded on the basis that the CIRP proceedings were barred
by limitation in the absence of any acknowledgement of debt within
the period of limitation, and closed the CIRP proceedings in the
NCLT, without considering the question of applicability of Section
5 of the Limitation Act for condonation of delay, to proceedings
D under Section 7 of the IBC. [Para 69][240-F-H]
1.14 The appeal is, therefore, allowed. The impugned
judgment and order of the NCLAT is set aside to the extent that
the CIRP proceedings have been closed. The Adjudicating
Authority shall consider the application for CIRP afresh, in
E accordance with law, in the light of the observations made above,
after giving the Appellant and the Respondent opportunity to file
additional affidavits disclosing documents/additional affidavit in
response. [Para 71][241-C-D]
Bombay Dyeing and Manufacturing Company Limited vs.
F State of Bombay AIR 1958 SC 328 : [1958] SCR 1122;
Swiss Ribbons Private Limited & Anr. v. Union of India
and Ors (2019) 4 SCC 17 : [2019] 3 SCR 535; Popatlal
Shah v. State of Madras AIR 1953 SC 274 : [1953]
SCR 677; Dena Bank (Now Bank of Baroda) v. C.
Shivakumar Reddy and Another (2021) 10 SCC 330;
G B.K. Educational Services (P) Ltd. v. Parag Gupta &
Associates (2019) 11 SCC 633 : [2018] 12 SCR 794;
Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli
Cooperative Bank Ltd (2021) 7 SCC 313; Gaurav
H
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 217
PARTS PRIVATE LIMITED & ORS.
Hargovindbhai Dave v. Asset Reconstruction Company A
(India) Ltd (2019) 10 SCC 572 : [2019] 13 SCR 224;
Jignesh Shah v. Union of India (2019) 10 SCC 750 :
[2019] 12 SCR 678; Balakrishna Savalram Pujari
Waghmare v. Shree Dhyaneshwar Maharaj Sansthan
AIR 1959 SC 798 : [1959] Suppl. SCR 476; Babulal
B
Vardharji Gurjar v. Veer Gurjar Aluminium Industries
(P) Ltd (2020) 15 SCC 1; Khan Bahadur Shapoor
Fredoom Mazda v. Durga Prasad Chamaria and Others
AIR 1961 SC 1236 : [1962] SCR 140; Asset
Reconstruction Company (India) Limited v.
BishalJaiswal and Anr AIR 2021 SC 5249; Bengal Silk C
Mills Co. v. Ismail Golam Hossain Arif AIR 1962 Cal
115; Re Pandem Tea Co AIR 1974 Cal 170; South Asia
Industries (P) Ltd. v. General Krishna Shamsher Jung
Bahadur Rana ILR (1972) 2 Del 712; Hegde Golay
Ltd. v. State Bank of India ILR 1987 Kar 2673 – referred
D
to.
Case Law Reference
[1958] SCR 1122 referred to Para 31
[2019] 3 SCR 535 referred to Para 43
E
[2018] 12 SCR 794 referred to Para 51
[1953] SCR 677 referred to Para 47
[2019] 13 SCR 224 referred to Para 56
[2019] 12 SCR 678 referred to Para 58
F
[1959] Suppl. SCR 476 referred to Para 59
[1962] SCR 140 referred to Para 63
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2176
of 2020.
G
From the Judgment and Order dated 08.01.2020 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
Insolvency No. 1349 of 2019.
Rana Mukherjee, Sr. Adv. Aravindh S., Mahip Datta, Advs. for
the Appellant.
H
218 SUPREME COURT REPORTS [2022] 19 S.C.R.
A Mohit Chaudhary, Ms. Puja Sharma, Kunal Sachdeva, Balwinder
Singh Suri, Chowdhary Zulfkar Ali, Ms. Garima Sharma, Ms. Mahima
Ahuja, Paras Mithal, Parveen Kumar, Advs. for the Respondents.
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
B
This appeal filed by the Appellant Financial Creditor, Kotak
Mahindra Bank Limited under Section 62 of the Insolvency and
Bankruptcy Code, 2016, hereinafter referred to as the ‘IBC’, is against
the judgment and order dated 8th January, 2020 of the National Company
Law Appellate Tribunal, New Delhi (NCLAT) allowing Company Appeal
C (AT) Insolvency No. 1349 of 2019 filed by the Respondent-Corporate
Debtor, against an order dated 6 th September, 2019 passed by the
Adjudicating Authority/National Company Law Tribunal (NCLT)
admitting the application being Company Petition No.(IB) 672/ND/2019
filed by the Appellant Financial Creditor under Section 7 of the IBC for
D initiation of the Corporate Insolvency Resolution Process (CIRP) against
the Corporator Debtor.
2. The Corporate Debtor carries on business of manufacture of
tempo and tractor components. In or about 2012-2013, the Corporate
Debtor decided to expand its business and operations and entered into
E negotiations with bankers for finance for the proposed expansion.
3. According to the Corporate Debtor, some-time in July-August
2012, some employees of the Appellant Financial Creditor approached
the Corporate Debtor, offering financial assistance at lesser rate of interest
than the then existing bankers of the Corporate Debtor, and better facilities
F and business support.
4. The Appellant Financial Creditor has, since November 2012
sanctioned loan facilities to the Corporate Debtor from time to time. At
the meeting of the Board of Directors of the Corporate Debtor held on
29th November 2012 and on 15th March 2013, resolutions were adopted,
inter alia, authorizing Mr. Munish Kumar Bhunsali to execute loan and
G
security documents on behalf of the Corporate Debtor.
5. On or about 29th November, 2012, necessary documents with
regard to the loans/credit facilities were executed by and between the
Appellant Financial Creditor and the Corporate Debtor. Between 23 rd
November, 2012 and 31st December, 2013, loan amounts were disbursed.
