STATE BANK OF INDIAversusKRISHIDHAN SEEDS PRIVATE LIMITED

                         [2022] 2 S.C.R. 1155                             1155


                     STATE BANK OF INDIA                                  A
                                  v.
            KRISHIDHAN SEEDS PRIVATE LIMITED
                    (Civil Appeal No. 910 of 2021)
                                                                          B
                           APRIL 18, 2022
        [DR. DHANANJAYA Y CHANDRACHUD AND
                  SURYA KANT, JJ.]
       Insolvency and Bankruptcy Code 2016 – s.7 – Limitation Act,
1963 – s.18 – Applicability of – Default, acknowledgment in balance       C
sheet of company – Proceedings under IBC – Limitation – Appellant
filed application for initiation of Corporate Insolvency Resolution
Process (CIRP) on the ground that the respondent defaulted in paying
the financial debt – Date of default was mentioned as 10.06.14,
when the respondent’s account was declared as a Non-Performing            D
Asset (NPA) – Application rejected by NCLT on ground of limitation
observing that the account was declared an NPA on 10.06.14, while
the proceeding u/s.7 was instituted on 19.09.18, beyond three years
from the date on which the right to apply accrued – Order upheld
by NCLAT– On appeal, held: Judgment of NCLAT in V Padmakumar
v. Stressed Assets Stabilisation Fund and Another which was relied on     E
by NCLT has been overruled by a three-Judge Bench judgment of
Supreme Court in Asset Reconstruction Company (India) Limited v
Bishal Jaiswal and Anr.–An acknowledgment in a balance sheet
without a qualification can be relied upon for the purpose of the
proceedings under the IBC so long as the acknowledgment was               F
within a period of three years from the original date of default –
Provisions of s.18, Limitation Act are not alien to and are applicable
to proceedings under the IBC – However, in the present case since
proceedings are being restored back to NCLT for afresh adjudication
in view of decisions of Supreme Court, the factual dispute on whether
the application filed u/s.7 of the IBC would result in an initiation of   G
the CIRP is not being entered upon – Order of NCLAT and NCLT
set aside – All rights and contentions of the parties left open on the
factual aspects, to be adjudicated upon before the NCLT.

                                                                          H
                                 1155
1156             SUPREME COURT REPORTS                     [2022] 2 S.C.R.


 A             Asset Reconstruction Company (India) Limited v Bishal
               Jaiswal and Another (2021) 6 SCC 366; Laxmi Pat
               Surana v Union Bank of India and Another (2021) 8
               SCC 481; Rajendra Narottamdas Sheth and Another v
               Chandra Prakash Jain and Another 2021 SCC OnLine
               SC 843 – relied on.
 B
               Sesh Nath Singh v Baidyabati Sheoraphuli Coop. Bank
               Ltd. (2021) 7 SCC 313; Dena Bank v C. Shivakumar
               Reddy (2021) 10 SCC 330; State Bank of India v Vibha
               Agro Tech Limited 2021 SCC OnLine SC 1297; Devas
               Multimedia Private Ltd. v Antrix Corporation Ltd. and
 C             Another 2022 SCC OnLine SC 46; SVG Fashions Pvt.
               Ltd. (Earlier Known As SVG Fashions Ltd.) v Ritu Murli
               Manohar Goyal and Another 2022 SCC OnLine SC
               373 – referred to.
               V Padmakumar v Stressed Assets Stabilisation Fund and
 D             Another 2020 SCC Online NCLAT 417 – referred to.
                               Case Law Reference
       (2021) 6 SCC 366                relied on               Para 8
       (2021) 7 SCC 313                referred to             Para 9
 E
       (2021) 8 SCC 481                relied on               Para 10
       (2021) 10 SCC 330               referred to             Para 12 (i)
               CIVIL APPELLATE JURISDICTION: Civil Appeal No. 910 of
       2021.
 F           From the Judgment and Order dated 17.11.2020 of the National
       Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
       (Insolvency) No.972 of 2020.
              Niranjan Reddy, Sr. Adv., Divyam Agarwal, Ms. Fatema
       Kachwalla, Ms. Pallavi Kumar, Karan Singh, Varghese Thomas, Advs.
 G     for the Appellant.
             Shyam Divan, Sr. Adv., Manu Agarwal, Vinayak Bhandari, Mrs.
       Pragya Baghel, Advs. for the Respondent.


