# ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v. TULIP STAR HOTELS LIMITED & ORS

- **Citation:** [2022] 5 S.C.R. 1112
- **Court:** Supreme Court of India
- **Decided:** 2022-08-01
- **Case number:** Civil Appeal Nos. 84-85 of 2020
- **Bench:** Indira Banerjee, J. K. Maheshwari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/asset-reconstruction-company-india-limited-v-tulip-star-hotels-limited-ors-36386
- **Pages:** 59

## Headnote

Insolvency and Bankruptcy Code, 2016 - ss. 7(2), 62 & 238A
- Limitation Act, 1963 - s. 18 - Corporate Insolvency Resolution
Process (CIRP) - Extension of period of limitation -
Acknowledgement in books of account - A loan agreement was
executed between the consortium of banks and the corporate debtor
- Pursuant to which, a loan amount of Rs.129 crore was sanctioned
to corporate debtor - Corporate debtor was classified as nonperforming asset (NPA) - Thereafter, parties entered into a settlement
agreement - There were extensions of time and revised settlements -
Ultimately, the appellant revoked the settlement - Corporate debtor
acknowledged its liabilities towards the appellant in its financial
statement from 2008-09 to 2016-17 - Application was filed by the
appellant u/s 7(2) of IBC before the NCLT for initiation of CIRP
against the corporate debtor - Corporate debtor filed a application
seeking dismissal of application u/s 7(2) as time barred - NCLT
dismissed the application of corporate debtor and admitted the
application for initiation of CIRP - NCLAT held that CIRP was
barred by limitation and the books of account cannot be treated as
an acknowledgement of liability in respect of debt - On appeal,
held: IBC has overriding effect over other laws - There is no specific
period of limitation prescribed in the Limitation Act, 1963, for an
application under the IBC - Therefore, it is to be governed by the
Article 137 of 1963 Act which prescribes period of limitation as 3
years - It is well settled that entries in books of accounts and/or
balance sheets of a corporate debtor would amount to an
acknowledgment u/s. 18 of the Limitation Act - Hence, an application
u/s. 7 of the IBC would not be barred by limitation, if there were an
acknowledgement of the debt by the corporate debtor before expiry
of the period of limitation of 3 years - NCLAT erred in law in holding
that the books of account of a company could not be treated as
acknowledgement - In the present case, corporate debtor
[2022] 5 S.C.R. 1112
1112
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acknowledge its liability in its financial statement from 2008-09 to
2016-17 and the application u/s. 7(2) was filed on 03.04.2018 -
Hence, the application was well within the extended period of
limitation - Impugned Judgment and order of NCLAT set aside.
Allowing the appeals, the Court
HELD:1.Under the scheme of the IBC, the Insolvency
Resolution Process begins, when a default takes place, in the
sense that a debt becomes due and is not paid. Where any
Corporate Debtor commits default, a Financial Creditor, an
Operational Creditor or the Corporate Debtor itself may initiate
Corporate Insolvency Resolution Process in respect of such
Corporate Debtor, in the manner as provided in Chapter II of the
IBC. The provisions of the IBC are designed to ensure that the
business and/or commercial activities of the Corporate Debtor
are continued by a Resolution Professional, upon imposition of a
moratorium, to give the Corporate Debtor some reprieve from
coercive litigation, which could drain the Corporate Debtor of its
financial resources. The IBC is not just a statute for recovery of
debts. It is also not a statute which only prescribes the modalities
of liquidation of a corporate body, unable to pay its debts. It is
essentially a statute which works towards the revival of a corporate
body, unable to pay its debts, by appointment of a Resolution
Professional [Paras 44-46, 55][1130-B; 1146-C-E; 1149-D]
2. IBC has overriding effect over other laws. Section 238
of the IBC provides that the provisions of the IBC shall have
effect, notwithstanding anything inconsistent therewith contained
in any other law, for the time being in force, or any other
instrument, having effect by virtue of such law. The IBC is a
beneficial legislation for equal treatment of all creditors of the
Corporate Debtor, as also the protection of the livelihoods of its
employees/workers, by revival of the Corporate Debtor through
the entrepreneurial s

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SUPREME COURT REPORTS
[2022] 5 S.C.R.
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED
v.
TULIP STAR HOTELS LIMITED & ORS.
