M/S RELIANCE ASSET RECONSTRUCTION COMPANY LTD. vs. M/S HOTEL POONJA INTERNATIONAL PVT. LTD.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION Civil Appeal No.4221 of 2020 M/s. Reliance Asset Reconstruction ..Appellant(s) Company Ltd. Versus M/s Hotel Poonja International Pvt. Ltd. …Respondent(s) J U D G M E N T Indira Banerjee, J. This appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 hereinafter referred to as “IBC”, is against a judgment and order th dated 5 February 2020 passed by the National Company Law Appellate Tribunal, New Delhi, hereinafter referred to as the “NCLAT”, dismissing the Company Appeal (AT) (Insolvency) No. 1011 of 2019 filed by the Appellant, th whereby the Appellant had challenged an order dated 20 August 2019 passed by the Adjudicating Authority, i.e. the National Company Law Tribunal, Bengaluru Bench, hereinafter referred to as the “NCLT” rejecting an application being CP (IB) No.170/BB/2018 filed by the Appellant under Section 7 of the IBC. Signature Not Verified Digitally signed by Chetan Kumar Date: 2021.02.03 14:17:02 IST Reason: 1 2. The Appellant is a company incorporated under the Companies Act, 1956 and registered as a Securitisation and Asset Reconstruction Company, pursuant to Section 3 of the Securitisation and Reconstruction of Financial

referred to as the “Corporate Debtor”, was granted credit/loan facilities

Pursuant to an agreement executed between the Assignor Bank and the

dues from the Corporate Debtor to the Appellant.

