M/s. Stressed Assets Stabilization Fund (SASF) (Financial Creditor) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 for initiation of the 'Corporate Insolvency Resolution Process' against 'M/s. Uthara Fashion Knitwear Limited'(Corporate Debtor). The Adjudicating Authority (NCLT), Division Bench, Chennai, by the impugned order dated 21st November 2019 admitted the application.
Initially, the plea that was taken by the Appellant is that the Demand Notice was not served before the order of admission was passed on 21st November 2019. Otherwise, the Appellant would have shown that the application under Section 7 was barred by limitation, the account of the 'Corporate Debtor' having been declared as NPA in the year 2009 and the case being decreed in the year 2013.
On notice, the Respondents appeared and relied on the decision of the three Hon'ble Members of this Appellate Tribunal dated 22nd January 2020 in "M/s. Ugro Capital Limited v. M/s. Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd.-Company Appeal. In the said case, the Hon'ble Members of this Appellate Tribunal taking into consideration that the suit was decreed on 22nd May 2015, held that non-payment of debt thereafter amounts to "committed default" in terms of Section 3(12) of the Insolvency and Bankruptcy Code for the first time and in terms of Article 137 of the Limitation Act, 1963, for the purpose of filing an application under Section 7 of the Insolvency and Bankruptcy Code three years from the date the right to apply accrued for the first time from the date of default in terms of the decree.
As the Judgment was doubted, the matter was referred to the Larger Bench to decide the issue. At the request of the 'Corporate Debtor', the 'Industrial Development Bank of India' (IDBI) granted financial assistance of Rs.600 lacs by way of Term Loan Agreement dated 2nd March 2000 to the 'Corporate Debtor' and the loan disbursed was primarily secured by hypothecation of plant and machinery together with machinery spares, tools and accessories, raw materials, semi-finished and finished goods, consumable stores, book debts, and such other movables and equitable mortgage of properties at an estimated value of Rs.790.70 lakhs as was specified in the Memorandum of Entry dated 24th August 2000. The account of the 'Corporate Debtor' was classified as "Non-Performing Asset" on 29th May 2002.
In the year 2003, at the instance of the 'IDBI Bank', Debt Recovery proceeding was initiated under Section 19 of the 'Recovery of Debts Due to Banks and Financial Institutions Act, 1993' now re-numbered. It was decreed on 19th June 2009 and Recovery Certificate was issued on 31st August 2009, which was reflected in the Balance Sheet dated 31st March 2012.
It was argued that the application under Section 7 filed in the year 2019 was barred by limitation. Section 7 relates to 'initiation of corporate insolvency resolution process by financial creditor'. According to section 7(1), the 'Financial Creditor' may file an application for initiation of 'Corporate Insolvency Resolution Process' against a 'Corporate Debtor' before the Adjudicating Authority when 'a default has occurred'.
The issue was whether the application under Section 7 filed in the year 2019 was barred by limitation or not?
National Company Appellate Law Tribunal(NCALT) held that a suit for recovery of money can be filed only when there is a default of dues. Even if the decree is passed, the date of default cannot be shift forward to the date of decree or date of payment for execution as a decree can be executed within a specified period i.e. Twelve years. If it is executable within the period of limitation, one cannot allege that there is a default of decree or payment of dues. Therefore, a decree or a Judgment passed by a Court for recovery of money by Civil Court or Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the Code.