(Civil Appeal Nos. 84-85 of 2020)
AUGUST 01, 2022
[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]
Insolvency and Bankruptcy Code, 2016 - ss. 7(2), 62 & 238A
- Limitation Act, 1963 - s. 18 - Corporate Insolvency Resolution
Process (CIRP) - Extension of period of limitation -
Acknowledgement in books of account - A loan agreement was
executed between the consortium of banks and the corporate debtor
- Pursuant to which, a loan amount of Rs.129 crore was sanctioned
to corporate debtor - Corporate debtor was classified as nonperforming asset (NPA) - Thereafter, parties entered into a settlement
agreement - There were extensions of time and revised settlements -
Ultimately, the appellant revoked the settlement - Corporate debtor
acknowledged its liabilities towards the appellant in its financial
statement from 2008-09 to 2016-17 - Application was filed by the
appellant u/s 7(2) of IBC before the NCLT for initiation of CIRP
against the corporate debtor - Corporate debtor filed a application
seeking dismissal of application u/s 7(2) as time barred - NCLT
dismissed the application of corporate debtor and admitted the
application for initiation of CIRP - NCLAT held that CIRP was
barred by limitation and the books of account cannot be treated as
an acknowledgement of liability in respect of debt - On appeal,
held: IBC has overriding effect over other laws - There is no specific
period of limitation prescribed in the Limitation Act, 1963, for an
application under the IBC - Therefore, it is to be governed by the
Article 137 of 1963 Act which prescribes period of limitation as 3
years - It is well settled that entries in books of accounts and/or
balance sheets of a corporate debtor would amount to an
acknowledgment u/s. 18 of the Limitation Act - Hence, an application
u/s. 7 of the IBC would not be barred by limitation, if there were an
acknowledgement of the debt by the corporate debtor before expiry
of the period of limitation of 3 years - NCLAT erred in law in holding
that the books of account of a company could not be treated as
acknowledgement - In the present case, corporate debtor
[2022] 5 S.C.R. 1112
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acknowledge its liability in its financial statement from 2008-09 to
2016-17 and the application u/s. 7(2) was filed on 03.04.2018 -
Hence, the application was well within the extended period of
limitation - Impugned Judgment and order of NCLAT set aside.
Allowing the appeals, the Court
HELD:1.Under the scheme of the IBC, the Insolvency
Resolution Process begins, when a default takes place, in the
sense that a debt becomes due and is not paid. Where any
Corporate Debtor commits default, a Financial Creditor, an
Operational Creditor or the Corporate Debtor itself may initiate
Corporate Insolvency Resolution Process in respect of such
Corporate Debtor, in the manner as provided in Chapter II of the
IBC. The provisions of the IBC are designed to ensure that the
business and/or commercial activities of the Corporate Debtor
are continued by a Resolution Professional, upon imposition of a
moratorium, to give the Corporate Debtor some reprieve from
coercive litigation, which could drain the Corporate Debtor of its
financial resources. The IBC is not just a statute for recovery of
debts. It is also not a statute which only prescribes the modalities
of liquidation of a corporate body, unable to pay its debts. It is
essentially a statute which works towards the revival of a corporate
body, unable to pay its debts, by appointment of a Resolution
Professional [Paras 44-46, 55][1130-B; 1146-C-E; 1149-D]
2. IBC has overriding effect over other laws. Section 238
of the IBC provides that the provisions of the IBC shall have
effect, notwithstanding anything inconsistent therewith contained
in any other law, for the time being in force, or any other
instrument, having effect by virtue of such law. The IBC is a
beneficial legislation for equal treatment of all creditors of the
Corporate Debtor, as also the protection of the livelihoods of its
employees/workers, by revival of the Corporate Debtor through
the entrepreneurial skills of persons other than those in its
management, who failed to clear the dues of the Corporate Debtor
to its creditors. It only segregates the interests of the Corporate
Debtor from those of its promoters/persons in management.
Relegation of creditors to the remedy of coercive litigation against
the Corporate Debtors could be detrimental to the interests of
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v.
TULIP STAR HOTELS LTD.
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the Corporate Debtor and its creditors alike. While multiple
coercive proceedings against a Corporate Debtor in different
forums could impede its commercial/business activities, deplete
its cash reserves, dissipate its assets, moveable and immoveable
and precipitate its commercial death, such proceedings might not
be economically viable for the creditors as well, because of the
length of time consumed in the litigations, the expenses of
litigation, and the uncertainties of realisation of claims even after
ultimate success in the litigation. It is, therefore, imperative that
the provisions of the IBC and the Rules and Regulations framed
thereunder be construed liberally, in a purposive manner to
further the objects of enactment of the statute. [Paras 57, 5961][1150-B-G]
3. There is no specific period of limitation prescribed in the
