1. The Adjudicating Authority has the discretion to provide several opportunities for settlement of the debt.
Mr. Rakesh Wadhwan, Shareholder (Housing Development & Infrastructure Ltd.) Vs. Bank of India and Anr.
CA (AT)(Insolvency) No. 906 of 2019
The present appeal has been filed by Mr. Rakesh Wadhwan ("Appellant"), a shareholder of Housing Development & Infrastructure Ltd. ("Corporate Debtor"), to challenge the Order dated 20.08.2019 passed by the National Company Law Tribunal, Mumbai Bench ("NCLT") whereby the NCLT has admitted the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("I&B Code") filed by Bank of India ("Financial Creditor") against Corporate Debtor. Before filing this present application, the Financial Creditor, in the year 2018, has filed application under Section 7 of the I&B Code for the initiation of the Corporate Insolvency Resolution Process ("CIRP") of the Corporate Debtor.
The said petition was withdrawn on the corporate debt proposal to settle the matter by One Time Settlement (OTS). However, the Corporate Debtor failed in making payment as per terms of OTS and committed default again. Due to which the Financial Creditor had revoked the OTS and called upon the Corporate Debtor to pay off the debt. Consequently, the Financial Creditor has filed this application second time, which has been admitted by the NCLT vide Order dated 20.08.2019. The Appellant has challenged the admission of the application by the NCLT mainly on the ground that the impugned Order is in violation of the principles of natural justice by not allowing the Appellant Company to submit its Reply to the Company Petition/Application.
The NCLAT, after hearing both the parties, observed that the NCLT had granted several opportunities to the Corporate Debtor for arriving at a settlement, and the second application was filed after the non-adherence to the terms of OTS with the Financial Creditor. Further, in the second application, the NCLT has provided several opportunities to the Corporate Debtor considering the settlement's scope. However, after the failure of any hope of settlement, the Order of admission of the application for initiation of the CIRP of the Corporate Debtor has been passed by the NCLT. The NCLAT also observed no provision under the I&B Code, which provides several opportunities to Corporate Debtor in the hope of the settlement. However, in the present case, NCLT has tried his best to afford ample opportunity for both parties to settle the matter amicably. Therefore, the NCLAT held that the contention of the Appellant that the NCLT Order has been passed without affording an opportunity for filing Reply, in violation of the principle of natural justice, is without any basis. Hence, the appeal was dismissed.
2. Application filed under Section 7 of the I&B Code is barred by Article 137 of the Limitation Act; the Period of limitation commences from the date of default and not from the I&B Code's date of commencement.
Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited & Anr.
[Civil Appeal No. 6347 of 2019]
In a very recent judgment delivered by the hon'ble Supreme Court set aside an order passed by the National Company Law Appellate Tribunal ("NCLAT"), whereby NCLAT had rejected the plea of bar of limitation on the application filed by the Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("I&B Code"), wherein the date of default was 08.07.2011.
The NCALT order was based on two considerations, that is (i) that the right to apply under Section 7 of the I&B Code accrued to the respondent financial creditor only on 01.12.2016 when the I&B Code came into force and (ii) the period of limitation for recovery of possession of the mortgaged property is twelve years based on Article 61(b) of the Limitation Act, 1963, instead of Article 137. The Supreme Court observed that had failed to record any specific finding of the effect of these factors as well as the pendency of the application under Section 19 of The Recovery of Debts Due to the Banks and Financial Institutions Act, 1993 and the fact that corporate debtor had made a prayer for OTS in July 2018.
The judgment referred to various judgments and orders passed by the Hon'ble Supreme Court itself, the NCLAT, and the National Company Law Tribunal ("NCLT"), including BK Educational Services Pvt. Ltd. v. Paras Gupta & Associates. The Hon'ble Supreme Court held in the aforesaid judgment that the Limitation Act shall apply to applications made under Section 7 and 9 on and from the commencement of the I&B Code on 01.12.2016.2. The Supreme Court, through this judgment, clarified that proceedings under the I&B Code could not be initiated based on time-barred claims.
The court further went on to observe:
"The question as to whether the date of enforcement of the Code (i.e.,01.12.2016) provides the starting point of limitation for an application under Section 7 of the Code and hence, the application in question, made in the year 2018, is within limitation, is not even worth devoting much time. A bare look at paragraph 21 of the impugned Order leaves nothing to guess that the Appellate Tribunal's observations had only been assumptive without any foundation. Without any basis, There is nothing in the Code to even remotely indicate if the period of limitation for an application under Section 7 is to commence from the date of commencement of the Code itself. Similarly, nothing provided in the Limitation Act could be taken as the basis to support the proposition, so stated by the Appellate Tribunal. Such observations had been in the teeth of law declared by this court in B. K. Educational Services (supra)."
On a conjoint reading of Section 238-A, inserted vide amendment and the decision in B. K. Educational Services, the Supreme Court reiterated that the limitation provided in Article 137 governs the application under Section 7 of the I&B Code. It was erroneous on the part of the NCLAT to apply any other Article of Limitation Act for Section 7 application. The Supreme Court hence rejected the Section 7 application being barred by limitation. It lifted the moratorium, giving way to the stalled proceedings to be taken up and dealt with by the respective Courts/Tribunals/Authorities.
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