H
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 219
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
6. The following loan and security documents were executed A
between the Appellant Financial Creditor and the Corporate Debtor on
29th November 2012:-
(i) “Master Fund Based Facility Agreement
(ii) Deed of Hypothecation
B
(iii) Deed of guarantee by Muhish Kumar Bhunsali
(iv) Demand Promissory Note
(v) Take Delivery Letter for the Demand Promissory Note.
(vi) Supplementary cum Modification Agreement
C
(vii) End Use Undertaking”
7. On 27th May 2013, further loan and security documents were
executed between the Appellant Financial Creditor and the Corporate
Debtor, namely:-
(i) “Memorandum of deposit of title deeds D
(ii) End Use Undertaking
(iii) Undertaking (Mortgage) by Mr. Munish Kumar
Bhunsali
(iv) Power of Attorney (Mortgage) by Kew Precision Parts
E
Pvt. Ltd.
(v) Declaration (Mortagage) by Mr. Munish Kumar
Bhunsali”
8. By a Memorandum of Deposit dated 13th December 2013
executed by the Corporate Debtor through Mr. Munish Kumar Bhunsali, F
the Corporate Debtor mortgaged its assets in favour of the Appellant
Financial Creditor.
9. By a letter of sanction dated 7th February 2014, the Appellant
Financial Creditor sanctioned credit/loan facilities aggregating Rupees
Rs.2036.00 Lakhs to the Corporate Debtor as per the particulars given
G
below:-
“i. Cash credit : Rs.1000.00 lakhs
ii. WCDL (Sub Limit of CC : Rs.680.00 Lakhs
iii. Invoice Finance discounting : Rs.680.00 Lakhs (submit
of CC) H
220 SUPREME COURT REPORTS [2022] 19 S.C.R.
A iv. Term Loan – I : Rs.240 Lakhs
v. Term Loan – II : Rs.334.00 Lakhs
vi. Term Loan – III : Rs.426.00 Lakhs
iv. Conditional WCDL : Rs.200.00 Lakhs
B Total Exposure : Rs. 2036 Lakhs”
10. According to the Appellant Financial Creditor, the Corporate
Debtor defaulted in making repayment of its dues to the Financial Creditor.
The Appellant Financial Creditor, therefore, declared the Account of the
Corporate Debtor as “non-performing asset” (NPA) on 30th September
C 2015. On 9th October, 2015, the loan was recalled by the Appellant
Financial Creditor.
11. On 19th November 2017, the Appellant Financial Creditor issued
statutory notice under Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
D Act 2002, hereinafter referred to as the SARFAESI Act.
12. On 12th December 2018, the Corporate Debtor admitted its
liability to the Appellant Financial Creditor and offered a one time
settlement for a sum of Rs.15,00,00,000/- (Rupees fifteen crores only)
to be paid within 31st December, 2018. On 19th December 2018, the
E Corporate Debtor again admitted its liability to the Appellant Financial
Creditor and offered a one time settlement for a sum of Rs.20,00,00,000/
- (Rupees twenty crores only) to be paid within 31st December, 2018.
On 20th December, 2018, the Corporate Debtor revised its offer for one
time settlement. The Corporate Debtor offered to settle the outstanding
F dues at a lumpsum amount of Rs.24,55,00,000/- (Rupees twenty four
crores and fifty five lakhs only). The offer was accepted by the Appellant
Financial Creditor.
13. On the same day, i.e., 20th December, 2018, terms of settlement
were signed and executed by the Corporate Debtor and the Appellant
G Financial Creditor in terms whereof a sum of Rs.24,55,00,000/- (Rupees
twenty four crores and fifty five lacs only) was to be paid on or before
31st December, 2018.
14. The Corporate Debtor alleges that there were deficiencies in
the banking services rendered by the Appellant Financier. Be that as it
H may, the Corporate Debtor availed credit facilities from the Appellant
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 221
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
Financial Creditor, defaulted in repayment thereof and acknowledged A
liability to the Appellant Financial Creditor by making offers of one time
settlement. When an application is filed by a Financial Creditor under
Section 7 of the IBC for initiation of CIRP, all that the Adjudicating
Authority is required to see is, whether there is a financial debt owed by
the Corporate Debtor to the Financial Creditor and whether the amount B
of the debt exceeded Rs.1,00,000/- (Rupees one lac only) on the date of
filing of the company petition, the said amount being the threshold limit
for initiation of CIRP at the material time. The Adjudicating Authority
also has to examine if the application is barred by limitation.
15. Pre-existing disputes, if any, between the Corporate Debtor C
and the Financial Creditor are of no consequence to an application of a
Financial Creditor, under Section 7 of the IBC for initiation of CIRP,
unlike an application of an Operational Creditor for initiation of CIRP
under Section 9 of the IBC which may have to be dismissed if there is a
pre-existing dispute.
D
16. The proceedings initiated by the Appellant Financial Creditor
under the SARFAESI Act are not material to the issue in this appeal, of
whether the application of the Appellant Financial Creditor before the
NCLT was barred by limitation. Suffice it to mention that in computing
the period of limitation for initiation of CIRP proceedings, the time spent
in pursuing remedy under the SARFAESI Act or any other recovery E
law cannot be excluded. It is also well settled that initiation of proceedings
under SARFEASI or any other recovery law does not affect the right of
a Financial Creditor to initiate CIRP unless its debt is repaid.
17. The Corporate Debtor defaulted in payment of
Rs.24,55,00,000/- to the appellant Financial Creditor as agreed. In these F
circumstances, the appellant Financial Creditor filed the said application
being Company Petition No. (IB) 672/MD/2019 in the NCLT.