Limitation Act, 1963, for an application under the IBC, before
the Adjudicating Authority (NCLT). An application for which no
period of limitation is provided anywhere else in the Schedule to
the Limitation Act, is governed by Article 137 of the Schedule to
the said Act. Under Article 137 of the Schedule to the Limitation
Act, the period of limitation prescribed for such an application is
three years from the date of accrual of the right to apply. There
can be no dispute with the proposition that the period of limitation
for making an application under Section 7 or 9 of the IBC is three
years from the date of accrual of the right to sue, that is, the date
of default. [Paras 68 & 69][1152-F-H; 1153-A]
4. 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. It is well settled that entries in books of
accounts and/or balance sheets of a Corporate Debtor would
amount to an acknowledgment under Section 18 of the Limitation
Act. [Paras 83 & 85][1139-E-F; 1160-G]
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5. To sum up, in considered opinion of this Court an
application under Section 7 of the IBC would not be barred by
limitation, on the ground that it had been filed beyond a period of
three years from the date of declaration of the loan account of the
Corporate Debtor as NPA, if there were an acknowledgement of
the debt by the Corporate Debtor before expiry of the period of
limitation of three years, in which case the period of limitation
would get extended by a further period of three years. In this
case, the amount of the Corporate Debtor was declared NPA on
1st December 2008. By a letter dated 7th February, 2011, written
well within three years, the Corporate Debtor acknowledged its
liability and proposed a settlement. This was followed by several
requests of extension of time to make payment and revised
settlements. On 6th April, 2013, the Corporate Debtor sought
extension of time to pay Rs.239,88,27,673 outstanding as on 31st
March 2013. On 19th April, 2013, the Corporate Debtor made
payment of Rs.17,50,00,000/-. On 1st July, 2013, the Corporate
Debtor acknowledged its liability - this was after the Appellant
Financial Creditor revoked the settlement invoking the default
clause. The Corporate Debtor acknowledged its liabilities in its
financial statements from 2008-09 till 2016-17. The application
under Section 7(2) of the IBC was filed on 3rd April 2018, well
within the extended period of limitation. [Paras 97 & 98][1169F-H; 1170-A-B]
Sesh Nath Singh & Anr. v. Baidyabati Sheoraphuli
Cooperative Bank Ltd. 2021 SCC Online SC 244;
Babulal Vardharji Gurjar v. Veer Gurjar Aluminium
Industries (P) Ltd. (2020) 15 SCC 1; B. K. Educational
Services Private Limited v. Parag Gupta and Associates
(2019) 11 SCC 633 : [2018] 12 SCR 794; Swiss
Ribbons Private Limited & Anr. v. Union of India and
Ors. (2019) 4 SCC 17: [2019] 3 SCR 535; Innoventive
Industries Ltd. v. ICICI Bank and Anr. (2018) 1 SCC
407 : [2017] 8 SCR 33; Dena Bank (Now Bank of
Baroda) v. C. Shivakumar Reddy and Another (2021)
10 SCC 330 - relied on.
Asset Reconstruction Company (India) Limited. v. Bishal
Jaiswal and Anr. (2021) 6 SCC 366; Credit &
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v.
TULIP STAR HOTELS LTD.
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SUPREME COURT REPORTS
[2022] 5 S.C.R.
Development Syndicate Now Called I.C.D.S. Ltd. v.
Smithaben H. Patel (Smt.) and Others (1999) 3 SCC 80
: [1999] 1 SCR 555; Gaurav Hargovindbhai Dave v.
Asset Reconstruction Company (India) Ltd. (2019) 10
SCC 572 : [2019] 13 SCR 224; Jignesh Shah v. Union
of India (2019) 10 SCC 750 : [2019] 12 SCR 678;
Radha Exports (India) (P) Ltd. v. K.P. Jayaram (2020)
10 SCC 538; Vashdeo R. Bhojwani v. Abhyudaya Cooperative Bank Ltd. & Ors. (2019) 9 SCC 158 : [2019]
12 SCR 75; Balkrishna Savalram Pujari Waghmare v.
Shree Dhyaneshwar Maharaj Sansthan [1959] 2 Suppl.
2 SCR 476; Laxmi Pat Surana v. Union Bank of India
(2021) 8 SCC 481; Khan Bahadur Shapoor Fredoom
Mazda v. Durga Prasad Chamaria and Others AIR 1961
SC 1236 : [1962] 1 SCR 140; Reliance Asset
Reconstruction Co. Ltd. v. Hotel Poonja International
Pvt. Ltd. 2021 SCC Online SC 289; Lakshmirattan
Cotton Mills Co. Ltd. v. Aluminium Corpn. of India Ltd.
(1971) 1 SCC 67 : [1971] 2 SCR 623 - referred to.
Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff
1961 SCC Cal 128 : AIR 1962 Cal 115; South Asia
Industries (P) Ltd. v. General Krishna Shamsher Jung
Bahadur Rana ILR (1972) 2 Del 712; Hegde Golay
Ltd. v. State Bank of India 1985 SCC Kar 290 : ILR
1987 Kar 2673; Ferro Alloys Corporation Limited v.
Rajhans Steel Limited (1999) SCC Online Pat 1196 -
referred to.
Case Law Reference
(2021) 6 SCC 366
referred to
Para 33
[2017] 8 SCR 33
relied on
Para 39
[1999] 1 SCR 555
referred to
Para 40
[2019] 3 SCR 535
relied on
Para 56
[2019] 13 SCR 224
referred to
Para 69
[2018] 12 SCR 794
relied on
Para 70
[2019] 12 SCR 678
referred to
Para 71
(2020) 10 SCC 538
referred to
Para 72
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(2020) 15 SCC 1
referred to
Para 73
[2019] 12 SCR 75
referred to
Para 74
[1959] 2 Suppl. SCR 476
referred to
Para 74
(2021) 8 SCC 481
referred to
Para 81
[1962] 1 SCR 140
referred to
Para 84
[1971] 2 SCR 623
referred to
Para 94
(2021) 10 SCC 330
referred to
Para 96
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 84-85
of 2020.
From the Judgment and Order dated 11.12.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No.525 of 2019 with Company Appeal (AT) (Insolvency)
No. 627 of 2019.
