# KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION PARTS PRIVATE LIMITED & ORS

- **Citation:** [2022] 19 S.C.R. 212
- **Court:** Supreme Court of India
- **Decided:** 2022-08-05
- **Case number:** Civil Appeal No. 2176 of 2020
- **Bench:** Indira Banerjee, J. K Maheshwari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kotak-mahindra-bank-limited-v-kew-precision-parts-private-limited-ors-36225
- **Pages:** 30

## Headnote

Insolvency and Bankruptcy Code, 2016 - ss. 7, 8, 9, 14, 238A
- The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002 - s. 13 (2) - Limitation
Act 1963 - Schedule - Art.137 and ss. 5, 18 - Appellant sanctioned
loan/credit facilities to Respondent and necessary documents were
executed between them on 29.11.2012 - Between 23.11.2012 and
31.12.2013, loan amounts were disbursed - Respondent mortgaged
its assets in favour of the Appellant by memorandum dated
13.12.2013 - Respondent defaulted in repaying the dues, hence
declared NPA by the Appellant on 30.09.2015 - On 19.11.2017,
Appellant issued statutory notice u/s. 13(2) of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act 2002 - Respondent admitted its liability to the Appellant
and offered a one-time settlement at two instances - On 20.12.2018
settlement was signed and executed - Respondent defaulted in
repayment of settled amount - On 2.01.2019, Appellant filed an
application u/s. 7 of the IBC for initiating Corporate Insolvency
Resolution Process (CIRP) before NCLT - Admitting the application,
NCLT imposed a moratorium in terms of s. 14 of the Insolvency and
Bankruptcy Code (IBC) - The suspended Directors of the
Respondent filed an appeal before NCLAT contending that the
petition filed by the Appellant was patently barred by limitation -
NCLAT allowing the appeal held that the time when debt of nonpayment of due took place and that of the date of filing application
u/ s. 7 is beyond limitation - Aggrieved, the appellant filed appeal
u/s. 62 of IBC, 2016 - Held: NCLAT did not consider the question
of applicability of Section 5 of the Limitation Act for condonation
of delay, to proceedings under Section 7 of the IBC - If no limitation
period is provided anywhere else in the Schedule to the Limitation
Act, Article 137 of the Schedule of the Act would be attracted which
provides that the period of limitation prescribed for such an
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application is three years from the date of accrual of the right to
apply - CIRP proceedings were closed without giving the Appellant
the opportunity to explain if there was sufficient cause for the delay
in approaching the NCLT - An appeal being the continuation of
original proceedings, the provision of Section 7(5)(b) of the IBC of
notifying the Financial Creditor before rejection of a claim, would
be attracted and the Appellant might have got the opportunity to
rectify the defects in its application under Section 7 by filing
additional pleadings and/or documents - Hence, the impugned
judgment and order of the NCLAT is set aside to the extent that the
CIRP proceedings have been closed.
Allowing the appeal, the Court
HELD:
1.1 It is the case of the Appellant Financial Creditor that
on 12th December 2018 the Corporate Debtor made an offer of
one- time settlement at Rs.15 Crores. This offer was not accepted.
On 19th December 2018, the Corporate Debtor revised its offer
to Rs.20 Crores for one time settlement. This offer was also not
accepted. On 20th December 2018, the Corporate Debtor again
revised its offer for one time settlement. This time the Corporate
Debtor offered to settle the outstanding dues of the Financial
Creditor upon payment of Rs. 24,55,00,000/- to be paid within
31st December 2018. This offer was accepted, and terms of
settlement were signed. [Para 27][226-D-F]
1.2 From Section 25 of the Indian Contract Act, it is clear
that any agreement to pay a time barred debt, would be
enforceable in law, within three years from the due date of
payment, in terms of such agreement. It appears that Section
25(3) of the Indian Contract Act was not brought to the notice of
the NCLAT. The NCLAT also did not consider the aforesaid
Section. [Para 29][228-B]
1.3 Section 25(3) applies only where the debt is one which
would be enforceable against the Defendants, but for the law of
limitation. Where a debt is not binding on the Defendant for

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[2022] 19 S.C.R.
[2022] 19 S.C.R. 212
212
KOTAK MAHINDRA BANK LIMITED
v.
KEW PRECISION PARTS PRIVATE LIMITED & ORS.
(Civil Appeal No. 2176 of 2020)
AUGUST 05, 2022
[INDIRA BANERJEE AND J. K MAHESHWARI, JJ.]
