Case Note & Summary
The Supreme Court allowed an appeal by the State Bank of India (SBI) against the rejection of its application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against Krishidhan Seeds Private Limited (the corporate debtor). The background of the dispute involves credit facilities extended by SBI to the respondent from 30 November 2006, with an outstanding amount of Rs 102.4 crores as of 24 June 2013. The respondent defaulted, and its account was declared a Non-Performing Asset (NPA) on 10 June 2014. SBI pursued recovery under the SARFAESI Act and RDDBFI Act while negotiating with the respondent. The respondent offered a one-time settlement (OTS) of Rs 61 crores in January 2016, which was conditionally accepted, but later revised to Rs 40.6 crores in September 2017, which SBI refused. On 19 September 2018, SBI filed an application under Section 7 IBC for initiation of Corporate Insolvency Resolution Process (CIRP), claiming a default of approximately Rs 189 crores as of 30 June 2018, with the date of default as 10 June 2014 (NPA date). The National Company Law Tribunal (NCLT) rejected the application on 16 September 2020, holding it barred by limitation under Article 137 of the Limitation Act, 1963, as it was filed beyond three years from the NPA date. The NCLT relied on the NCLAT decision in V Padmakumar, which held that balance sheet entries cannot be treated as acknowledgments under Section 18 of the Limitation Act. The National Company Law Appellate Tribunal (NCLAT) upheld the NCLT order on 17 November 2020, adding that the date of default could not be shifted or extended. In the Supreme Court, SBI argued that the limitation period was extended by acknowledgments of debt, including in balance sheets and the OTS letters. The Supreme Court noted that the decision in V Padmakumar had been overruled by a three-Judge Bench in Asset Reconstruction Company (India) Limited v Bishal Jaiswal, which held that balance sheet acknowledgments can extend limitation under Section 18 of the Limitation Act. The Court also relied on Sesh Nath Singh v Baidyabati Sheoraphuli Coop. Bank Ltd. and Laxmi Pat Surana v Union Bank of India, which held that Section 18 applies to IBC proceedings. The Court further observed that acknowledgments in balance sheets without qualification can be relied upon, as per Asset Reconstruction Company. The Supreme Court set aside the orders of the NCLT and NCLAT and remanded the matter to the NCLT for fresh consideration on the question of limitation, taking into account the acknowledgments of debt, including those in balance sheets and the OTS letters. The Court directed that the NCLT shall decide the application afresh in accordance with law.
Headnote
A) Insolvency and Bankruptcy Code - Limitation - Section 7 IBC read with Section 18 of Limitation Act, 1963 - Acknowledgment of Debt - The issue was whether an application under Section 7 IBC filed beyond three years from the date of NPA is barred by limitation. The Supreme Court held that the limitation period can be extended by acknowledgments of debt under Section 18 of the Limitation Act, including acknowledgments in balance sheets. The Court overruled the NCLAT decision in V Padmakumar and followed the three-Judge Bench decisions in Asset Reconstruction Company, Laxmi Pat Surana, and Sesh Nath Singh. The Court set aside the orders of NCLT and NCLAT and remanded the matter for fresh consideration on limitation based on acknowledgments. (Paras 8-12) B) Limitation Act - Acknowledgment of Liability - Section 18 of Limitation Act, 1963 - Balance Sheet as Acknowledgment - The Supreme Court held that an acknowledgment in a balance sheet without qualification can be relied upon to extend limitation under Section 18 of the Limitation Act for proceedings under the IBC. The Court relied on Asset Reconstruction Company (India) Limited v Bishal Jaiswal, which held that the statement in Bengal Silk Mills is correct: there is compulsion to prepare a balance sheet but no compulsion to make any particular admission; each case must be examined to see if the entry is unequivocal. (Para 11) C) Insolvency and Bankruptcy Code - Default - Date of Default - Section 7 IBC read with Section 3(12) IBC - NPA Declaration - The Supreme Court clarified that the date of default under Section 7 IBC is not necessarily the date of NPA; default occurs when debt becomes due and payable and is not paid. However, the Court noted that the NCLT and NCLAT had erred in treating the NPA date as the sole date of default without considering acknowledgments that could extend limitation. (Paras 5, 10)
Issue of Consideration
Whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed beyond three years from the date of NPA is barred by limitation, or whether the limitation period can be extended by acknowledgments of debt under Section 18 of the Limitation Act, 1963, including acknowledgments in balance sheets.
Final Decision
The Supreme Court allowed the appeal, set aside the orders of NCLT and NCLAT, and remanded the matter to NCLT for fresh consideration on the question of limitation, taking into account the acknowledgments of debt, including those in balance sheets and the OTS letters. The NCLT shall decide the application afresh in accordance with law.
Law Points
- Limitation for Section 7 IBC application can be extended by acknowledgment of debt under Section 18 of Limitation Act
- 1963
- including acknowledgment in balance sheet
- date of NPA is not the only date of default
- acknowledgment in balance sheet without qualification can extend limitation
- V Padmakumar overruled
- Sesh Nath Singh
- Laxmi Pat Surana
- Asset Reconstruction Company followed.