Neeraj Kishan Kaul, Sr. Adv., Ms. Prerna Priyadarshini, Siddharth
Ranade, Vividh Tandon, Ms. Priyashree Sharma PH, Deepak Joshi,
Ms. Rushali Agarwal, Ms. Samrudhi Chotani, Pakashal Jain, Ms. Saloni
Gupta, Shankh Sengupta, Ms. Tina Abraham, Advs. for the Appellant.
Nakul Dewan, Sr. Adv., Mrs. Shally Bhasin, Mahesh Agarwal,
Ankur Saigal, Himanshu Satija, Rohan Talwar, E. C. Agrawala, Advs.
for the Respondents.
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
1. These appeals under Section 62 of the Insolvency and
Bankruptcy Code 2016 (IBC) filed by the Financial Creditor, Asset
Reconstruction Company (India) Limited are against a common judgment
and final order dated 11th December 2019 passed by the National
Company Law Appellate Tribunal (NCLAT), allowing Company Appeal
(AT)(Insolvency) No.525 of 2019 and Company Appeal(AT) (Insolvency)
No.627 of 2019 and holding that the Corporate Insolvency Resolution
Process (CIRP) initiated by the Appellant against the Corporate Debtor,
V. Hotels Ltd. was barred by limitation.
2. The Respondent No.1, Tulip Star Hotels Limited and the
Respondent No.2 Tulip Hotels Private Limited are the shareholders of
the Corporate Debtor, V. Hotels Limited. The Respondent Nos. 1 and 2
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v.
TULIP STAR HOTELS LTD.
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[2022] 5 S.C.R.
each hold 50% share in the Corporate Debtor. Mr. Ajit B. Kerkar is the
Managing Director of the Respondent No.1, Tulip Star Hotel Limited,
Chairman of the Respondent No.2, Tulip Hotels Private Limited and
also the Chairman of the Corporate Debtor.
3. On or about 8th March 2002, a loan agreement was executed
by and between a consortium of banks consisting of Bank of India, Punjab
National Bank, Union Bank of India, Vijaya Bank, Canara Bank and
Indian Bank, led by Bank of India (hereinafter referred to collectively as
the Consortium) and the Corporate Debtor, pursuant to which the
Consortium collectively sanctioned loan to the extent of Rs.129,00,00,000/
- (Rupees One Hundred and Twenty-Nine Crore Only) to the Corporate
Debtor.
4. On 5th June 2003, the Corporate Debtor entered into an
arrangement with Abu Dhabi Commercial Bank (ADCB) whereby
ADCB agreed to advance USD 29,000,000/- to the Corporate Debtor
for repayment of the loan taken by the Corporate Debtor from the
Consortium under the loan agreement executed on 8th March 2002. It is
stated that the Corporate Debtor repaid the amount disbursed by Bank
of India to the Corporate Debtor under the said loan agreement from out
of funds disbursed to the Corporate Debtor by ADCB, between August
and December 2003.
5. In August/ September 2008, a bank guarantee issued by Bank
of India in favour of ADCB, on behalf of the Corporate Debtor was
invoked by ADCB and Bank of India paid Rs.24,49,59,208/- (Twenty
Four Crores Forty Nine Lakhs Fifty Nine Thousand Two Hundred and
Eight) to ADCB under the Bank Guarantee.
6. Around the same time, Bank of India, Punjab National Bank
and Union Bank of India also converted their facility under the loan
agreement into a non-fund-based bank guarantee.
7. On 1st December 2008, the account of the Corporate Debtor in
the Bank of India was classified as non-performing asset (NPA) and on
31st December 2008, an assignment agreement was executed by Bank
of India assigning its receivables to the Appellant Financial Creditor.
8. By a letter dated 7th February 2011 addressed to the Appellant,
the Corporate Debtor proposed a settlement which is as follows:-
(i) The Corporate Debtor would pay interest to the Appellant
Financial Creditor at an average rate of 21% per annum at
quarterly rests.
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(ii) The Corporate Debtor would pay a sum of Rs.9,02,00,000/
- being 10% of the aggregate assigned debt to the Appellant
Financial Creditor immediately on acceptance of the
settlement.
(iii) The Corporate Debtor proposed that the balance
aggregate assigned debt of Rs.154,13,00,000/- along with
interest accrued thereon from the date of the payment of the
initial amount up to 30th September 2011 would be repaid in
three equated monthly instalments beginning from 15th October
2011.
9. On or about 10th February 2011, the Corporate Debtor submitted
a revised proposal offering to pay interest on its outstanding dues to the
Appellant at the rate of 22% per annum with monthly rests with effect
from 1st July 2010. The Corporate Debtor also offered to pay
Rs.10,00,00,000/- to the Appellant immediately upon acceptance of the
revised proposal.
10. The Corporate Debtor also agreed to pay the settlement amount
of Rs.150,75,83,970/- being the aggregate assigned debt as on 30th June
2010 along with interest at the rate of 22% per annum compounded at
monthly rests from 1st July 2010 till 30th September 2011.
