Amluckie Investment Co.Ltd. vs Skil Infrastructure Ltd.

Amluckie Investment Co. Ltd. (hereinafter called 'Petitioner') has sought the Corporate Insolvency Resolution Process of Skil Infrastructure Ltd. (hereinafter called "Corporate Debtor") on the ground that Corporate Debtor committed default of Rs.3,70,32,768/- under Section 7 of IBC, 2016 (hereinafter called 'Code') r/w Rules 4 of Insolvency and Bankruptcy, Applications to Adjudicating Authority (Rules 2016).

THE FACTS OF THE CASE:

The Petitioner is a Company incorporated under the provisions of Companies Act, 1956 and is engaged in the business of financial and investment services.

The Corporate Debtor is a company incorporated under the provisions of Companies Act, 1956 and is engaged in the business of infrastructure and manufacture of general purpose machinery.

The Petitioner had advanced an amount of Rs.2.00 crore at the request of the Corporate Debtor on 05.04.2012 and 07.04.2012.The Corporate Debtor issued loan acknowledgement letter dated 05.04.2012 and 07.04.2012, Demand Promissory Note as well as receipts dated 05.04.2012 and 07.04.2012.

Various loan extension letters were executed by the parties dated 12.10.2012, 13.12.2012, 28.02.2013, 16.03.2013, 30.07.2013, 03.09.2013, 02.12.2013, 01.03.2014, and 01.10.2014. The Corporate Debtor also issued fresh Demand Promissory Notes on the same days. The loan extension letters mentioned above incorporate the complete terms of understanding between the parties including rate of interest and terms of repayment. The Petitioner transferred sum of Rs.2.00crore vide RTGS on 05.04.2012 and 07.04.2012.

To secure the amounts under the loan transactions, the Corporate Debtor issued Post Dated Cheques (PDCs) dated 03.10.2012 bearing nos. 09113 and 09116 drawn on State Bank of India (SBI) amounting to Rs.2.00 crore.No payments were received by the Petitioner. However, the Corporate Debtor hasintermittentlydeposited TDS on interestpayable to Financial Creditor.On the due date of repayment i.e. on 03.10.2012, the Corporate Debtor approached the Financial Creditor and expressed its inability to repay the loan amount at the relevant time and requested for an extension of time for repayment of loan.In the year 2019, as the Corporate Debtor failed to seek extension of time for repayment of loan, as such the Petitioner issued legal notice dated 25.09.2019 recalling the entire amount.

The Corporate Debtor had committed default of non-payment of Rs.3,70,32,768/- and the ledger account filed by the Corporate Debtor also corroborates the facts that the amount is not paid by the Corporate Debtor. The default on the part of the Corporate Debtor is recurring in nature. The Corporate Debtor on 14.10.2019 refused to make repayment of amount due under the loan agreement.

The Petitioner submits that the Corporate Debtor was liable to pay the amount and due interest and therefore, is a financial debt as per the terms of section 5(8) of the IBC, which provides as under:-

"Section 5(8) defines 'financial debt' as a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes "any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of borrowing".

The Ledger Account of the Petitioner at Annexure-15 of the Petition shows that an amount of Rs.11,43,342/- was paid by way of TDS on Interest on 31.03.2014, an amount of Rs.60,493/- was paid on 31.03.2017, an amount of Rs.2,40,000/- was paid towards TDSon interest on 31.03.2018, and finally as last tranche of payment of Rs.60,493/- as TDS on interest was made on 31.03.2019.

REPLY OF CORPORATE DEBTOR:

The Corporate Debtor, at the outset, stated that the Petition is barred by limitation. As per the Loan Agreement and the acknowledgement letters, the time of repayment of the loans was periodically extended from 12.10.2012 to 01.10.2014 an finally up to 31.12.2014.

There is no evidence on record to demonstrate that the time for repayment was extended beyond 31.12.2014. Therefore, the last date of repayment of loan was 31.12.2014, the cause of action / event of default, if any, would have arisen on 01.01.2015. The period of three years to initiate proceedings as per IBC is therefore, expired on 31.12.2017 and hence the petition is barred by the limitation. The TDS certificates cannot be construed as admission/acknowledgment of liability.

It is settled law that a TDS certificates is primarily to acknowledge deduction of tax at source and that TDS certificate would not refer to any amount of loan even the interest that is payable on the principal amount. The TDS certificates do not satisfy the essential requirements of acknowledgement, the TDS certificates cannot be construed as documents u/s 25 of the Indian Evidence Act and Sec 18(1) of Limitation Act.

The Petitioner states that the default occurred on 14.10.2019, when the Corporate Debtor replied to the legal notice dated 25.09.2019 issued by the Petitioner, but this cannot be relied upon as issuance of legal notice pre-supposes occurrences of default.