18. The said application was admitted by an order dated 6th
September, 2019 of the Adjudicating Authority (NCLT). The Adjudicating
Authority found that the account of the Corporate Debtor with the G
Appellant Financial Creditor had been declared NPA on 30 th September
2015. The Appellant Financial Creditor was, however, relying on the
proposal for one time settlement given by the Corporate Debtor on 12th
December, 2018 to contend that the existence of financial debt had been
admitted by the Corporate Debtor. H
222 SUPREME COURT REPORTS [2022] 19 S.C.R.
A 19. From the order dated 6th September, 2019 of the Adjudicating
Authority, it appears that the Financial Creditor had been relying on Article
62 of the Limitation Act, 1963, under which suits relating to immoveable
property to enforce payment of money secured by a mortgage, or
otherwise charged upon immoveable property, is 12 years from the time
when the money sued for, becomes due.
B
20. The Adjudicating Authority found :-
“Given the facts and circumstances that the Corporate Debtor
vide its letter dated 12.12.2018 approached the Financial
Creditor for one time settlement of an amount of Rs.15 Crore,
C thereby admitting its default, there is a finding that there is a
continuous cause of action.
As per the averments of the petition no payment has been
made by the Corporate Debtor after the default occurred in
June, 2015 and as on dated 27.11.2018, an amount of
Rs.46,63,35,337.31 is due and outstanding. The present
D
petition being filed in January 2019 is within limitation, being
within three years from the date of the cause of action. Further
even though an attempt was made on the part of the Corporate
debtor to project certain inconsistencies in relation to claim
amounts, however it is seen that the amount in default in excess
E of Rs.1,00,000/- being the minimum threshold limit fixed under
IBC, 2016.”
21. The Adjudicating Authority admitted the petition and imposed
a moratorium in terms of Section 14 of the IBC and also confirmed the
appointment of Mr. Ashwani Kumar Gupta, as the Interim Resolution
F Professional (IRP).
22. The suspended Directors of the Corporate Debtor filed the
appeal being Company Appeal (AT) Insolvency No. 1349 of 2019 in the
NCLAT contending that the petition filed by the Appellant Financial
Creditor under Section 7 of the IBC was patently barred by limitation.
G 23. The NCLAT held :-
“33. The 1 st Respondent or Bank’s plea is that there was
continuous and recurring cause of action from both sides i.e.
the borrower and the ‘Corporate Debtor’ and the Bank also,
that if any decree is passed by any civil court is pending or in
H existence of execution, it would amount to a ‘continuous cause
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 223
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
of action’. In fact the 1st Respondent / Bank projects the plea A
that the ‘continuous cause of action’ means the ‘cause of
action’ which arise from repetition of acts or omission of the
same kind is that for which the action was brought.
34. A perusal of the application in form I part II filed by the
1st Respondent / Bank to initiate ‘Corporate Insolvency B
Resolution Process’ under ‘I&B’ shows that the amount
claimed to be default as on 17.11.2015 was Rs.
18,65,05,035.86 and that the default took place in June, 2015.
However, as on 27.11.2018 the outstanding balance was
mentioned as Rs. 46,63,35,337.31.
C
xxx xxx xxx
38. It must be borne in mind and Article 62 of the Limitation
Act, 1963 relates to enforcing the payment of money procured
by mortgaged or otherwise charged upon the immoveable
property. A suit to enforce a mortgage is governed by Article
62 and has to be filed within 12 years from the date when the D
money became due unless the limitation period prescribed was
extended under any other provision of the Limitation Act.
Article 137 of the Limitation Act constitutes the residuary
article as regards the application. To put it succinctly, Article
113 pertains to the ‘Suits’, the Article 137 relates to
‘Applications’. The language of Article 137 clearly postulates E
that the applicability of the said article will be restricted to
the applications not mentioned in the 3rd division of the
schedule to the Limitation Act, 1963.
xxx xxx xxx
41. In so far as Section 18 of the Limitation Act 1963 F
pertaining to the effect of acknowledgement in writing under
Limitation Act is concerned, it is to be taken note of that an
acknowledgement of liability must be in writing and also to
be signed by a party against whom the property or right is
claimed and that too, the same must be within the Limitation G
period. It cannot be gainsaid that an acknowledgement given
after the expiry of the usual period is not sufficient to keep
the ‘debt’ alive. If a claim is barred, the fact that there was an
acknowledgement of liability will not resuscitate a barred claim
because of the reason that in any Law, there can only be an
acknowledgement of an existing / subsisting liability. H
224 SUPREME COURT REPORTS [2022] 19 S.C.R.
A 42. In law, the onus is always on the Creditor to establish that
an acknowledgement was made within time. Further, the
acknowledgement does not create any new right and it only
extends the limitation period as per decision P.Sreedevi Vs.
P.Appu AIR 1991 Ker page – 76.
B 43. It may not be out of place for this Tribunal to make
pertinent mention that when a party claiming benefit of
Section 14 of the Limitation Act, 1963 failed to secure relief
in earlier proceeding not because of any defect in jurisdiction
or some other cause of like nature, he cannot derive the
benefit u/s 14 of the Limitation Act as per decision Z.Khan
C Vs. Board of Revenue, 1984 ALL LJ. However, in the decision
‘Ajob Enterprises’ V. Jayant Vegoiles & Chemicals AIR 1991,
Bombay at page 35 it is held that the time taken to prosecute
suit against the Company for recovery of debt, such
proceedings cannot be excluded in calculating the limitation
D period because the matter in issue in suit and winding up
proceedings is not the same.
xxx xxx xxx
45. In the present case, the 1st Respondent / Bank/Financial
Creditor was given the liberty in SA 250/2016 (filed by the
E ‘Corporate Debtor’ by the Debt Recovery Tribunal, Lucknow
and another) Appellants on 10/04/2017 to recover the dues
from the Appellants by proceeding afresh under the provisions
of SARFAESI Act, 2002 and the Rules made thereunder. Later
the 1st Respondent/Bank filed OA 576 before the Debt
Recovery Tribunal, Delhi against the ‘Corporate Debtor’ and
F others and obtained decree on 2.05.2019. Therefore, it is not
open to the 1st Respondent/Bank to turn around and seek
exclusion of time as per Section 14 of the Limitation Act.