11. On or about 28th February 2011 the parties entered into a
Settlement Agreement, the key terms whereof were as follows:-
(i) The Corporate Debtor agreed to pay the settlement amount
of Rs.150,75,83,970/- (Rupees One Hundred Fifty Crores
Seventy-Five Lakhs Eighty-three Thousand Nine Hundred and
Seventy Only) being the Aggregate amount in default as on
30th June 2010 along with the accrued interest at the rate of
22% per annum to be compounded at monthly rests from 1st
July 2010 till 30th September 2011.
(ii) Rs. 10,00,00,000/- (Rupees Ten Crore Only) would be paid
as upfront payment upon execution of the Settlement
Agreement.
(iii) The balance amount after adjusting the upfront payment
of Rs.10,00,00,000/- (Rupees Ten Crore Only) would be repaid
on or before 30th September 2011.
12. On 12th September 2011, the Corporate Debtor addressed a
letter to the Appellant, seeking an extension of time till 30th September
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v.
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
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2012 to pay its balance outstanding dues towards principal and interest.
The Corporate Debtor acknowledged that its aggregate outstanding
liability towards principal and interest to the Appellant was
Rs.176,83,00,000/-. The Corporate Debtor offered to make an interim
payment of Rs.15,00,00,000/- (Rupees Fifteen Crores Only) by
31st December 2011. On 29th September 2011, the agreement between
the Corporate Debtor and the Appellant was modified.
13. On 30th December 2011, the Appellant accepted the request
of the Corporate Debtor for extension, subject to the condition that the
Corporate Debtor would pay Rs.15,00,00,000/- (Rupees Fifteen Crores
Only) by 31st December 2011, and the balance portion of the aggregate
assigned debt totalling Rs.150,75,83,970/-, outstanding as on 30th June
2010, along with accrued interest at the rate of 22% per annum, to be
compounded at monthly rests from 1st July 2010 till the date of payment,
that is, 31st March 2012.
14. On 17th March 2012, the Corporate Debtor confirmed that the
aggregate assigned debt outstanding as on 31st March 2012 was
Rs.192,89,46,697/- and requested for a further extension of time from
31st March 2012 to 31st December 2012 to pay the outstanding amounts.
15. On 6th August 2012, the Appellant accepted the aforesaid
extension request and agreed to the extension for repayment of the
aggregate assigned debt outstanding as on 30th September 2012.
16. On 10th September 2012, the Corporate Debtor sought further
extension till 31st March 2013 for payment of outstanding principal and
interest aggregating to Rs.211,35,16,073/-. On 5th December 2012, the
Appellant accepted the extension subject to payment of processing fee
of Rs.25,00,000/-.
17. On 6th April 2013, the Corporate Debtor again sought extension
of the date for repayment of the then outstanding amount. The Corporate
Debtor acknowledged the outstanding aggregate assigned debt (inclusive
of principal and interest) which had increased to Rs.239,88,27,673/- as
on 31st March 2013. The Corporate Debtor offered to make an interim
payment of Rs.91,00,00,000/- (Indian Rupees Ninety One Crores Only)
by 31st August 2013 and the balance outstanding amounts by
30th September 2013.
18. On 19th April 2013, the Corporate Debtor paid Rs.17,50,00,000/
- to the Appellant, towards part repayment of the aggregate assigned
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debt. On 29th May 2013, the Appellant again accepted the request of the
Corporate Debtor for extension of time.
19. Ultimately, on 17th June 2013, the Appellant revoked the
settlement and in terms of the default obligations under the Settlement
Agreement, the rate of interest under the Deed of Variation was revised
to 22%. By its letter dated 1st July 2013, the Corporate Debtor
acknowledged its obligation to repay the aggregate assigned debt inclusive
of interest.
20. On 10th July 2013, the Appellant sent the Corporate Debtor a
notice under Section 13(2) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(SARFAESI Act) in order to enforce security interests against the
Corporate Debtor. On 14th October 2013, the Appellant, through its
authorized officer, issued a possession notice under Section 13(4) of the
SARFAESI Act.
21. On 6th May 2014, the Appellant invoked the personal guarantee
of Mr. Ajit Kerkar, Managing Director of the Corporate Debtor. The
aggregate assigned debt as on 6th May 2014 of principal and interest at
22% per annum was Rs.235,46,34,381/-.
22. The Corporate Debtor apparently acknowledged its liabilities
towards the Appellant in its Financial Statements from 2008-09 to 201617.
23. The Appellant has filed an application to bring on record
additional documents which were part of the records below including
the copies of the financial statements.
24. Mr. Neeraj Kishan Kaul, Senior Advocate appearing on behalf
of the Appellant, rightly submitted that the Financial Statements provide
a true and fair view of the state of affairs of a company in view of
Sections 128 and 129 read with Section 134 of the Companies Act 2013
as also Sections 210, 211, 215, 216 and 217 of the Companies Act, 1956.
25. On 3rd April 2018, the Appellant, as Financial Creditor, filed an
application under Section 7(2) of the IBC in the National Company Law
Tribunal (NCLT), Mumbai for initiation of the Corporate Insolvency
Resolution Process (CIRP) against the Corporate Debtor which was
registered and numbered CP(IB) No.532 of 2018.