Corporation Bank, sanctioned a term loan of Rs.40 Lakhs to the Corporate Debtor. Loan documents were duly executed by the Corporate Debtor through its authorized directors and guarantors, in favour of the Assignor Bank and Corporation Bank, for securing the loan as aforesaid, availed by the Corporate Debtor. 5. By a pari pasu agreement executed by and between the Assignor rd Bank, Corporation Bank, and the Corporate Debtor on 23 November 1987, a pari pasu charge was created on the movable and immovable properties of the Corporate Debtor, in favour of the two banks. 6. The Corporate Debtor failed to repay the loan obtained from the Assignor Bank. The Assignor Bank, therefore, declared the account of the st Corporate Debtor as a “Non Performing Asset” (NPA) on 1 April 1993. 2 th 7. On or about 18 May 1998, the Assignor Bank filed an Original Application No. 547 of 1998 under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 before the Debt Recovery Tribunal (DRT), Andhra Pradesh and Karnataka at Bangalore for recovery of its dues aggregating Rs.2,61,88,403.05/- odd from the Corporate Debtor. 8. It is the case of the Appellant that during the pendency of the said original application, the Corporate Debtor acknowledged and admitted its debt to the Assignor Bank and approached the Assignor Bank for a settlement, subject to payment of a consolidated amount of Rupees 1 Crore, less Rs.25 Lakhs that had already been paid. The Corporate Debtor agreed to pay the balance Rs.75 Lakhs in instalments, along with interest. Accordingly, a settlement was executed between the Assignor Bank and th the Corporate Debtor on 30 June 2001, on the basis of which the DRT th issued a Recovery Certificate on 27 March 2003. 9. The Appellant contends that since the Corporate Debtor failed to pay the settlement amount, the Assignor Bank became entitled to recover the decretal amount from the Corporate Debtor. The Assignor Bank, therefore, filed an application for execution in the DRT, for recovery of the decretal amount of Rs.2,61,88,403.05, after deducting Rs.25 lakhs already paid by the Corporate Debtor. After the execution of the agreement dated rd 03 May 2011, between the Assignor Bank and the Appellant, the Appellant was substituted as applicant in place of the Assignor Bank, in the proceedings before the DRT, and an amended Recovery Certificate was th issued on 13 December, 2012. 3 th 10. On or about 27 July 2018, the Appellant filed a petition before the NCLT, Bengaluru bearing No.CP(IB) No.170/BB/2018 under Section 7 of the IBC against the Corporate Debtor, for initiation of Corporate Insolvency Resolution Process (CIRP). th 11. By an order dated 20 August 2019, the NCLT, dismissed the said petition under Section 7 of the IBC, holding that it was the settled proposition of law that the provisions of the IBC could not be invoked for recovery of outstanding dues, but could only be invoked to initiate CIRP for just reasons. 12. The NCLT, Bengaluru took note of the following relevant facts: “In the instant case, it is not in dispute that Vijaya Bank had sanctioned loan of 40 lakhs to Corporate Debtor on 20.05.1986 and it has defaulted in making payment of the loan as per the terms of the loan agreement. The account of the Corporate Debtor was classified as NPA on 1.04.1993. Vijaya Bank also filed original application OA No.547/1998 before DRT, Bangalore and DRT has decreed and issued a th recovery certificate by issuing an order dated 9 April, 2001. Further, due to non-repayment of the amount as per the order th dated 9 April, 2001, DRT, Bangalore issued another recovery certificate vide DCP no.2691 dated 27.03.2003 directing the Recovery Officer to recover the amount of debt as stated therein. Subsequently, Vijaya Bank assigned the loan disbursed in favour of the Corporate Debtor to the Petitioner/Financial Creditor herein vide Assignment rd Agreement dated 3 May, 2011. Consequently, an amended th recovery certificate dated 13 May, 2011 was issued by the DRT, Bangalore recognizing the assignment to the petitioner/Financial Creditor and vesting rights of recovery with it.” 13. Being aggrieved by the judgment and order of NCLT, Bengaluru dismissing the application of the Appellant under Section 7 of the IBC, the Appellant filed an appeal therefrom, being Company Appeal (AT) (INS.) 4 No.1011 of 2019, before the NCLAT. The Appeal has been dismissed by the judgment and order impugned. 14. The NCLAT also found that the application filed by the Appellant under Section 7 of the IBC was barred by limitation. The NCLAT, however, made it clear that the dismissal of the application under Section 7 of the IBC, would not preclude the appellant from availing the appropriate remedy for redressal of its grievances, in accordance with law, before the competent forum. 15. The application of the Appellant in Statutory Form 1 under Section 7 of the IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 to initiate the Corporate Insolvency Resolution Process (CIRP) is included in the Paper Book filed in this appeal, as Annexure P-7. Part IV of the application relating to the particulars of the financial debt claimed to be due to the Appellant from the Corporate Debtor is extracted hereinbelow:- PART - IV

5 16. The particulars of the financial debt with documents, records and evidence of default are given in Part V of the application. In support of its claim, the Appellant relied on the judgment of the DRT in O.A. No.547/1998, th th dated 9 April, 2001, the Recovery Certificate issued by the DRT dated 27 th March 2003 and an order dated 14 December 2017 in the Execution/ Recovery Proceedings before the DRT, as will appear from Sl. No.2 of Part V of the application before the DRT. rd 17. The Appellant also relied on the Assignment Agreement dated 3 May 2011 (Serial No.5 of Part V); a Statement of Accounts of the Appellant th as on 8 July 2018 along with Certificate under the Bankers Books Evidence rd Act, 1891 (Serial No.7 of Part V); a memo of the Recovery Officer dated 3 June 2011 in the DRT, regarding assignment of the decretal dues of the judgment debtor in favour of the Appellant, and an amended Recovery th Certificate dated 13 December 2012 (Serial No.8 of Part V). 18. Admittedly, as stated in Part IV of the application filed by the Appellant in the NCLT under Section 7 of the IBC, the account of the st Corporate Debtor was declared as Non Performing Asset on 1 April, 1993, that is, over 15 years before the application under Section 5 was filed in the NCLT. 19. It is well settled by a catena of decisions of this Court, that Article 137 of the Limitation Act gets attracted to applications filed under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application under Section 7 of the IBC, the application would be barred 6 under Article 137 of the Limitation Act. At the highest, limitation started th ticking on 27 March 2003, when a Recovery Certificate was issued by the DRT. The appellant has not disclosed any material in its application under Section 7 of the IBC to demonstrate that the application is not barred by limitation. 20. In B.K. Educational Services Private Limited v. Parag Gupta and Associates reported in (2019) 11 SCC 633, this Court held:

21. In Gaurav Hargovindbhai Dave v. Asset Reconstruction Com- pany (India) Ltd. And Ors. reported in (2019) 10 SCC 572, where the ac- count of the Corporate Debtor was declared NPA on 21.7.2011, this Court observed:

22. In Radha Export (India) Private Limited v. K.P. Jayaram reported in (2020) 10 SCC 538, authored by one of us (Justice Indira Banerjee), this Court referred to B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates (supra), and held:

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shown that the debt due to the Appellant from the Corporate Debtor is

when the amount of the Corporate Debtor with the Assignor Bank was declared NPA. In Part IV of its application under Section 7 of the IBC, the

apparently barred by limitation. Even the judgment of the DRT in OA No.547/98 was dated 09.04.2001 and the Recovery Certificate was

an application under Section 7 of the IBC, which is three years from the date of accrual of the right to sue.

acknowledgement of liability in writing, signed by a party in respect of any right or property claimed by such party within the prescribed period of limitation to file a suit and/or application, leads to computation of the period of limitation afresh, from the time when the acknowledgement is so signed.

March 2003. An arrangement between the Assignor Bank and the Appellant and the consequential substitution of the Appellant as party 8 to the Execution/Recovery proceedings in the DRT does not save limitation to initiate proceedings under Section 7 of IBC. In any case, even the amended Recovery Certificate, relied upon by the Appellant, is

was filed almost 6 years after issuance of the amended Recovery Certificate. 26. In Vashdeo R. Bhojwani v. Abhyudaya Cooperative Bank Ltd. & Anr. , reported in (2019) 9 SCC 158, this Court had set aside the orders of the NCLT and the NCLAT, holding that the application under Section 7 of the IBC was time barred, as the loan account had been declared Non rd Performing Asset on 23 December 1999 and thereafter the Debt Recovery th Tribunal had issued a Recovery Certificate dated 24 December 2001. th Insolvency proceedings before the NCLT were admitted on 5 March 2018. 27. In Vashdeo R. Bhojwani (supra), this Court rejected the contention that the default was a continuing wrong and Section 23 of the Limitation Act 1963 would apply, relying upon Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan reported in 1959 Supp (2) SCR 476. 28. To quote P.B. Gajendragadkar, J in Balakrishna Savalram Pujari Wagmare (supra):- “......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 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, 9 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 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. .....” 29. Counsel appearing on behalf of the Appellant has adverted to two documents in the Paper Book, that is, (i) the Balance sheet of the th rd Corporate Debtor dated 16 August 2017 and (ii) a letter dated 23 April 2019 issued by the Corporate Debtor in the Paper Book to contend that the proceedings under Section 7 of the IBC are not barred by limitation, as limitation would start running afresh for a period of three years from the respective dates of those documents as acknowledgement of liability. Reliance is placed upon Section 18 of the Limitation Act. 30. 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 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. 10 31. In Khan Bahadur Shapoor Freedom Mazda v. Durga Prasad Chamaria and Others , reported in AIR 1961 SC 1236, this Court held :- “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 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 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. 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 statement. In construing words used in the statements made 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 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 substantial difference between the parties as to the true legal position in this matter.” 11 32. In the present case, reliance ought not to be placed on the balance th rd sheet dated 16 August 2017 and letter dated 23 April 2019 primarily for two reasons. First, there is no evidence or material to show that the documents were signed before the expiry of the prescribed period of limitation. There is no pleading to the said effect in the application under Section 7 of the IBC filed by the appellant in the statutory form. In fact, the two documents were never relied upon. 33. Secondly, the two documents cannot be construed as admissions that amount to acknowledgment of the jural relationship and existence of th liability. The balance sheet dated 16 August 2017 does not acknowledge or admit any debt. Rather, the Corporate Debtor has disputed and denied its liability. Point (d) of the Report of the independent auditor at page 86 of the paper book reads: “d) Note No. 28 Claims against the Company under adjudication not acknowledged as debts for reasons stated in point (b) and (c) above. Our opinion is not modified in respect of these matters.” Point (d) quoted above read with the immediately preceding sub- paragraph (point c) makes it clear that the Balance Sheet cannot be treated as an acknowledgment of liability. This is also clear from the last sub-heading of Note 27 and Note 28 of the Balance Sheet at page 147 of the paper book, set out hereinbelow: “ As on the date of this report the matter is pending before the Hon’ble High Court of Karnataka, Bangalore . The Board of Directors have decided that no interest be provided in the books of account for the year st ended 31 March 2017. The Board is also of the opinion based on legal advice obtained by it in the matter that no interest be provided in the books till the matter acquires clarity and the entire amount demanded by Reliance except for a sum of 12 Rs.40.00 lakhs be treated as “ contingent liability not provided for ”. The Board is also of the opinion that developments subsequent to the decree of the DRT Bangalore have not been considered by Reliance while demanding the amount of Rs.97.12 crores. These developments have a substantial bearing on the case. Note No. 28 Claims against the Company under adjudication not acknowledged as debt: Commercial and other claims Rs. 113.85 crores Previous Year Rs. 72.92 crores” rd 34. The letter dated 23 April 2019 again is not an acknowledgment and admission of liability. The language and tone of the letter makes it absolutely clear that the liability was denied. The Corporate Debtor contended that it had paid more than the double the amount it had borrowed. Nevertheless, the Corporate Debtor offered a one-time settlement seeking opinion/concurrence of the Appellant with regard to such offer to settle the dispute, which offer was not accepted by the rd Appellant. The relevant part of the letter dated 23 April 2019 is extracted hereinbelow:

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constitute any acknowledgment of liability and were not even referred to by the Appellant in its application under IBC. It is, therefore, not necessary for this Court to delve into the question of whether Section 18 of the Limitation Act is attracted in the case of a petition under Section 7 of the IBC.

under Section 7 of the IBC, the Appellant declared the date of default as

March, 2003, when the Recovery Certificate was issued by the DRT in favour of the Assignor. The NCLAT has rightly held that the application of the Appellant under Section 7 of the IBC barred by limitation.

respect of the dues of the Corporate Debtor. The Appellant has been substituted in place of the Assignor Bank in the execution proceedings in the DRT. There is an amended Certificate issued by the DRT. Orders have, from time to time, been passed in the Execution Proceedings. The Appellant is not without remedy against the Corporate Debtor.

Corporation of Andhra Pradesh Limited v. Equipment Conductors 14

observed as hereunder:-

39. There is no infirmity in the judgment and order of the NCLAT under appeal that calls for interference of this Court. The appeal is therefore, dismissed. ……………………………………………J. [Indira Banerjee] …………………………………………….J. [Sanjiv Khanna] New Delhi; January 21, 2021 15 ITEM NO.7 Court 6 (Video Conferencing) SECTION XVII S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS Civil Appeal No.4221/2020 M/S RELIANCE ASSET RECONSTRUCTION COMPANY LTD. Appellant(s) VERSUS M/S HOTEL POONJA INTERNATIONAL PVT. LTD. Respondent(s) Date : 21-01-2021 This appeal was called on for hearing today. CORAM : HON'BLE MS. JUSTICE INDIRA BANERJEE HON'BLE MR. JUSTICE SANJIV KHANNA For Appellant(s) Mr. Siddharth Dave, Sr. Adv. Ms. Ruchi Kohli, AOR For Respondent(s) UPON hearing the counsel the Court made the following O R D E R 1 The civil appeal is dismissed in terms of the signed reportable judgment. 2 Pending applications, if any, stand disposed of. (CHETAN KUMAR) (SAROJ KUMARI GAUR) A.R.-cum-P.S. Court Master (Signed Reportable Judgment is placed on the file) 16