Insolvency and Bankruptcy Code, 2016 - ss. 7, 8, 9, 14, 238A
- The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002 - s. 13 (2) - Limitation
Act 1963 - Schedule - Art.137 and ss. 5, 18 - Appellant sanctioned
loan/credit facilities to Respondent and necessary documents were
executed between them on 29.11.2012 - Between 23.11.2012 and
31.12.2013, loan amounts were disbursed - Respondent mortgaged
its assets in favour of the Appellant by memorandum dated
13.12.2013 - Respondent defaulted in repaying the dues, hence
declared NPA by the Appellant on 30.09.2015 - On 19.11.2017,
Appellant issued statutory notice u/s. 13(2) of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act 2002 - Respondent admitted its liability to the Appellant
and offered a one-time settlement at two instances - On 20.12.2018
settlement was signed and executed - Respondent defaulted in
repayment of settled amount - On 2.01.2019, Appellant filed an
application u/s. 7 of the IBC for initiating Corporate Insolvency
Resolution Process (CIRP) before NCLT - Admitting the application,
NCLT imposed a moratorium in terms of s. 14 of the Insolvency and
Bankruptcy Code (IBC) - The suspended Directors of the
Respondent filed an appeal before NCLAT contending that the
petition filed by the Appellant was patently barred by limitation -
NCLAT allowing the appeal held that the time when debt of nonpayment of due took place and that of the date of filing application
u/ s. 7 is beyond limitation - Aggrieved, the appellant filed appeal
u/s. 62 of IBC, 2016 - Held: NCLAT did not consider the question
of applicability of Section 5 of the Limitation Act for condonation
of delay, to proceedings under Section 7 of the IBC - If no limitation
period is provided anywhere else in the Schedule to the Limitation
Act, Article 137 of the Schedule of the Act would be attracted which
provides that the period of limitation prescribed for such an
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application is three years from the date of accrual of the right to
apply - CIRP proceedings were closed without giving the Appellant
the opportunity to explain if there was sufficient cause for the delay
in approaching the NCLT - An appeal being the continuation of
original proceedings, the provision of Section 7(5)(b) of the IBC of
notifying the Financial Creditor before rejection of a claim, would
be attracted and the Appellant might have got the opportunity to
rectify the defects in its application under Section 7 by filing
additional pleadings and/or documents - Hence, the impugned
judgment and order of the NCLAT is set aside to the extent that the
CIRP proceedings have been closed.
Allowing the appeal, the Court
HELD:
1.1 It is the case of the Appellant Financial Creditor that
on 12th December 2018 the Corporate Debtor made an offer of
one- time settlement at Rs.15 Crores. This offer was not accepted.
On 19th December 2018, the Corporate Debtor revised its offer
to Rs.20 Crores for one time settlement. This offer was also not
accepted. On 20th December 2018, the Corporate Debtor again
revised its offer for one time settlement. This time the Corporate
Debtor offered to settle the outstanding dues of the Financial
Creditor upon payment of Rs. 24,55,00,000/- to be paid within
31st December 2018. This offer was accepted, and terms of
settlement were signed. [Para 27][226-D-F]
1.2 From Section 25 of the Indian Contract Act, it is clear
that any agreement to pay a time barred debt, would be
enforceable in law, within three years from the due date of
payment, in terms of such agreement. It appears that Section
25(3) of the Indian Contract Act was not brought to the notice of
the NCLAT. The NCLAT also did not consider the aforesaid
Section. [Para 29][228-B]
1.3 Section 25(3) applies only where the debt is one which
would be enforceable against the Defendants, but for the law of
limitation. Where a debt is not binding on the Defendant for other
reasons, and consequentially not enforceable against him, there
is no question of applicability of Section 25(3). [Para 32][228-FG]
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION
PARTS PRIVATE LIMITED & ORS.
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1.4 There is a distinction between acknowledgment under
Section 18 of the Limitation Act, 1963 and a promise within the
meaning of Section 25 of the Contract Act. Both promise and
acknowledgment in writing, signed by a party or its agent
authorised in that behalf, have the effect of creating a fresh starting
of limitation. The difference is that an acknowledgment under
Section 18 of the Limitation Act has to be made within the period
of limitation and need not be accompanied by any promise to pay.
If an acknowledgment shows existence of jural relationship, it
may extend limitation even though there may be a denial to pay.
On the other hand, Section 25(3) is only attracted when there is
an express promise to pay a debt that is time barred or any part
thereof. Promise to pay can be inferred on scrutinising the
document. Only the promise should be clear and unconditional.
[Para 33][228-G-H; 229-A-B]
1.5 The scheme of the IBC is to ensure that when a default
takes place, in the sense that a debt becomes due and is not
paid, the Corporate Insolvency Resolution Process begins.