 H
STATE BANK OF INDIA v. KRISHIDHAN SEEDS PRIVATE LIMITED 1157


        The following Order of the Court was passed:                           A
                                   ORDER
        1. The National Company Law Tribunal1, by its judgment dated
16 September 2020, rejected the application dated 19 September 2018 2
filed by the State Bank of India, the appellant, under Section 7 of the
Insolvency and Bankruptcy Code 20163 against the respondent, the               B
alleged Corporate Debtor, for initiation of the Corporate Insolvency
Resolution Process4.
        2. The respondent received credit facilities from the appellant
commencing from 30 November 2006. According to the appellant, as on
24 June 2013, the outstanding under the credit facilities extended to the      C
respondent totaled to Rs 102.4 crores. In lieu of these credit facilities,
the respondent (along with other persons) provided securities in favor of
the appellant. The respondent allegedly failed to honor the terms of these
credit facilities and defaulted on their repayments. Hence, the respondent’s
account with the appellant was classified as a Non-Performing Asset5 on
10 June 2014.                                                                  D
        3. Thereafter, at various junctures, the appellant aimed to seek
recourse to Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002 and Recovery of Debts Due
to Banks and Financial Institutions Act 1993, while continuing to engage
in negotiations with the respondent. Thereafter, the respondent issued         E
letter dated 19 January 2016 to the appellant offering a one-time
settlement6 of Rs 61 crores in lieu of its debts, which was conditionally
accepted by the appellant. However, by a letter dated 18 September
2017, the respondent unilaterally revised the OTS to Rs 40.6 crores,
which was refused by the appellant.
                                                                               F
        4. The application for initiation of the CIRP was then filed by the
appellanton the ground that there was a default on the part of the
respondent in paying a financial debt in the amount of approximately Rs
189 crores (calculated with interest as on 30 June 2018). The date of
default was mentioned as 10 June 2014, when the respondent’s account
was declared as an NPA.                                                        G
1
  “NCLT”
2
  TP No 82/2019 in CP (IB) No 500/7/NCLT/AHM/2018
3
  “IBC”
4
  “CIRP”
5
  “NPA”
6
  “OTS”                                                                        H
1158                 SUPREME COURT REPORTS                      [2022] 2 S.C.R.


 A            5. While rejecting the application under Section 7 of the IBC on
       the ground of limitation, the NCLT observed that:
              (i)   The respondent’s loan account was declared to be an NPA
                    on 10 June 2014, while the proceeding under Section 7 was
                    instituted on 19 September 2018 beyond a period of three
 B                  years from the date on which the right to apply accrued;
              (ii)     In the decision in the case of V Padmakumar v Stressed
                       Assets Stabilisation Fund and Another7, the NCLAT
                       has held that a statement contained in the balance sheet
                       cannot be treated as an acknowledgement of liability under
                       Section 18 of the Limitation Act 19638; and
 C
              (iii)  The proposal for OTS which was submitted by the
                     respondent on 18 September 2017 was also beyond three
                     years from the date of default.
               6. The order of the NCLT has been upheld in appeal9 by the
       National Company Law Appellate Tribunal10 on 17 November 2020. In
 D
       appeal, the NCLAT held that limitation will be calculated in accordance
       with Article 137 of the Limitation Act. Presently in the appellant’s
       application filed before the NCLT in the prescribed format, the date of
       default was recorded as 10 June 2014. The NCLAT held that such a
       date could neither be shifted nor extended once the default occurred.
 E     Hence, the application under Section 7, which was instituted on 19
       September 2018, was held to be barred by limitation since it was filed
       beyond four years from the date of default. The NCLAT further noted
       that it was on the basis of such a default that the Financial Creditor had
       moved the Debt Recovery Tribunal11 on 20 October 2015 and there
       could not be two defaults in respect of the same debt; one for the purpose
 F
       of the DRT and another for the purpose of adjudication under the IBC.
       Finally, the NCLAT held that recourse to Section 18 of the Limitation
       Act was not available to the appellant.
             7. In the present appeal, the appellant has appeared through Mr
       Niranjan Reddy, senior counsel, while Mr Shyam Divan, senior counsel,
 G     has appeared on behalf of the respondent.