Undoubtedly, the 1st Respondent / Bank had invoked the right
Forum viz. Debt Recovery Tribunal, Delhi for recovery of its
G dues and ‘Corporate Debtor’ etc.
xxx xxx xxx
47. In regard to the plea of the 1st Respondent/Bank that on
26.03.2016, a complaint was made by the ‘Corporate Debtor’
against the Bank for not rejecting their debts and in the said
H letter there was an admission of debt liability, it is to be pointed
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 225
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
out that the same cannot come to the rescue of the Bank A
because of the fact that the debt of non-payment of dues by
the ‘Corporate Debtor’ took place in June, 2015 and Section
7 application was filed by the 1st Respondent / Bank before
the Adjudicating Authority on 30.01.2019 which is beyond
the period of limitation as enshrined in Article 137 of the
B
Limitation Act. Also that in the decision Kalpana Trading Co.
Vs. Executive Officer Town Panchayat AIR 1999 Mad37, it is
observed that just sending a letter to the higher authorities to
settle the issues does not amount to an ‘Acknowledgement’.”
24. The operative part of the judgment and order is set out
hereinbelow : C
“54. In the result, the ‘Corporate Debtor’ ‘M/s Kew Precision
Parts Pvt. Ltd.’ is released from the rigour of the ‘Corporate
Insolvency Resolution Process’. All actions taken by the
‘Interim Resolution Professional’ / ‘Resolution Professional’
and ‘Committee of Creditors’, if any, are declared illegal and D
set aside. The ‘Resolution Professional’ is directed to hand
over the records and assets of the ‘Corporate Debtor’ to the
promoter/Directors of the ‘Corporate Debtor’ forthwith.
55. The matter is remitted to Adjudicating Authority (‘National
Company Law Tribunal’) New Delhi Bench to determine the
E
‘Fee and Cost’ of ‘Corporate Insolvency Resolution
Professional’ as incurred by him, which is to be borne and
paid by 1st Respondent / Bank(‘Financial Creditor’). Before
parting with the case, it is made crystal clear that the dismissal
of the application filed by the 1st Respondent / Bank before
the Adjudicating Authority will not preclude it from pursuing F
/ seeking appropriate remedy before the Competent Forum
for redressal of its grievances, if it so desires/advised.
The Appeal is allowed with aforestated observations and
directions. No Costs. Connected IA No. 3842/19 and IA No.
3843/19 are closed. However, the Appellants are directed to
G
file certified copy of the impugned order of the Adjudicating
Authority (‘NCLT’), New Delhi within one week from today.”
25. In this appeal, it is contended that cheques given by the
Corporate Debtor to the Financial Creditor bounced up to February 2017.
Paragraph 2(vii) of the petition of appeal filed by the Corporate Debtor
is extracted hereinbelow :- H
226 SUPREME COURT REPORTS [2022] 19 S.C.R.
A “vii) That cheques given towards repayment of loan were
presented for encashment and the said cheque bounced due
to reason “funds insufficient” up to February, 2017 against
which complaint u/s. 138 of the Negotiable Instruments Act,
is pending before Court.”
B 26. If, as contended by the Appellant Financial Creditor, any
cheque had been issued in February, 2017, the application of the Appellant
Financial Creditor under Section 7 for initiation of CIRP filed on 2nd
January, 2019 would clearly be within limitation. However, there are no
details of the payment disclosed by the Appellant Financial Creditor either
C in the proceedings before the NCLT or NCLAT or before this court.
However, if no payment had been made, after the account of the
Corporate Debtor had been declared NPA in September, 2015,
acknowledgment made on 12th December, 2018 or later, after expiry of
over three years from the date on which the default occurred, would not
save limitation.
D
27. It is the case of the Appellant Financial Creditor that on 12th
December 2018 the Corporate Debtor made an offer of one time
settlement at Rs.15 Crores. This offer was not accepted. On 19 th
December 2018, the Corporate Debtor revised its offer to Rs.20 Crores
for one time settlement. This offer was also not accepted. On 20th
E December 2018, the Corporate Debtor again revised its offer for one
time settlement. This time the Corporate Debtor offered to settle the
outstanding dues of the Financial Creditor upon payment of Rs.
24,55,00,000/- to be paid within 31st December 2018. This offer was
accepted, and terms of settlement were signed.
F 28. Section 25 of the Indian Contract Act provides as follows :-
“25. Agreement without consideration, void, unless it is in
writing and registered or is a promise to compensate for
something done or is a promise to pay a debt barred by
limitation law.—An agreement made without consideration is
G void, unless—An agreement made without consideration is
void, unless—”
(1) It is expressed in writing and registered under the law for
the time being in force for the registration of documents, and
is made on account of natural love and affection between
H parties standing in a near relation to each other; or unless
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 227
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
(2) It is a promise to compensate, wholly or in part, a person A
who has already voluntarily done something for the promisor,
or something which the promisor was legally compellable to
do; or unless.
(3) It is a promise, made in writing and signed by the person
to be charged therewith, or by his agent generally or specially B
authorized in that behalf, to pay wholly or in part a debt of
which the creditor might have enforced payment but for the
law for the limitation of suits. In any of these cases, such an
agreement is a contract.
Explanation 1.—Nothing in this section shall affect the validity,
as between the donor and donee, of any gift actually made. C
Explanation 2.—An Agreement to which the consent of the
promisor is freely given is not void merely because the
consideration is inadequate; but the inadequacy of the
consideration may be taken into account by the Court in
determining the question whether the consent of the promisor D
was freely given.
Illustrations
(a) A promises, for no consideration, to give to B Rs. 1,000.
This is a void agreement.
(b) A, for natural love and affection, promises to give his E
son, B, Rs. 1,000. A puts his promise to B into writing
and registers it. This is a contract.
(c) A finds B’s purse and gives it to him. B promises to give
A Rs. 50. This is a contract.