26. The Corporate Debtor filed a Miscellaneous Application being
Misc. App. No.693 of 2018 in CP (IB) No.532 of 2018 before the NCLT,
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v.
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
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Mumbai praying for dismissal of the application of the Appellant under
Section 7(2) of the IBC, inter alia, contending that the application was
barred by limitation. By an order dated 1st May 2019, the Adjudicating
Authority (NCLT), Mumbai dismissed the said Miscellaneous Application
filed by the Corporate Debtor.
27. By an order dated 31st May 2019, the Adjudicating Authority
(NCLT) admitted the said application under Section 7(2) of the IBC and
appointed one Mr. Anish Nanavaty as the Interim Resolution Professional
(IRP). The Committee of Creditors confirmed the appointment of Mr.
Anish Nanavaty as the Resolution Professional of the Corporate Debtor.
28. The Corporate Debtor filed an appeal being Company Appeal
(AT) (Insolvency) No.525 of 2019 before NCLAT against the order
dated 1st May 2019, dismissing the Miscellaneous Application filed by
the Corporate Debtor, seeking dismissal of the application of the Appellant
Financial Creditor under Section 7(2) of the IBC.
29. The shareholders of the Corporate Debtor, that is, the
Respondent No.1, Tulip Star Hotels Limited and the Respondent No.2,
Tulip Hotels Private Limited, filed an appeal being Company Appeal
(AT) (Insolvency) No.627 of 2019 in the NCLAT against the order dated
31st May of the Adjudicating Authority, admitting the application of the
Appellant under Section 7(5)(a) of the IBC.
30. Both the appeals have been allowed by the common judgment
of the Appellate Tribunal (NCLAT) dated 11th December 2019, impugned
in these appeals.
31. On behalf of the Corporate Debtor, it has been argued:
(i) There is no debt due and payable from the Corporate Debtor
to the Appellant. The amounts advanced by the Consortium to the
Corporate Debtor have been repaid.
(ii) In the statutory notice issued by the Appellant to the Corporate
Debtor under Section 13(2) of the SARFAESI Act, the Appellant
had claimed that principal amount of Rs.90.35 Crores was due
from the Corporate Debtor to the Appellant.
(iii) The Corporate Debtor has paid the Appellant much more
than the Principal amount claimed by the Appellant, as per the
table set out below:-
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(iv) Even though the principal amount had been paid in the full, in
the Application under Section 7 of the IBC, the Appellant claimed
that principal amount of Rs.35,43,72,852/- and
towards interest.
(v) There is no amount outstanding towards principal, and there is
a long standing dispute in respect of the amount of interest payable
by the Corporate Debtor to the Appellant.
(vi) In the Application under Section 7 of the IBC, the Appellant
has claimed a principal amount of Rs.35,43,72,852/- and interest
of Rs.149,91,24,581/- on the basis of the settlement agreement
dated 28.02.2011 which was later revoked by the Appellant on
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v.
TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.]
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17.06.2013. The amount of principal claimed in the Application
under Section 7 of the IBC is at complete variance with the
principal amount claimed in the statutory Notice under Section
13(2) of the SARFAESI Act.
(vii) By an order dated 19.10.2018, passed in relation to
proceedings between the Appellant and the Corporate Debtor in
the Debt Recovery Tribunal, the High Court had held that the
Appellant was not entitled to claim 22% interest since it had
revoked the settlement agreement on the basis of which such
interest had been claimed.
(viii) The High Court had, by its aforesaid order dated 19.10.2018,
directed DRT to determine the interest payable by the Corporate
Debtor to the Appellant. Since no determination has been done by
the DRT, the interest amount has not become due and payable.
(ix) The Appellant could not have appropriated the amounts paid
by the Corporate Debtor towards interest.
(x) The principal having been paid and the interest not being due,
there is no financial debt payable by the Corporate Debtor to the
Appellant.
(xi) The Application of the Appellant under Section 7 of the IBC
is hopelessly barred by limitation, the same having been filed about
eight/nine years after the account of the Corporate Debtor was
declared NPA on 01.12.2008.
(xii) Even assuming the Corporate Debtor had acknowledged
liability, the last letter of acknowledgment was written in April
2013. The period of limitation still expired in April 2016.
(xiii) The Corporate Debtor has not acknowledged any debt in its
financial statements.
(xiv) The Corporate Debtor and/or its Promoters have paid its
entire Principal dues to the CoC (Committee of Creditors)
consisting of the Appellant and Pegasus.
32. The NCLAT held:
"23. In the present case, 'Asset Reconstruction Company
(India) Ltd.'- ('Financial Creditor') has failed to bring on
record any acknowledgment in writing by the 'Corporate
Debtor' or its authorised person acknowledging the liability
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in respect of debt. The Books of Account cannot be treated as
an acknowledgement of liability in respect of debt payable to
the 'Asset Reconstruction Company (India) Ltd.'- ('Financial
Creditor') signed by the 'Corporate Debtor' or its authorised
signatory.