       7
          2020 SCC Online NCLAT 417 (“V Padmakumar”)
       8
          “Limitation Act”
       9
          Company Appeal (AT) (Insolvency) No 972 of 2020
       10
           “NCLAT”
 H     11
           “DRT”
STATE BANK OF INDIA v. KRISHIDHAN SEEDS PRIVATE LIMITED 1159


      8. The NCLT placed reliance on the judgment in V Padmakumar              A
(supra). The decision in the above case has been specifically overruled
in a judgment of a three-Judge Bench of this Court in Asset
Reconstruction Company (India) Limited v Bishal Jaiswal and
Another12, where Justice R F Nariman, speaking for the Bench, held:
      “46. It is, therefore, clear that the majority decision of the Full      B
      Bench in V. Padmakumar is contrary to the aforesaid catena of
      judgments. The minority judgment of Justice (Retd.) A.I.S.
      Cheema, Member (Judicial), after considering most of these
      judgments, has reached the correct conclusion. We, therefore,
      set aside the majority judgment of the Full Bench of Nclat dated
      12-3-2020”                                                               C
       9. Apart from the above decision, it is also necessary to note that
the provisions of Section 18 of the Limitation Act were held applicable
to IBC proceedings by a two-Judge Bench of this Court in Sesh Nath
Singh v Baidyabati Sheoraphuli Coop. Bank Ltd. 13.
                                                                               D
       10. While the observation in Sesh Nath Singh (supra) was obiter
dicta, the matter has been set at rest in a decision of a three-Judge
Bench of this Court in Laxmi Pat Surana v Union Bank of India and
Another14, where, speaking for the Bench, Justice A M Khanwilkar
has held:
      “42. Notably, the provisions of the Limitation Act have been made        E
      applicable to the proceedings under the Code, as far as may be
      applicable. For, Section 238-A predicates that the provisions of
      the Limitation Act shall, as far as may be, apply to the proceedings
      or appeals before the adjudicating authority, NCLAT, the DRT or
      the Debt Recovery Appellate Tribunal, as the case may be. After          F
      enactment of Section 238-A IBC on 6-6-2018, validity whereof
      has been upheld by this Court, it is not open to contend that the
      limitation for filing application under Section 7 IBC would be limited
      to Article 137 of the Limitation Act and extension of prescribed
      period in certain cases could be only under Section 5 of the
      Limitation Act. There is no reason to exclude the effect of              G
      Section 18 of the Limitation Act to the proceedings initiated
      under the Code.
12
   (2021) 6 SCC 366 (“Asset Reconstruction Company”)
13
   (2021) 7 SCC 313 (“Sesh Nath Singh”)
14
   (2021) 8 SCC 481 (“Laxmi Pat Surana”)                                       H
1160            SUPREME COURT REPORTS                          [2022] 2 S.C.R.