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. 35. [Para 34][229-C]
1.6 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, post imposition of a
moratorium, which would give the Corporate Debtor some
reprieve from coercive litigation, which could drain the Corporate
Debtor of its financial resources. This is to enable the Corporate
Debtor to improve its financial health and at the same time repay
the dues of its creditors [Para 35][229-D-E]
1.7 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 any such law. [Para 44][232G-H; 233-A]
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1.8 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. [Para 46][233-B-C]
1.9 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. [Para
55][236-B-C]
1.10 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. [Para 62][238-B-C]
1.11 An acknowledgement made in writing within the period
of limitation extends the period of limitation. In this case, there
was no acknowledgement of debt within three years from the
period on which the account of the Corporate Debtor was declared
NPA or within three years from the date on which the loan facilities
were recalled. [Para 66][240-B]
1.12 The Appellate Tribunal (NCLAT) found that there was
no acknowledgement of debt within the period of limitation of
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION
PARTS PRIVATE LIMITED & ORS.
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three years. Holding the application of the Appellant Financial
Creditor, under Section 7 of the IBC, to be barred by limitation,
the Appellate Authority (NCLAT) allowed the appeal. [Para
68][240-E-F]
1.13 The Appellate Tribunal (NCLAT) also did not notice
the terms of settlement stated to have been executed on 20th
December 2018, possibly because the attention of the NCLAT
was not drawn to any terms of the settlement. The Appellate
Tribunal (NCLAT) did not, therefore, have the occasion to
consider whether Section 25(3) of the Contract Act would be
attracted. The Appellate Tribunal (NCLAT), as observed above,
proceeded on the basis that the CIRP proceedings were barred
by limitation in the absence of any acknowledgement of debt within
the period of limitation, and closed the CIRP proceedings in the
NCLT, without considering the question of applicability of Section
5 of the Limitation Act for condonation of delay, to proceedings
under Section 7 of the IBC. [Para 69][240-F-H]
1.14 The appeal is, therefore, allowed. The impugned
judgment and order of the NCLAT is set aside to the extent that
the CIRP proceedings have been closed. The Adjudicating
Authority shall consider the application for CIRP afresh, in
accordance with law, in the light of the observations made above,
after giving the Appellant and the Respondent opportunity to file
additional affidavits disclosing documents/additional affidavit in
response. [Para 71][241-C-D]
Bombay Dyeing and Manufacturing Company Limited vs.
State of Bombay AIR 1958 SC 328 : [1958] SCR 1122;
Swiss Ribbons Private Limited & Anr. v. Union of India
and Ors (2019) 4 SCC 17 : [2019] 3 SCR 535; Popatlal
Shah v. State of Madras AIR 1953 SC 274 : [1953]
SCR 677; Dena Bank (Now Bank of Baroda) v. C.
Shivakumar Reddy and Another (2021) 10 SCC 330;
B.K. Educational Services (P) Ltd. v. Parag Gupta &
Associates (2019) 11 SCC 633 : [2018] 12 SCR 794;
Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli
Cooperative Bank Ltd (2021) 7 SCC 313; Gaurav
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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; Balakrishna Savalram Pujari
Waghmare v. Shree Dhyaneshwar Maharaj Sansthan
AIR 1959 SC 798 : [1959] Suppl. SCR 476; Babulal
Vardharji Gurjar v. Veer Gurjar Aluminium Industries
(P) Ltd (2020) 15 SCC 1; Khan Bahadur Shapoor
Fredoom Mazda v. Durga Prasad Chamaria and Others
AIR 1961 SC 1236 : [1962] SCR 140; Asset
Reconstruction
Company
(India)
Limited
v.
BishalJaiswal and Anr AIR 2021 SC 5249; Bengal Silk
Mills Co. v. Ismail Golam Hossain Arif AIR 1962 Cal
115; Re Pandem Tea Co AIR 1974 Cal 170; 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 ILR 1987 Kar 2673 - referred
to.
Case Law Reference
[1958] SCR 1122
referred to
Para 31
[2019] 3 SCR 535
referred to
Para 43
[2018] 12 SCR 794
referred to
Para 51
[1953] SCR 677
referred to
Para 47
[2019] 13 SCR 224
referred to
Para 56
[2019] 12 SCR 678
referred to
Para 58
[1959] Suppl. SCR 476
referred to
Para 59
[1962] SCR 140
referred to
Para 63
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2176
of 2020.
From the Judgment and Order dated 08.01.2020 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
Insolvency No. 1349 of 2019.
Rana Mukherjee, Sr. Adv. Aravindh S., Mahip Datta, Advs. for
the Appellant.
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION
PARTS PRIVATE LIMITED & ORS.
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[2022] 19 S.C.R.
Mohit Chaudhary, Ms. Puja Sharma, Kunal Sachdeva, Balwinder
Singh Suri, Chowdhary Zulfkar Ali, Ms. Garima Sharma, Ms. Mahima
Ahuja, Paras Mithal, Parveen Kumar, Advs. for the Respondents.