****
25. In fact, the case of 'Asset Reconstruction Company (India)
Ltd.'- ('Financial Creditor') is covered by its own decision in
"Gaurav Hargovindbhai Dave v. Asset Reconstruction
Company (India) Ltd. And Another" (supra)
26. The Adjudicating Authority having failed to appreciate
the aforesaid fact, the impugned order dated 1st May, 2019
rejecting the objections of the 'Corporate Debtor' and the
impugned order dated 31st May, 2019 passed by the
Adjudicating Authority admitting the application under
Section 7 are set aside. 'V. Hotels Limited'- ('Corporate
Debtor') is released from all the rigours of law and is allowed
to function independently through its Board of Directors from
immediate effect. The 'Interim Resolution Professional'/
'Resolution Professional' will submit its fees and costs of
'Corporate Insolvency Resolution Process' before the
Adjudicating Authority who will determine the same and
amount as is payable is to be paid by 'Asset Reconstruction
Company (India) Ltd.' who moved application under Section
7 which was not maintainable. The 'Interim Resolution
Professional' will hand over the management, assets and
records to the Board of Directors.
Both the appeals are allowed. No costs."
33. Citing Asset Reconstruction Company (India) Limited. v.
Bishal Jaiswal and Anr 1 Mr. Nakul Dewan, Senior Advocate argued
that all financial statements issued by a company would not amount to
acknowledgment for the purpose of Section 18 of the Limitation Act and
thereby extend the period of limitation under the Code.
34. In Bishal Jaiswal (supra) this Court:
"21. Importantly, this judgment in Bengal Silk Mills [Bengal
Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine
1 (2021) 6 SCC 366
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v.
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Cal 128 : AIR 1962 Cal 115] holds that though the filing of a
balance sheet is by compulsion of law, the acknowledgment
of a debt is not necessarily so. In fact, it is not uncommon to
have an entry in a balance sheet with notes annexed to or
forming part of such balance sheet, or in the auditor's report,
which must be read along with the balance sheet, indicating
that such entry would not amount to an acknowledgment of
debt for reasons given in the said note.
***
35. A perusal of the aforesaid sections would show that there
is no doubt that the filing of a balance sheet in accordance
with the provisions of the Companies Act is mandatory, any
transgression of the same being punishable by law. However,
what is of importance is that notes that are annexed to or
forming part of such financial statements are expressly
recognised by Section 134(7). Equally, the auditor's report
may also enter caveats with regard to acknowledgments made
in the books of accounts including the balance sheet. A
perusal of the aforesaid would show that the statement of law
contained in Bengal Silk Mills [Bengal Silk Mills Co. v. Ismail
Golam Hossain Ariff, 1961 SCC OnLine Cal 128 : AIR 1962
Cal 115] , that there is a compulsion in law to prepare a
balance sheet but no compulsion to make any particular
admission, is correct in law as it would depend on the facts of
each case as to whether an entry made in a balance sheet
qua any particular creditor is unequivocal or has been entered
into with caveats, which then has to be examined on a case
by case basis to establish whether an acknowledgment of
liability has, in fact, been made, thereby extending limitation
under Section 18 of the Limitation Act."
35. The Respondents argued that the Appellant was relying on
the Financial Statements from 2014-15 onwards as acknowledgments
to save limitation. It was argued that the said Financial Statements would
not constitute acknowledgement for the reasons as demonstrated in the
Written Notes of submissions of the Corporate Debtor reproduced
hereinbelow:
(i) Financial Statement for 2014-15 (Pages 6-18 of IA 125766)
wherein:
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(a) At page 8 of IA 125776, it is stated that 'indebtness' is to be
read with Note No.5 in the notes of Accounts.
(b) At page 15-16 of IA, in the Notes of Accounts, the Respondent
No.3 has clearly stated that pursuant to the Orders of this Court,
the parties entered into a Settlement which was unilaterally revoked
by the Appellant on 17.06.2013 and thus the Respondent No.3
had been legally advised that the interest for the loans cannot be
22% as stated in the revoked settlement but 12.85% and that the
rate of interest will be subject to the decision of the DRT, Mumbai.
(ii) Financial Statement for 2015-2016 (Pages 19-30 of IA 125766),
wherein similar disputes are raised in the notes (at page 21, 29-30 of
IA).
(iii) Financial Statement for 2016-17 (pages 31-42 of IA 125766)
where a similar statement is made as stated above in the Notes to the
Financial Statement for 2015-16 (at page 33, 41-42 of IA).
36. Counsel argued that a perusal of the above Statements from
2014-2015 to 2016-2017 shows that the Corporate Debtor has not made
any unequivocal acknowledgment of debt and has further questioned
the interest sought to be recovered by the Appellant. Thus, it is submitted
that the present case falls within the category provided in the judgment
in Bishal Jaiswal (supra), where this Court noted that "it would depend
on the facts of each case as to whether an entry made in a balance
sheet qua any particular creditor is unequivocal or has been entered
into with caveats, which then has to be examined on a case by case
basis to establish whether an acknowledgment of liability has, in
fact, been made, thereby extending limitation under Section 18 of
the Limitation Act."