 A           43. Ordinarily, upon declaration of the loan account/debt as NPA
             that date can be reckoned as the date of default to enable the
             financial creditor to initiate action under Section 7 IBC. However,
             Section 7 comes into play when the corporate debtor commits
             “default”. Section 7, consciously uses the expression “default”
             — not the date of notifying the loan account of the corporate
 B
             person as NPA. Further, the expression “default” has been defined
             in Section 3(12) to mean non-payment of “debt” when whole or
             any part or instalment of the amount of debt has become due and
             payable and is not paid by the debtor or the corporate debtor, as
             the case may be. In cases where the corporate person had offered
 C           guarantee in respect of loan transaction, the right of the financial
             creditor to initiate action against such entity being a corporate
             debtor (corporate guarantor), would get triggered the moment the
             principal borrower commits default due to non-payment of debt.
             Thus, when the principal borrower and/or the (corporate) guarantor
             admit and acknowledge their liability after declaration of NPA but
 D
             before the expiration of three years therefrom including the fresh
             period of limitation due to (successive) acknowledgments, it is not
             possible to extricate them from the renewed limitation accruing
             due to the effect of Section 18 of the Limitation Act. Section 18
             of the Limitation Act gets attracted the moment acknowledgment
 E           in writing signed by the party against whom such right to initiate
             resolution process under Section 7 IBC enures. Section 18 of
             the Limitation Act would come into play every time when
             the principal borrower and/or the corporate guarantor
             (corporate debtor), as the case may be, acknowledge their
             liability to pay the debt. Such acknowledgment, however,
 F
             must be before the expiration of the prescribed period of
             limitation including the fresh period of limitation due to
             acknowledgment of the debt, from time to time, for
             institution of the proceedings under Section 7 IBC. Further,
             the acknowledgment must be of a liability in respect of which
 G           the financial creditor can initiate action under Section 7
             IBC.”
                                                           (emphasis supplied)
             11. An acknowledgement in a balance sheet without a qualification
       can be relied upon for the purpose of the proceedings under the IBC.
 H     This principle also emerges from the decision in Asset Reconstruction
STATE BANK OF INDIA v. KRISHIDHAN SEEDS PRIVATE LIMITED 1161


Company (supra), which noted the decisions in Sesh Nath Singh (supra)      A
and Laxmi Pat Surana (supra). This Court held:
      “35. A perusal of the aforesaid sections would show that there is
      no doubt that the filing of a balance sheet in accordance with the
      provisions of the Companies Act is mandatory, any transgression
      of the same being punishable by law. However, what is of             B
      importance is that notes that are annexed to or forming part of
      such financial statements are expressly recognised by Section
      134(7). Equally, the auditor’s report may also enter caveats with
      regard to acknowledgments made in the books of accounts
      including the balance sheet. A perusal of the aforesaid would show   C
      that the statement of law contained in Bengal Silk Mills, that
      there is a compulsion in law to prepare a balance sheet but no
      compulsion to make any particular admission, is correct in law as
      it would depend on the facts of each case as to whether an entry
      made in a balance sheet qua any particular creditor is unequivocal
      or has been entered into with caveats, which then has to be          D
      examined on a case by case basis to establish whether an
      acknowledgment of liability has, in fact, been made, thereby
      extending limitation under Section 18 of the Limitation Act.”
       12. The decisions in Sesh Nath Singh (supra), Laxmi Pat Surana
(supra) and Asset Reconstruction Company (supra) have subsequently         E
been followed in numerous decisions of this Court delivered by two-Judge
Benches, namely: (i) Dena Bank v C. Shivakumar Reddy15; (ii) State
Bank of India v Vibha Agro Tech Limited16; (iii) Devas Multimedia
Private Ltd. v Antrix Corporation Ltd. and Another17; and (iv) SVG
Fashions Pvt. Ltd. (Earlier Known As SVG Fashions Ltd.) v Ritu             F
Murli Manohar Goyal and Another18. Besides the above decisions,
there is a more recent decision of a three-Judge Bench of this Court in
Rajendra Narottamdas Sheth and Another v Chandra Prakash Jain
and Another19, where, speaking for the Bench, Justice L Nageswara
Rao held:
                                                                           G

15
   (2021) 10 SCC 330
16
   2021 SCC OnLine SC 1297
17
   2022 SCC OnLine SC 46
18
   2022 SCC OnLine SC 373
19
   2021 SCC OnLine SC 843                                                  H
1162                SUPREME COURT REPORTS                         [2022] 2 S.C.R.