(d) A supports B’s infant son. B promises to pay A’s expenses F
in so doing. This is a contract.
(e) A owes B Rs. 1,000, but the debt is barred by the
Limitation Act. A signs a written promise to pay B Rs.
500 on account of the debt. This is a contract.
(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A’s G
consent to the agreement was freely given. The
agreement is a contract notwithstanding the inadequacy
of the consideration.
(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A
denies that his consent to the agreement was freely H
228 SUPREME COURT REPORTS [2022] 19 S.C.R.
A given.” The inadequacy of the consideration is a fact
which the Court should take into account in considering
whether or not A’s consent was freely given.
29. From the above, it is clear that any agreement to pay a time
barred debt, would be enforceable in law, within three years from the
B due date of payment, in terms of such agreement. It appears that Section
25(3) of the Indian Contract Act was not brought to the notice of the
NCLAT. The NCLAT also did not consider the aforesaid Section.
30. In this appeal, it is contended that the last offer of 20 th
December, 2018 was followed by an agreement. Whether there was
such agreement or not would have to be considered by the Adjudicating
C Authority. To invoke Section 25(3), the following conditions must be
satisfied:-
(i) It must refer to a debt, which the creditor, but for the period
of limitation, might have enforced;
(ii) There must be a distinct promise to pay such debt, fully or
D in part;
(iii) The promise must be in writing, and signed by the debtor or
his duly appointed agent.
31. Under Section 25(3), a debtor can enter into an agreement in
writing, to pay the whole or part of a debt, which the creditor might have
E enforced, but for the limitation of a suit in law. A written promise to pay
the barred debt is a valid contract. Such a promise constitutes novation
and can form the basis of a suit independent of the original debt, for it is
well settled that the debt is not extinguished, the remedy gets barred by
passage of time as held by this Court in Bombay Dyeing and
F Manufacturing Company Limited vs. State of Bombay1.
32. Section 25(3) applies only where the debt is one which would
be enforceable against the defendants, but for the law of limitation. Where
a debt is not binding on the defendant for other reasons, and
consequentially not enforceable against him, there is no question of
G applicability of Section 25(3).
33. There is a distinction between acknowledgment under Section
18 of the Limitation Act, 1963 and a promise within the meaning of
Section 25 of the Contract Act. Both promise and acknowledgment in
writing, signed by a party or its agent authorised in that behalf, have the
H 1
AIR 1958 SC 328
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 229
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
effect of creating a fresh starting of limitation. The difference is that an A
acknowledgment under Section 18 of the Limitation Act has to be made
within the period of limitation and need not be accompanied by any
promise to pay. If an acknowledgment shows existence of jural
relationship, it may extend limitation even though there may be a denial
to pay. On the other hand, Section 25(3) is only attracted when there is
B
an express promise to pay a debt that is time barred or any part thereof.
Promise to pay can be inferred on scrutinising the document. Only the
promise should be clear and unconditional.
34. 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 C
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.
35. The provisions of the IBC are designed to ensure that the D
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 E
and at the same time repay the dues of its creditors.
36. 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 F
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 Regulations. G
37. 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 H
230 SUPREME COURT REPORTS [2022] 19 S.C.R.
A Financial Debt with Documents, Records and Evidence of default, is
extracted hereinbelow:-
PART IV
B
C
PART V
D
E
F
G
H
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 231
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
38. Section 7(3) requires a financial creditor making an application A
under Section 7(1) to furnish records of the default recorded with the
information utility or such other record or evidence of default as may be
specified; the name of the resolution professional proposed to act as an
Interim Resolution Professional and any other information as may be
specified by the Insolvency and Bankruptcy Board of India.
B
39. Section 7(4) of the IBC casts an obligation on the Adjudicating
Authority to 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, within fourteen days of the receipt of the application
under Section 7. As per the proviso to Section 7(4) of the IBC, inserted
by amendment, by Act 26 of 2019, if the Adjudicating Authority has not C
ascertained the existence of default and passed an order within the
stipulated period of time of fourteen days, it shall record its reasons for
the same in writing. The application does not lapse for non-compliance
of the time schedule. Nor is the Adjudicating Authority obliged to dismiss
the application. On the other hand, the application cannot be dismissed, D
without compliance with the requisites of the Proviso to Section 7(5) of
the IBC.
40. Section 7(5)(a) provides that when the Adjudicating Authority
is satisfied that a default has occurred, and the application under sub-
section (2) of Section 7 is complete and there is no disciplinary proceeding E
pending against the proposed resolution professional, it may by order
admit such application. As per Section 7(5)(b), if the Adjudicating
Authority is satisfied that default has not occurred or the application
under sub-Section (2) of Section 7 is incomplete or any disciplinary
proceeding is pending against the proposed resolution professional, it
may, by order, reject such application, provided that the Adjudicating F
Authority shall, before rejecting the application under sub-section (b) of
Section 5, give notice to the applicant, to rectify the defects in his
application, within 7 days of receipt of such notice from the Adjudicating
Authority.
41. The Corporate Insolvency Resolution Process commences G
on the date of admission of the application under sub-section (5) of Section
7 of the IBC. Section 7(7) casts an obligation on the Adjudicating Authority
to communicate an order under clause (a) of sub-section (5) of Section
7 to the financial creditor and the corporate debtor and to communicate
an order under clause (b) of sub-section (5) of Section 7 to the financial H
232 SUPREME COURT REPORTS [2022] 19 S.C.R.
A creditor within seven days of admission or rejection of such application,
as the case may be. Sections 8 and 9 of IBC pertain to Insolvency
Resolution by an operational creditor and are not attracted in the facts
and circumstances of this case. Section 10 pertains to initiation of
Corporate Insolvency Resolution Process by the Corporate Debtor itself,
and is also not attracted in the facts and circumstances of the case.