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
This appeal filed by the Appellant Financial Creditor, Kotak
Mahindra Bank Limited under Section 62 of the Insolvency and
Bankruptcy Code, 2016, hereinafter referred to as the 'IBC', is against
the judgment and order dated 8th January, 2020 of the National Company
Law Appellate Tribunal, New Delhi (NCLAT) allowing Company Appeal
(AT) Insolvency No. 1349 of 2019 filed by the Respondent-Corporate
Debtor, against an order dated 6th September, 2019 passed by the
Adjudicating Authority/National Company Law Tribunal (NCLT)
admitting the application being Company Petition No.(IB) 672/ND/2019
filed by the Appellant Financial Creditor under Section 7 of the IBC for
initiation of the Corporate Insolvency Resolution Process (CIRP) against
the Corporator Debtor.
2. The Corporate Debtor carries on business of manufacture of
tempo and tractor components. In or about 2012-2013, the Corporate
Debtor decided to expand its business and operations and entered into
negotiations with bankers for finance for the proposed expansion.
3. According to the Corporate Debtor, some-time in July-August
2012, some employees of the Appellant Financial Creditor approached
the Corporate Debtor, offering financial assistance at lesser rate of interest
than the then existing bankers of the Corporate Debtor, and better facilities
and business support.
4. The Appellant Financial Creditor has, since November 2012
sanctioned loan facilities to the Corporate Debtor from time to time. At
the meeting of the Board of Directors of the Corporate Debtor held on
29th November 2012 and on 15th March 2013, resolutions were adopted,
inter alia, authorizing Mr. Munish Kumar Bhunsali to execute loan and
security documents on behalf of the Corporate Debtor.
5. On or about 29th November, 2012, necessary documents with
regard to the loans/credit facilities were executed by and between the
Appellant Financial Creditor and the Corporate Debtor. Between 23rd
November, 2012 and 31st December, 2013, loan amounts were disbursed.
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6. The following loan and security documents were executed
between the Appellant Financial Creditor and the Corporate Debtor on
29th November 2012:-
(i)
"Master Fund Based Facility Agreement
(ii)
Deed of Hypothecation
(iii)
Deed of guarantee by Muhish Kumar Bhunsali
(iv)
Demand Promissory Note
(v)
Take Delivery Letter for the Demand Promissory Note.
(vi)
Supplementary cum Modification Agreement
(vii)
End Use Undertaking"
7. On 27th May 2013, further loan and security documents were
executed between the Appellant Financial Creditor and the Corporate
Debtor, namely:-
(i)
"Memorandum of deposit of title deeds
(ii)
End Use Undertaking
(iii)
Undertaking (Mortgage) by Mr. Munish Kumar
Bhunsali
(iv)
Power of Attorney (Mortgage) by Kew Precision Parts
Pvt. Ltd.
(v)
Declaration (Mortagage) by Mr. Munish Kumar
Bhunsali"
8. By a Memorandum of Deposit dated 13th December 2013
executed by the Corporate Debtor through Mr. Munish Kumar Bhunsali,
the Corporate Debtor mortgaged its assets in favour of the Appellant
Financial Creditor.
9. By a letter of sanction dated 7th February 2014, the Appellant
Financial Creditor sanctioned credit/loan facilities aggregating Rupees
Rs.2036.00 Lakhs to the Corporate Debtor as per the particulars given
below:-
"i.
Cash credit : Rs.1000.00 lakhs
ii.
WCDL (Sub Limit of CC : Rs.680.00 Lakhs
iii.
Invoice Finance discounting : Rs.680.00 Lakhs (submit
of CC)
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
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iv.
Term Loan - I : Rs.240 Lakhs
v.
Term Loan - II : Rs.334.00 Lakhs
vi.
Term Loan - III : Rs.426.00 Lakhs
iv.
Conditional WCDL : Rs.200.00 Lakhs
Total Exposure : Rs. 2036 Lakhs"
10. According to the Appellant Financial Creditor, the Corporate
Debtor defaulted in making repayment of its dues to the Financial Creditor.
The Appellant Financial Creditor, therefore, declared the Account of the
Corporate Debtor as "non-performing asset" (NPA) on 30th September
2015. On 9th October, 2015, the loan was recalled by the Appellant
Financial Creditor.
11. On 19th November 2017, the Appellant Financial Creditor issued
statutory notice under Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act 2002, hereinafter referred to as the SARFAESI Act.
12. On 12th December 2018, the Corporate Debtor admitted its
liability to the Appellant Financial Creditor and offered a one time
settlement for a sum of Rs.15,00,00,000/- (Rupees fifteen crores only)
to be paid within 31st December, 2018. On 19th December 2018, the
Corporate Debtor again admitted its liability to the Appellant Financial
Creditor and offered a one time settlement for a sum of Rs.20,00,00,000/
- (Rupees twenty crores only) to be paid within 31st December, 2018.
