Facts of the Case
In 2009, Corporate Power Ltd (corporate debtor) set up a thermal power project in Jharkhand. He took a loan from various lenders, including the State Bank of India. The account was but declared a non-performing asset by SBI on 31.07.2013. On 27.03.2015, SBI issued a loan-recall notice to the Corporate Debtor. On 31.03.2015, some of the original lenders assigned the debts owed to them by the Corporate Debtor to the Asset Reconstruction Company (India) Limited, Appellant herein. On 20.06.2015, the Appellant issued a notice under Section 13 (2) of the SARFAESI Act on behalf of itself and other lenders to the Corporate Debtor. On 01.06.2016, the Appellant took actual physical possession of the project assets of the Corporate Debtor under the SARFAESI Act. On 26.12.2018, the Appellant filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company Tribunal, Calcutta. A separate affidavit was also filed by the Appellant mentioning the date of default and annexing copies of balance sheets.
On 19.02.2020, NCLT observed the balance sheets and acknowledged the liability of the corporate debtor. However, the Corporate Debtor relied upon the full bench judgment of the NCLAT in V. Padmakumar v. Stresses Assets Stabilisation Fund, in which the majority of members held that entries in the balance sheet would not amount to an acknowledgement of debt. A five-member bench of the NCLAT on 22.12.2020, refused the above-mentioned judgment stating that the reference to the Bench was incompetent.
Arguments of the Petitioner
Shri Ramji Srinivasan, learned counsel appearing on behalf of the Appellant, argued that the judgment of the Full bench of the NCLAT in V. Padmakumar was clearly per incuriam and was wholly incorrect. Also, according to the learned counsel, the judgments of the High Courts and Supreme Court have expressly held that entries mentioned in the balance sheets should be understood as an acknowledgement of liability. He also argued that the constituted five-judge bench, which passed the judgment was not in order as three out of the five members were members who assented with the majority opinion in V. Padmakumar. He also argued that the fact that a balance sheet has to be filed under compulsion of law does not mean that an acknowledgement of debt has also to be made under compulsion of law.
Arguments of the Respondent
Shri Abhijeet Sinha, learned counsel appearing on the behalf of the Respondent argued that explanation to Section 7 read with the definition of “default” under clause 12 of Section 3 of the IBC, would preclude the application under Section 18 of the Limitations Act in as much as a default in respect of financial debt would include a financial debt owed not only to the Applicant-Financial Creditors but to all other Financial Creditors of the Corporate Debtor. He further argued that the entries made in the balance sheets do not amount to an acknowledgement of debt. He also stressed that since no date has been mentioned in the original form that was submitted with the Section 7 application, it would amount to a non-curable defect, and thus same should be dismissed.
Court’s Observations
The Court observed that the arguments made by Shri Sinha that Section 18 of the Limitation Act cannot be made applicable to facts of the present case because of the arguments put forth by him. The Court further observed that an entry made in the books of accounts, including the balance sheet amounts to an acknowledgement of liability. It also stated the filing of a balance sheet under the provisions of the Companies Act is mandatory, any transgression of the same is punishable by law.
Court’s Judgement
The Court also set aside the judgments of the NCLAT Order dated 12.03.2020 and 22.12.2020. Hence, the said appeal was allowed and the matter was given to the NCLAT to be decided on the basis of the law laid down in the Hon’ble Supreme Court’s Judgement.
Click here to view the Judgement.
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