 A           “25. We have already held that the burden of prima facie proving
             occurrence of the default and that the application filed under
             Section 7 of the Code is within the period of limitation, is entirely
             on the financial creditor. While the decision to admit an application
             under Section 7 is typically made on the basis of material furnished
             by the financial creditor, the Adjudicating Authority is not barred
 B
             from examining the material that is placed on record by the
             corporate debtor to determine that such application is not beyond
             the period of limitation. Undoubtedly, there is sufficient material
             in the present case to justify enlargement of the extension period
             in accordance with Section 18 of the Limitation Act and such
 C           material has also been considered by the Adjudicating Authority
             before admitting the application under Section 7 of the Code. The
             plea of Section 18 of the Limitation Act not having been raised by
             the Financial Creditor in the application filed under Section 7 cannot
             come to the rescue of the Appellants in the facts of this case. It is
             clarified that the onus on the financial creditor, at the time of filing
 D
             an application under Section 7, to prima facie demonstrate default
             with respect to a debt, which is not time-barred, is not sought to
             be diluted herein. In the present case, if the documents constituting
             acknowledgement of the debt beyond April, 2016 had not been
             brought on record by the Corporate Debtor, the application would
 E           have been fit for dismissal on the ground of lack of any plea by
             the Financial Creditor before the Adjudicating Authority with
             respect to extension of the limitation period and application of
             Section 18 of the Limitation Act.”
              13. In view of the above decisions, the position of law has been
 F     set at rest. Neither the NCLT nor the NCLAT had the benefit of
       adjudicating upon the factual controversy in the context of the decisions
       of this Court. The principles which emerge are that:
             (i)      The provisions of Section 18 of the Limitation Act are not
                      alien to and are applicable to proceedings under the IBC;
 G                    and
             (ii)     An acknowledgement in a balance sheet without a
                      qualification can furnish a legitimate basis for determining
                      as to whether the period of limitation would stand extended,
                      so long as the acknowledgement was within a period of
 H                    three years from the original date of default.
STATE BANK OF INDIA v. KRISHIDHAN SEEDS PRIVATE LIMITED 1163


       14. At this stage, we may also note that Mr Niranjan Reddy has         A
relied upon documentary material to indicate that the acknowledgements
of liability were within a period of three years from the date of default
and, hence, the applicant filed by the appellant under Section 7 of the
IBC was within limitation. Reliance has also been placed on the letter of
revival dated 26 April 2015 and the offer of OTS on 6 November 2015.
                                                                              B
       15. Since we are inclined to restore the proceedings back to the
NCLT for fresh adjudication in view of the decisions of this Court noted
above, we are not entering upon the factual dispute on whether the
application filed under Section 7 of the IBC would result in an initiation
of the CIRP in the present case. The appropriate course of action would
be to keep open all rights and contentions of the parties on merits to be     C
adjudicated upon before the NCLT.
       16. With the above clarification, we allow the appeal and set aside
the impugned judgment and order of the NCLAT dated 17 November
2020 and of the NCLT dated 16 September 2020. The proceedings shall
stand restored to the file of the NCLT for adjudication afresh, keeping       D
all rights and contentions of the parties open on the factual aspects of
the controversy.
      17. As the application under Section 7 of the IBC was instituted
before the NCLT on 19 September 2018, the NCLT shall expeditiously
dispose it, no later than within three months from the date of this order.    E

       18. Pending application(s), if any, stand disposed of.

Divya Pandey                                                Appeal allowed.
(Assisted by : Deepak Panwar, LCRA)
                                                                              F




                                                                              G




                                                                              H