On 20th December, 2018, the Corporate Debtor revised its offer for one
time settlement. The Corporate Debtor offered to settle the outstanding
dues at a lumpsum amount of Rs.24,55,00,000/- (Rupees twenty four
crores and fifty five lakhs only). The offer was accepted by the Appellant
Financial Creditor.
13. On the same day, i.e., 20th December, 2018, terms of settlement
were signed and executed by the Corporate Debtor and the Appellant
Financial Creditor in terms whereof a sum of Rs.24,55,00,000/- (Rupees
twenty four crores and fifty five lacs only) was to be paid on or before
31st December, 2018.
14. The Corporate Debtor alleges that there were deficiencies in
the banking services rendered by the Appellant Financier. Be that as it
may, the Corporate Debtor availed credit facilities from the Appellant
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Financial Creditor, defaulted in repayment thereof and acknowledged
liability to the Appellant Financial Creditor by making offers of one time
settlement. When an application is filed by a Financial Creditor under
Section 7 of the IBC for initiation of CIRP, all that the Adjudicating
Authority is required to see is, whether there is a financial debt owed by
the Corporate Debtor to the Financial Creditor and whether the amount
of the debt exceeded Rs.1,00,000/- (Rupees one lac only) on the date of
filing of the company petition, the said amount being the threshold limit
for initiation of CIRP at the material time. The Adjudicating Authority
also has to examine if the application is barred by limitation.
15. Pre-existing disputes, if any, between the Corporate Debtor
and the Financial Creditor are of no consequence to an application of a
Financial Creditor, under Section 7 of the IBC for initiation of CIRP,
unlike an application of an Operational Creditor for initiation of CIRP
under Section 9 of the IBC which may have to be dismissed if there is a
pre-existing dispute.
16. The proceedings initiated by the Appellant Financial Creditor
under the SARFAESI Act are not material to the issue in this appeal, of
whether the application of the Appellant Financial Creditor before the
NCLT was barred by limitation. Suffice it to mention that in computing
the period of limitation for initiation of CIRP proceedings, the time spent
in pursuing remedy under the SARFAESI Act or any other recovery
law cannot be excluded. It is also well settled that initiation of proceedings
under SARFEASI or any other recovery law does not affect the right of
a Financial Creditor to initiate CIRP unless its debt is repaid.
17. The Corporate Debtor defaulted in payment of
Rs.24,55,00,000/- to the appellant Financial Creditor as agreed. In these
circumstances, the appellant Financial Creditor filed the said application
being Company Petition No. (IB) 672/MD/2019 in the NCLT.
18. The said application was admitted by an order dated 6th
September, 2019 of the Adjudicating Authority (NCLT). The Adjudicating
Authority found that the account of the Corporate Debtor with the
Appellant Financial Creditor had been declared NPA on 30th September
2015. The Appellant Financial Creditor was, however, relying on the
proposal for one time settlement given by the Corporate Debtor on 12th
December, 2018 to contend that the existence of financial debt had been
admitted by the Corporate Debtor.
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION
PARTS PRIVATE LIMITED & ORS. [INDIRA BANERJEE, J.]
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19. From the order dated 6th September, 2019 of the Adjudicating
Authority, it appears that the Financial Creditor had been relying on Article
62 of the Limitation Act, 1963, under which suits relating to immoveable
property to enforce payment of money secured by a mortgage, or
otherwise charged upon immoveable property, is 12 years from the time
when the money sued for, becomes due.
20. The Adjudicating Authority found :-
"Given the facts and circumstances that the Corporate Debtor
vide its letter dated 12.12.2018 approached the Financial
Creditor for one time settlement of an amount of Rs.15 Crore,
thereby admitting its default, there is a finding that there is a
continuous cause of action.
As per the averments of the petition no payment has been
made by the Corporate Debtor after the default occurred in
June, 2015 and as on dated 27.11.2018, an amount of
Rs.46,63,35,337.31 is due and outstanding. The present
petition being filed in January 2019 is within limitation, being
within three years from the date of the cause of action. Further
even though an attempt was made on the part of the Corporate
debtor to project certain inconsistencies in relation to claim
amounts, however it is seen that the amount in default in excess
of Rs.1,00,000/- being the minimum threshold limit fixed under
IBC, 2016."
21. The Adjudicating Authority admitted the petition and imposed
a moratorium in terms of Section 14 of the IBC and also confirmed the
appointment of Mr. Ashwani Kumar Gupta, as the Interim Resolution
Professional (IRP).
22. The suspended Directors of the Corporate Debtor filed the
appeal being Company Appeal (AT) Insolvency No. 1349 of 2019 in the
NCLAT contending that the petition filed by the Appellant Financial
Creditor under Section 7 of the IBC was patently barred by limitation.