B
42. The IBC is not just another statute for recovery of debts. Nor
is it a statute which merely prescribes the modalities of liquidation of a
Corporate body, unable to pay its debts. It is essentially a statute which
works towards the revival of a Corporate body, unable to pay its debts,
by appointment of a Resolution Professional.
C
43. In Swiss Ribbons Private Limited & Anr. v. Union of India
and Ors.2, authored by Nariman, J. this Court observed:-
“28. It can thus be seen that the primary focus of the
legislation is to ensure revival and continuation of the
D corporate debtor by protecting the corporate debtor from its
own management and from a corporate death by liquidation.
The Code is thus a beneficial legislation which puts the
corporate debtor back on its feet, not being a mere recovery
legislation for creditors. The interests of the corporate debtor
have, therefore, been bifurcated and separated from that of
E its promoters/those who are in management. Thus, the
resolution process is not adversarial to the corporate debtor
but, in fact, protective of its interests. The moratorium imposed
by Section 14 is in the interest of the corporate debtor itself,
thereby preserving the assets of the corporate debtor during
F the resolution process. The timelines within which the
resolution process is to take place again protects the corporate
debtor’s assets from further dilution, and also protects all its
creditors and workers by seeing that the resolution process
goes through as fast as possible so that another management
can, through its entrepreneurial skills, resuscitate the
G corporate debtor to achieve all these ends.”
44. IBC has overriding effect over other laws. Section 238 of the
IBC provides that the provisions of the IBC shall have effect,
notwithstanding anything inconsistent therewith contained in any other
2
H (2019) 4 SCC 17
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 233
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
law, for the time being in force, or any other instrument, having effect by A
virtue of any such law.
45. Unlike coercive recovery litigation, the Corporate Insolvency
Resolution Process under the IBC is not adversarial to the interests of
the Corporate Debtor, as observed by this Court in Swiss Ribbons Private
Limited v. Union of India (supra). B
46. On the other hand, the IBC is a beneficial legislation for equal
treatment of all creditors of the Corporate Debtor, as also the protection
of the livelihoods of its employees/workers, by revival of the Corporate
Debtor through the entrepreneurial skills of persons other than those in
its management, who failed to clear the dues of the Corporate Debtor to C
its creditors. It only segregates the interests of the Corporate Debtor
from those of its promoters/persons in management.
47. In construing and/or interpreting any statutory provision one
must look into the legislative intent of the statute. The intention of the
statute has to be found in the words used by the legislature itself. In case D
of doubt it is always safe to look into the object and purpose of the
statute or the reason and spirit behind it. Each word, phrase or sentence
has to be construed in the light of the general purpose of the Act itself,
as observed by Mukherjea J., in Popatlal Shah v. State of Madras3 and
a plethora of other judgments of this Court.
E
48. When a question arises as to the meaning of a certain provision
in a statute, the provision has to be read in its context. The statute has to
be read as a whole. The previous state of the law, the general scope and
ambit of the statute and the mischief that it was intended to remedy are
relevant factors.
F
49. In Dena Bank (Now Bank of Baroda) v. C. Shivakumar
Reddy and Another4, this Court held:-
89. On a careful reading of the provisions of the IBC and in
particular the provisions of Section 7(2) to (5) of the IBC
read with the 2016 Adjudicating Authority Rules there is no
G
bar to the filing of documents at any time until a final order
either admitting or dismissing the application has been
passed.”
3
AIR 1953 SC 274
4
(2021) 10 SCC 330 H
234 SUPREME COURT REPORTS [2022] 19 S.C.R.
A 50. Section 238A of the IBC provides as follows:-
“238A. The provisions of the Limitation Act, 1963 (36 of 1963)
shall, as far as may be, apply to the proceedings or appeals
before the Adjudicating Authority, the National Company Law
Appellate Tribunal, the Debt Recovery Tribunal or the Debt
B Recovery Appellate Tribunal, as the case may be.”
51. It is well settled by a plethora of judgments of this Court as
also different High Courts and, in particular, the judgment of this Court
in B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates 5
(2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528] NCLT/NCLAT has the
C discretion to entertain an application/appeal after the prescribed period
of limitation. The condition precedent for exercise of such discretion is
the existence of sufficient cause for not preferring the appeal and/or the
application within the period prescribed by limitation.
52. The condition precedent for condonation of the delay in filing
D an application or appeal, is the existence of sufficient cause. Whether
the explanation furnished for the delay would constitute “sufficient cause”
or not would be dependent upon facts of each case.
53. Section 5 of the Limitation Act, 1963 does not speak of any
application. The section enables the court to admit an application or
E appeal if the applicant or the appellant, as the case may be, satisfies the
court that he had sufficient cause for not making the application and/or
preferring the appeal, within the time prescribed. A Court/Tribunal may
exercise its discretion to condone delay, even in the absence of a formal
application.
F 54. In Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli
Cooperative Bank Ltd.6, authored by one of us (Indira Banerjee, J.),
this Court held:-
“64. Similarly under Section 18 of the Limitation Act, an
acknowledgment of present subsisting liability, made in
writing in respect of any right claimed by the opposite party
G
and signed by the party against whom the right is claimed,
has the effect of commencing of a fresh period of limitation,
from the date on which the acknowledgment is signed.
5
(2019) 11 SCC 633
6
H (2021) 7 SCC 313
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 235
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
However, the acknowledgment must be made before the period A
of limitation expires.
65. As observed above, Section 238-A IBC makes the
provisions of the Limitation Act, as far as may be, applicable
to proceedings before NCLT and Nclat. The IBC does not
exclude the application of Sections 6 or 14 or 18 or any other B
provision of the Limitation Act to proceedings under the IBC
in NCLT/Nclat. All the provisions of the Limitation Act are
applicable to proceedings in NCLT/Nclat, to the extent feasible.