37. It was also argued that contrary to the claims of the Appellant,
the recovery in the present case is not of "public monies". Nor is the
recovery beneficial to the public. There is no public funding in the form
of holdings by any Public Sector Banks in the subject transaction. Such
arguments are irrelevant to the issue in this appeal of whether the
Application of the Appellant Financial Creditor under Section 7 of the
IBC should have been rejected, and that too on the sole ground of the
same being barred by limitation.
38. For the purpose of computing limitation, the most relevant
balance-sheet is the balance-sheet for the financial year 2014-15, which,
ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v.
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as pointed out by Mr. Kaul, was signed on 14.5.2015. The balance-sheet
acknowledged the continuance of the jural relationship of debtor and
creditor between the Appellant and the Corporate Debtor and the existence
of financial liability of the Corporate Debtor to the Appellant. The only
remark made by the Corporate Debtor related to the rate of interest
which, according to the Corporate Debtor, would be 12.85% and not
22% in view of the revocation of the Settlement Agreement by the
Appellant. The application of the Appellant under Section 7 of the IBC
was filed on 3.4.2018, well within three years from 14.5.2015, being the
date on which the balance-sheet was signed. Similarly, the balance-sheet
for the following financial year signed on 29.8.2016 also acknowledged
the existence of jural relationship of debtor and creditor between the
Appellant and the Corporate Debtor and the existence of financial liability
of the Corporate Debtor to the Appellant. The balance-sheet only
contained a similar additional remark with regard to the rate of interest.
39. As held by this Court in Innoventive Industries Ltd. v. ICICI
Bank and Anr2., the Adjudicating Authority, considering an application
under Section 7 of the IBC, is only required to see if there is the existence
of a debt and default. Any dispute with regard to the quantum of debt is
immaterial. The relevant part of the judgment of this Court in Innoventive
Industries Ltd. (supra) is set out hereinbelow:-
"29. The scheme of Section 7 stands in contrast with the scheme
under Section 8 where an operational creditor is, on the
occurrence of a default, to first deliver a demand notice of
the unpaid debt to the operational debtor in the manner
provided in Section 8(1) of the Code. Under Section 8(2), the
corporate debtor can, within a period of 10 days of receipt
of the demand notice or copy of the invoice mentioned in
sub-section (1), bring to the notice of the operational creditor
the existence of a dispute or the record of the pendency of a
suit or arbitration proceedings, which is pre-existing-i.e.
before such notice or invoice was received by the corporate
debtor. The moment there is existence of such a dispute, the
operational creditor gets out of the clutches of the Code.
30. On the other hand, as we have seen, in the case of a
corporate debtor who commits a default of a financial debt,
the adjudicating authority has merely to see the records of
2 (2018) 1 SCC 407
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the information utility or other evidence produced by the
financial creditor to satisfy itself that a default has occurred.
It is of no matter that the debt is disputed so long as the debt
is "due" i.e. payable unless interdicted by some law or has
not yet become due in the sense that it is payable at some
future date. It is only when this is proved to the satisfaction of
the adjudicating authority that the adjudicating authority may
reject an application and not otherwise."
40. As argued by Mr. Kaul appearing on behalf of the Appellant,
any part payments made by the Respondent would first be appropriated
towards the interest amount due, as held by this Court in Industrial
Credit & Development Syndicate Now Called I.C.D.S. Ltd. v.
Smithaben H. Patel (Smt.) and Others3.
41. In Industrial Credit & Development Syndicate (supra), this
Court held :-
6. In Venkatadri
Appa
Row v. Parthasarathi
Appa
Row [(1920-21) 48 IA 150 : AIR 1922 PC 233] the Judicial
Committee of the Privy Council had held that upon taking an
account of principal and interest due, the ordinary rule with
regard to payments by the debtor unappropriated either to
principal or interest is that they are first to be applied to the
discharge of the interest. This Court in Meghraj v. Bayabai
[(1969) 2 SCC 274: (1970) 1 SCR 523] reiterated the position
of law and held that the normal rule was that in the case of a
debt due with interest, any payment made by the debtor was
in the first instance to be applied towards satisfaction of
interest and thereafter to the principal. It was for the debtor
to plead and prove the agreement, if any, that the amounts
paid or deposited in the Court by him were accepted by the
creditor/decree-holder subject to the condition imposed by
him. ..."
42. Even otherwise, in this case, the quantum of debt was well in
excess of Rs. 1 crore and many times in excess of Rs.1 lakh, being the
threshold amount under the IBC for initiation of CIRP proceedings at
the material time. Subsequently, in 2020, the threshold limit was enhanced
to Rs.1 crore.
3 (1999) 3 SCC 80
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43. In our view, the NCLAT erred in law in holding that the Books
of Account of a company could not be treated as acknowledgement of
liability in respect of debt payable to a financial creditor.
44. Under the scheme of the IBC, the Insolvency Resolution
Process begins, when a default takes place, in the sense that a debt
becomes due and is not paid.