23. The NCLAT held :-
"33. The 1st Respondent or Bank's plea is that there was
continuous and recurring cause of action from both sides i.e.
the borrower and the 'Corporate Debtor' and the Bank also,
that if any decree is passed by any civil court is pending or in
existence of execution, it would amount to a 'continuous cause
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of action'. In fact the 1st Respondent / Bank projects the plea
that the 'continuous cause of action' means the 'cause of
action' which arise from repetition of acts or omission of the
same kind is that for which the action was brought.
34. A perusal of the application in form I part II filed by the
1st Respondent / Bank to initiate 'Corporate Insolvency
Resolution Process' under 'I&B' shows that the amount
claimed to be default as on 17.11.2015 was Rs.
18,65,05,035.86 and that the default took place in June, 2015.
However, as on 27.11.2018 the outstanding balance was
mentioned as Rs. 46,63,35,337.31.
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38. It must be borne in mind and Article 62 of the Limitation
Act, 1963 relates to enforcing the payment of money procured
by mortgaged or otherwise charged upon the immoveable
property. A suit to enforce a mortgage is governed by Article
62 and has to be filed within 12 years from the date when the
money became due unless the limitation period prescribed was
extended under any other provision of the Limitation Act.
Article 137 of the Limitation Act constitutes the residuary
article as regards the application. To put it succinctly, Article
113 pertains to the 'Suits', the Article 137 relates to
'Applications'. The language of Article 137 clearly postulates
that the applicability of the said article will be restricted to
the applications not mentioned in the 3rd division of the
schedule to the Limitation Act, 1963.
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41. In so far as Section 18 of the Limitation Act 1963
pertaining to the effect of acknowledgement in writing under
Limitation Act is concerned, it is to be taken note of that an
acknowledgement of liability must be in writing and also to
be signed by a party against whom the property or right is
claimed and that too, the same must be within the Limitation
period. It cannot be gainsaid that an acknowledgement given
after the expiry of the usual period is not sufficient to keep
the 'debt' alive. If a claim is barred, the fact that there was an
acknowledgement of liability will not resuscitate a barred claim
because of the reason that in any Law, there can only be an
acknowledgement of an existing / subsisting liability.
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42. In law, the onus is always on the Creditor to establish that
an acknowledgement was made within time. Further, the
acknowledgement does not create any new right and it only
extends the limitation period as per decision P.Sreedevi Vs.
P.Appu AIR 1991 Ker page - 76.
43. It may not be out of place for this Tribunal to make
pertinent mention that when a party claiming benefit of
Section 14 of the Limitation Act, 1963 failed to secure relief
in earlier proceeding not because of any defect in jurisdiction
or some other cause of like nature, he cannot derive the
benefit u/s 14 of the Limitation Act as per decision Z.Khan
Vs. Board of Revenue, 1984 ALL LJ. However, in the decision
'Ajob Enterprises' V. Jayant Vegoiles & Chemicals AIR 1991,
Bombay at page 35 it is held that the time taken to prosecute
suit against the Company for recovery of debt, such
proceedings cannot be excluded in calculating the limitation
period because the matter in issue in suit and winding up
proceedings is not the same.
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45. In the present case, the 1st Respondent / Bank/Financial
Creditor was given the liberty in SA 250/2016 (filed by the
'Corporate Debtor' by the Debt Recovery Tribunal, Lucknow
and another) Appellants on 10/04/2017 to recover the dues
from the Appellants by proceeding afresh under the provisions
of SARFAESI Act, 2002 and the Rules made thereunder. Later
the 1st Respondent/Bank filed OA 576 before the Debt
Recovery Tribunal, Delhi against the 'Corporate Debtor' and
others and obtained decree on 2.05.2019. Therefore, it is not
open to the 1st Respondent/Bank to turn around and seek
exclusion of time as per Section 14 of the Limitation Act.
Undoubtedly, the 1st Respondent / Bank had invoked the right
Forum viz. Debt Recovery Tribunal, Delhi for recovery of its
dues and 'Corporate Debtor' etc.
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47. In regard to the plea of the 1st Respondent/Bank that on
26.03.2016, a complaint was made by the 'Corporate Debtor'
against the Bank for not rejecting their debts and in the said
letter there was an admission of debt liability, it is to be pointed
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out that the same cannot come to the rescue of the Bank
because of the fact that the debt of non-payment of dues by
the 'Corporate Debtor' took place in June, 2015 and Section
7 application was filed by the 1st Respondent / Bank before
the Adjudicating Authority on 30.01.2019 which is beyond
the period of limitation as enshrined in Article 137 of the
Limitation Act. Also that in the decision Kalpana Trading Co.