66. We see no reason why Section 14 or 18 of the Limitation
Act, 1963 should not apply to proceeding under Section 7 or C
9 IBC. Of course, Section 18 of the Limitation Act is not
attracted in this case, since the impugned order [Sesh Nath
Singh v. Baidyabati Sheoraphuli Coop. Bank Ltd., 2019 SCC
OnLine NCLAT 928] of Nclat does not proceed on the basis
of any acknowledgment.
D
***
89. Legislature has in its wisdom chosen not to make the
provisions of the Limitation Act verbatim applicable to
proceedings in NCLT/NCLAT, but consciously used the words
‘as far as may be’. The words ‘as far as may be’ are not meant E
to be otiose. Those words are to be understood in the sense in
which they best harmonise with the subject matter of the
legislation and the object which the Legislature has in view.
The Courts would not give an interpretation to those words
which would frustrate the purposes of making the Limitation
Act applicable to proceedings in the NCLT/NCLAT ‘as far as F
may be’.
***
92. The use of words ‘as far as may be’, occurring in Section
238A of the IBC tones down the rigour of the words ‘shall’ in
G
the aforesaid Section which is normally considered as
mandatory. The expression ‘as far as may be’ is indicative of
the fact that all or any of the provisions of the Limitation Act
may not apply to proceedings before the Adjudicating
Authority (NCLT) or the Appellate authority (NCLAT) if they
are patently inconsistent with some provisions of the IBC. At H
236 SUPREME COURT REPORTS [2022] 19 S.C.R.
A the same time, the words ‘as far as may be’ cannot be construed
as a total exclusion of the requirements of the basic principles
of Section 14 of the Limitation Act, but permits a wider, more
liberal, contextual and purposive interpretation by necessary
modification, which is in harmony with the principles of the
said Section.”
B
55. There is no specific period of limitation prescribed in the
Limitation Act, 1963, for an application under the IBC, before the
Adjudicating Authority (NCLT). An application for which no period of
limitation is provided anywhere else in the Schedule to the Limitation
Act, is governed by Article 137 of the Schedule to the said Act. Under
C Article 137 of the Schedule to the Limitation Act, the period of limitation
prescribed for such an application is three years from the date of accrual
of the right to apply.
56. There can be no dispute with the proposition that the period
of limitation for making an application under Section 7 or 9 of the IBC
D is three years from the date of accrual of the right to sue, that is, the
date of default. In Gaurav Hargovindbhai Dave v. Asset
Reconstruction Company (India) Ltd.7 authored by Nariman, J. this
Court held:-
“6. …...The present case being “an application” which is filed
E under Section 7, would fall only within the residuary Article
137.”
57. In B. K. Educational Services Private Limited (supra),
this Court speaking through Nariman, J. held:-
F “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
G 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.”
7
H (2019) 10 SCC 572
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 237
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
58. In Jignesh Shah v. Union of India8 this Court speaking A
through Nariman, J. reiterated the proposition that the period of limitation
for making an application under Section 7 or 9 of the IBC was three
years from the date of accrual of the right to sue, that is, the date of
default.
59. In Dena Bank (supra), this Court relied upon the dictum of B
P.B. Gajendragadkar, J. in Balakrishna Savalram Pujari Waghmare
v. Shree Dhyaneshwar Maharaj Sansthan9, and held:-
“31. … Section 23 refers not to a continuing right but to a
continuing wrong. It is the very essence of a continuing wrong
that it is an act which creates a continuing source of injury C
and renders the doer of the act responsible and liable for the
continuance of the said injury. If the wrongful act causes an
injury which is complete, there is no continuing wrong even
though the damage resulting from the act may continue. If,
however, a wrongful act is of such a character that the injury
caused by it itself continues, then the act constitutes a D
continuing wrong. In this connection it is necessary to draw
a distinction between the injury caused by the wrongful act
and what may be described as the effect of the said injury. It
is only in regard to acts which can be properly characterised
as continuing wrongs that Section 23 can be invoked.…” E
60. It is well settled proposition of law, as laid down in the judgment
of this Court in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium
Industries (P) Ltd.10, that limitation is essentially a mixed question of
law and facts and when a party seeks application of any particular
provision for extension in enlargement of the period of limitation, the F
relevant facts are required to be pleaded and requisite evidence is required
to be adduced.
61. The judgment in Babulal Vardharji Gurjar (supra) was
rendered in the facts and circumstances of that case where there were
no pleadings at all. As held by this Court in Dena Bank (supra), an G
application under Section 7 of the IBC in statutory form which requires
filling in of particulars cannot be judged by the same standards as a
8
(2019) 10 SCC 750
9
AIR 1959 SC 798
10
(2020) 15 SCC 1 H
238 SUPREME COURT REPORTS [2022] 19 S.C.R.
A plaint or other pleadings in a court of law. Additional affidavits filed
subsequent to the filing of the application, by way of additional affidavits
or applications would have to be construed as pleadings, as also the
documents enclosed with or relied upon in the application made in the
statutory format. Furthermore, pleadings can be amended at any time
during the pendency of the proceedings.
B
62. As per Section 18 of Limitation Act, an acknowledgement of
present subsisting liability, made in writing in respect of any right claimed
by the opposite party and signed by the party against whom the right is
claimed, has the effect of commencing a fresh period of limitation from
the date on which the acknowledgement is signed. Such acknowledgement
C need not be accompanied by a promise to pay expressly or even by
implication. However, the acknowledgement must be made before the
relevant period of limitation has expired.
63. In Khan Bahadur Shapoor Fredoom Mazda v. Durga
Prasad Chamaria and Others11, this Court held:-
D
“6. It is thus clear that acknowledgment as prescribed by
Section 19 merely renews debt; it does not create a new right
of action. It is a mere acknowledgment of the liability in respect
of the right in question; it need not be accompanied by a
promise to pay either expressly or even by implication. The
E statement on which a plea of acknowledgment is based must
relate to a present subsisting liability though the exact nature
or the specific character of the said liability may not be
indicated in words. Words used in the acknowledgment must,
however, indicate the existence of jural relationship between
F the parties such as that of debtor and creditor, and it must
appear that the statement is made with the intention to admit
such jural relationship. Such intention can be inferred by
implication from the nature of the admission, and need not be
expressed in words. If the statement is fairly clear then the
intention to admit jural relationship may be implied from it.