Vs. Executive Officer Town Panchayat AIR 1999 Mad37, it is
observed that just sending a letter to the higher authorities to
settle the issues does not amount to an 'Acknowledgement'."
24. The operative part of the judgment and order is set out
hereinbelow :
"54. In the result, the 'Corporate Debtor' 'M/s Kew Precision
Parts Pvt. Ltd.' is released from the rigour of the 'Corporate
Insolvency Resolution Process'. All actions taken by the
'Interim Resolution Professional' / 'Resolution Professional'
and 'Committee of Creditors', if any, are declared illegal and
set aside. The 'Resolution Professional' is directed to hand
over the records and assets of the 'Corporate Debtor' to the
promoter/Directors of the 'Corporate Debtor' forthwith.
55. The matter is remitted to Adjudicating Authority ('National
Company Law Tribunal') New Delhi Bench to determine the
'Fee and Cost' of 'Corporate Insolvency Resolution
Professional' as incurred by him, which is to be borne and
paid by 1st Respondent / Bank('Financial Creditor'). Before
parting with the case, it is made crystal clear that the dismissal
of the application filed by the 1st Respondent / Bank before
the Adjudicating Authority will not preclude it from pursuing
/ seeking appropriate remedy before the Competent Forum
for redressal of its grievances, if it so desires/advised.
The Appeal is allowed with aforestated observations and
directions. No Costs. Connected IA No. 3842/19 and IA No.
3843/19 are closed. However, the Appellants are directed to
file certified copy of the impugned order of the Adjudicating
Authority ('NCLT'), New Delhi within one week from today."
25. In this appeal, it is contended that cheques given by the
Corporate Debtor to the Financial Creditor bounced up to February 2017.
Paragraph 2(vii) of the petition of appeal filed by the Corporate Debtor
is extracted hereinbelow :-
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION
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"vii) That cheques given towards repayment of loan were
presented for encashment and the said cheque bounced due
to reason "funds insufficient" up to February, 2017 against
which complaint u/s. 138 of the Negotiable Instruments Act,
is pending before Court."
26. If, as contended by the Appellant Financial Creditor, any
cheque had been issued in February, 2017, the application of the Appellant
Financial Creditor under Section 7 for initiation of CIRP filed on 2nd
January, 2019 would clearly be within limitation. However, there are no
details of the payment disclosed by the Appellant Financial Creditor either
in the proceedings before the NCLT or NCLAT or before this court.
However, if no payment had been made, after the account of the
Corporate Debtor had been declared NPA in September, 2015,
acknowledgment made on 12th December, 2018 or later, after expiry of
over three years from the date on which the default occurred, would not
save limitation.
27. It is the case of the Appellant Financial Creditor that on 12th
December 2018 the Corporate Debtor made an offer of one time
settlement at Rs.15 Crores. This offer was not accepted. On 19th
December 2018, the Corporate Debtor revised its offer to Rs.20 Crores
for one time settlement. This offer was also not accepted. On 20th
December 2018, the Corporate Debtor again revised its offer for one
time settlement. This time the Corporate Debtor offered to settle the
outstanding dues of the Financial Creditor upon payment of Rs.
24,55,00,000/- to be paid within 31st December 2018. This offer was
accepted, and terms of settlement were signed.
28. Section 25 of the Indian Contract Act provides as follows :-
"25. Agreement without consideration, void, unless it is in
writing and registered or is a promise to compensate for
something done or is a promise to pay a debt barred by
limitation law.-An agreement made without consideration is
void, unless-An agreement made without consideration is
void, unless-"
(1) It is expressed in writing and registered under the law for
the time being in force for the registration of documents, and
is made on account of natural love and affection between
parties standing in a near relation to each other; or unless
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(2) It is a promise to compensate, wholly or in part, a person
who has already voluntarily done something for the promisor,
or something which the promisor was legally compellable to
do; or unless.
(3) It is a promise, made in writing and signed by the person
to be charged therewith, or by his agent generally or specially
authorized in that behalf, to pay wholly or in part a debt of
which the creditor might have enforced payment but for the
law for the limitation of suits. In any of these cases, such an
agreement is a contract.
Explanation 1.-Nothing in this section shall affect the validity,
as between the donor and donee, of any gift actually made.
Explanation 2.-An Agreement to which the consent of the
promisor is freely given is not void merely because the
consideration is inadequate; but the inadequacy of the
consideration may be taken into account by the Court in
determining the question whether the consent of the promisor
was freely given.
Illustrations
(a)
A promises, for no consideration, to give to B Rs. 1,000.
This is a void agreement.
(b)
A, for natural love and affection, promises to give his
son, B, Rs. 1,000. A puts his promise to B into writing
and registers it. This is a contract.
(c)
A finds B's purse and gives it to him. B promises to give
A Rs. 50. This is a contract.
(d)
A supports B's infant son. B promises to pay A's expenses
in so doing. This is a contract.
(e)
A owes B Rs. 1,000, but the debt is barred by the
Limitation Act. A signs a written promise to pay B Rs.
500 on account of the debt. This is a contract.
(f)
A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A's
consent to the agreement was freely given. The
agreement is a contract notwithstanding the inadequacy
of the consideration.
(g)
A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A
denies that his consent to the agreement was freely
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given." The inadequacy of the consideration is a fact
which the Court should take into account in considering
whether or not A's consent was freely given.
29. From the above, it is clear that any agreement to pay a time
barred debt, would be enforceable in law, within three years from the
due date of payment, in terms of such agreement. It appears that Section
25(3) of the Indian Contract Act was not brought to the notice of the
NCLAT. The NCLAT also did not consider the aforesaid Section.
30. In this appeal, it is contended that the last offer of 20th
December, 2018 was followed by an agreement. Whether there was
such agreement or not would have to be considered by the Adjudicating
Authority. To invoke Section 25(3), the following conditions must be
satisfied:-
(i)
It must refer to a debt, which the creditor, but for the period
of limitation, might have enforced;
(ii)
There must be a distinct promise to pay such debt, fully or
in part;
(iii)
The promise must be in writing, and signed by the debtor or
his duly appointed agent.
31. Under Section 25(3), a debtor can enter into an agreement in
writing, to pay the whole or part of a debt, which the creditor might have
enforced, but for the limitation of a suit in law. A written promise to pay
the barred debt is a valid contract. Such a promise constitutes novation
and can form the basis of a suit independent of the original debt, for it is
well settled that the debt is not extinguished, the remedy gets barred by
passage of time as held by this Court in Bombay Dyeing and
Manufacturing Company Limited vs. State of Bombay1.
32. Section 25(3) applies only where the debt is one which would
be enforceable against the defendants, but for the law of limitation. Where
a debt is not binding on the defendant for other reasons, and
consequentially not enforceable against him, there is no question of
applicability of Section 25(3).
33. There is a distinction between acknowledgment under Section
18 of the Limitation Act, 1963 and a promise within the meaning of
Section 25 of the Contract Act. Both promise and acknowledgment in
writing, signed by a party or its agent authorised in that behalf, have the
1 AIR 1958 SC 328
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effect of creating a fresh starting of limitation. The difference is that an
acknowledgment under Section 18 of the Limitation Act has to be made
within the period of limitation and need not be accompanied by any
promise to pay. If an acknowledgment shows existence of jural
relationship, it may extend limitation even though there may be a denial
to pay. On the other hand, Section 25(3) is only attracted when there is
an express promise to pay a debt that is time barred or any part thereof.
Promise to pay can be inferred on scrutinising the document. Only the
promise should be clear and unconditional.
34. The scheme of the IBC is to ensure that when a default takes
place, in the sense that a debt becomes due and is not paid, the Corporate
Insolvency Resolution Process begins. 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.
35. 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, post imposition of a moratorium,
which would give the Corporate Debtor some reprieve from coercive
litigation, which could drain the Corporate Debtor of its financial resources.
This is to enable the Corporate Debtor to improve its financial health
and at the same time repay the dues of its creditors.
36. Under Section 7(2) of the IBC, read with the Statutory 2016
Adjudicating Authority Rules, made in exercise of powers conferred,
inter alia, by clauses (c) (d) (e) and (f) of sub-section (1) of Section
239 read with Sections 7, 8, 9 and 10 of the IBC, a financial creditor is
required to apply in the prescribed Form 1 for initiation of the Corporate
Insolvency Resolution Process, against a Corporate Debtor under Section
7 of the IBC, accompanied with documents and records required therein,
and as specified in the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) Regulations,
2016, hereinafter referred to as the 2016 IB Board of India Regulations.
37. Statutory Form 1 under Rule 4(1) of the 2016 Adjudicating
Authority Rules comprises Parts I to V, of which Part I pertains to
particulars of the Applicant, Part II pertains to particulars of the Corporate
Debtor and Part III pertains to particulars of the proposed Interim
Resolution Professional. Parts IV and V which require particulars of
KOTAK MAHINDRA BANK LIMITED v. KEW PRECISION
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Financial Debt with Documents, Records and Evidence of default, is
extracted hereinbelow:-
PART IV
PART V
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38. Section 7(3) requires a financial creditor making an application
under Section 7(1) to furnish records of the default recorded with the
information utility or such other record or evidence of default as may be
specified; the name of the resolution professional proposed to act as an
Interim Resolution Professional and any other information as may be
specified by the Insolvency and Bankruptcy Board of India.
39.