G The admission in question need not be express but must be
made in circumstances and in words from which the court
can reasonably infer that the person making the admission
intended to refer to a subsisting liability as at the date of the
11
H AIR 1961 SC 1236
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 239
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
statement. In construing words used in the statements made A
in writing on which a plea of acknowledgment rests oral
evidence has been expressly excluded but surrounding
circumstances can always be considered. Stated generally
courts lean in favour of a liberal construction of such
statements though it does not mean that where no admission
B
is made one should be inferred, or where a statement was
made clearly without intending to admit the existence of jural
relationship such intention could be fastened on the maker
of the statement by an involved or far-fetched process of
reasoning. Broadly stated that is the effect of the relevant
provisions contained in Section 19, and there is really no C
substantial difference between the parties as to the true legal
position in this matter.”
64. It is well settled that even entries in books of accounts and/or
balance sheets of a Corporate Debtor would amount to an
acknowledgment under Section 18 of the Limitation Act. In Asset D
Reconstruction Company (India) Limited v. Bishal Jaiswal and
Anr.12 (supra) authored by Nariman, J. this Court quoted with approval
the judgments, inter alia, of Bengal Silk Mills Co. v. Ismail Golam
Hossain Ariff,13 and in Re Pandem Tea Co.14 Ltd., the judgment of the
Delhi High Court in South Asia Industries (P) Ltd. v. General Krishna
Shamsher Jung Bahadur Rana15 and the judgment of Karnataka High E
Court in Hegde Golay Ltd. v. State Bank of India16 and held that an
acknowledgement of liability that is made in a balance sheet can amount
to an acknowledgement of debt. In this Case, the Appellant Financial
Creditor has not relied on any books of accounts or Balance Sheets of
the Corporate Debtor. F
65. Section 18 of the Limitation Act speaks of an acknowledgment
in writing of liability, signed by the party against whom such property or
right is claimed. Even if the writing containing the acknowledgment is
undated, evidence might be given of the time when it was signed. The
explanation clarifies that an acknowledgment may be sufficient even G
12
AIR 2021 SC 5249
13
AIR 1962 Cal 115
14
AIR 1974 Cal 170
15
ILR (1972) 2 Del 712
16
ILR 1987 Kar 2673 H
240 SUPREME COURT REPORTS [2022] 19 S.C.R.
A though it is accompanied by refusal to pay, deliver, perform or permit to
enjoy or is coupled with claim to set off, or is addressed to a person
other than a person entitled to the property or right. “Signed” is to be
construed to mean signed personally or by an authorised agent.
66. An acknowledgement made in writing within the period of
B limitation extends the period of limitation. In this case, there was no
acknowledgement of debt within three years from the period on which
the account of the Corporate Debtor was declared NPA or within three
years from the date on which the loan facilities were recalled.
67. The Adjudicating Authority proceeded on the basis that the
C offer of settlement made by the Corporate Debtor on 12th December
2018 and rejection thereof by the appellate showed the Corporate Debtor
had conceded that there was a continuous cause of action. It is, however,
the case of the Appellant Financial Creditor in this appeal that terms of
settlement were executed on 20th December 2018 whereby the
Corporate Debtor agreed to repay the amount of Rs.24,55,00,000/- within
D 31st December 2018. The Adjudicating Authority, however, did not refer
to any settlement. Nor did it address the question of whether any
agreement for repayment of debt came into existence in December 2018
and, if so, whether the agreement would attract Section 25(3) of the
Contract Act.
E 68. The Appellate Tribunal (NCLAT) found that there was no
acknowledgement of debt within the period of limitation of three years.
Holding the application of the Appellant Financial Creditor, under Section
7 of the IBC, to be barred by limitation, the Appellate Authority (NCLAT)
allowed the appeal.
F 69. The Appellate Tribunal (NCLAT) also did not notice the terms
of settlement stated to have been executed on 20th December 2018,
possibly because the attention of the NCLAT was not drawn to any
terms of the settlement. The Appellate Tribunal (NCLAT) did not,
therefore, have the occasion to consider whether Section 25(3) of the
G Contract Act would be attracted. The Appellate Tribunal (NCLAT), as
observed above, proceeded on the basis that the CIRP proceedings were
barred by limitation in the absence of any acknowledgement of debt
within the period of limitation, and closed the CIRP proceedings in the
NCLT, without considering the question of applicability of Section 5 of
the Limitation Act for condonation of delay, to proceedings under Section
H 7 of the IBC.
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION 241
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
70. This Court is of the view that the Appellate Tribunal (NCLAT A
erred in closing the CIRP proceedings without giving the Appellant
Financial Creditor the opportunity to explain if there was sufficient cause
for the delay in approaching the NCLT. An appeal being the continuation
of original proceedings, the provision of Section 7(5)(b) of the IBC, of
notifying the Financial Creditor before rejection of a claim, would be
B
attracted. If notified of the proposal to close the proceedings, the Appellant
Financial Creditor might have got the opportunity to rectify the defects
in its application under Section 7 by filing additional pleadings and/or
documents. As held in Dena Bank (supra), documents can be filed at
any time until the application for CIRP is finally dismissed.
71. The appeal is, therefore, allowed. The impugned judgment C
and order of the NCLAT is set aside to the extent that the CIRP
proceedings have been closed. The Adjudicating Authority shall consider
the application for CIRP afresh, in accordance with law, in the light of
the observations made above, after giving the Appellant and the
Respondent opportunity to file additional affidavits disclosing documents/ D
additional affidavit in response.
Ankit Gyan and Anurag Bhaskar Appeal allowed.
(Assisted by : Bodhi Ramteke, LCRA)
E
F
G
H
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