The application u/s 7 is defective and is liable to be dismissed.

The Petitioner seeking an order of admission based on oral understanding. In the absence of any written document on record the application u/s 7 is not maintainable.

The Corporate Debtor filed an additional affidavit placing on record the ledger accountsof the Petitioner, to demonstrate the account of Petitioner from the date of payment of monies by the Petitioner. The ledger account from the year 2012 captures payment of interest to the Petitioner on several dates. The entry shown on 30.04.2012 captures that the Corporate Debtor has converted the loan into investment and transferred the said amount to logistic project - JV account. The fact of conversion of loan account into investment was not notified to the Petitioner.

FINDINGS:

The questions for consideration are as follows:

a. Whether the amount paid towards interest as on 31.03.2019 extends the period of limitation?

b. Whether section 18(1)& 19 of Limitation Act, 1963 is applicable to the provisions of IBC?

The Petitioner has been able to demonstrate that an amount of Rs.2.00 crore was paid under loan agreement to the Corporate Debtor vide acknowledgement letters on 05.04.2012 and 07.04.2012. The Loan extension letters dated 12.10.2012, 13.12.2012, 28.02.2013, 16.03.2013, 30.07.2013, 03.09.2013, 02.12.2013, 01.03.2014, and 01.10.2014,further confirm that the Corporate Debtor acknowledges the receipt of Rs.2.00 crore. Corporate Debtor also issued two PDCsamounting to Rs.2.00 crore on 03.10.2012 towards repayment of debt amount.

It is evident from the ledger accounts furnished by the Petitioner that the monies were not repaid but however, the TDS on interest was being intermittently paid by the Corporate Debtor. The last tranche of payment of TDS to the account of Central Government was made on 31.03.2019. The Petitioner also furnishes Form 26-AS as issued by the Income Tax Authorities.

The Corporate Debtor sought dismissal of the Petition stating that the admission Petition u/s 7 of IBC cannot be on the basis of an oral extension of loan agreement between the parties, therefore, in the absence of any written communication for the extension of loan, this application is barred by limitation. The last date of payment of the loan was 13.12.2014 and therefore, the date of default is 31.12.2014. There was no payment of interest for the year 2014-2020.

The Counsel for the Corporate Debtor relied upon the judgment of Hon'ble Supreme Court viz. "BK Educational Services vs. Parag Gupta & Associates" reported in *2019 1SCC 633+ wherein the Hon'ble Supreme Court held that default in section 3(12) of the IBC uses the term 'due and payable' followed by the expression and is not paid by the Debtor or the Corporate Debtor, therefore, section 3(12) refers to whole or any part of debt. It was also held that the Limitation Act is applicable to applications filed under Section 7 & 9 of the Code, Article 137 of the Limitation Act gets attracted. The right to sue accrues when a default occurs. If a default has occurred over three years prior to filing of the Application, the application is barred by Limitation under Article 137 of the Limitation Act, save an except in those cases where, in the facts of the case Section 5 of the Limitation Act may be applied to condone the delay in filing of such applications.

The Counsel for the Corporate Debtor also relied upon the judgment of" Babulal Gurjar vs. Veer GurjarAluminium Industries Pvt. Ltd." *2020 SCC Online SC 647] wherein the Supreme Court held that the Code is beneficial legislation intended to put the Corporate Debtor back on its feet, not a mere money recovery legislation. That CIRP is not intended to be adversarial to the Corporate Debtor but is aimed to at protecting the interest of the Corporate Debtor.

The intention of the Code is not to give new lease of life to debts which are time barred. That the period of limitation for an application seeking initiation of CIRP under Section 7 is governed by Article 137 and is therefore, three years from the date when right to apply accrues on the date of default.That default referred to in the Code is that of actual non-payment by the Corporate Debtor when the debt has become due and repayable. That if the default has occurred over three years prior to the date of filing of Application. The application will be time barred. Save and except in those cases where on facts the delay in filing may be condoned. An application under Section 7 is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application.

In the present case evidently there has been payment ofTDS on interest on31.03.2014, an amount of Rs.60,493/- was paid on 31.03.2017, an amount of Rs.2,40,000/- was paid towards TDS on interest on 31.03.2018, and finally as last tranche of payment of Rs. 60,493/- as TDS on interest was made on 31.03.2019. If the date of default is construed as 1.01.2015, then the three year limitation would end on 01.01.2018, but since the interest was made within three years of limitation period and such payments continued to be made by the Corporate Debtor intermittently and the last tranche was made on 31.03.2019, this bench is of the considered view that the period of limitation has been extended as envisaged under Sec 18 &Sec.19 of the Limitation Act, 1963.Perusal of Section 19 shows that where payment is made on account of debt or interest before expiration of the prescribed period by the person liable to pay, fresh period of limitation of time can be computed when the payments are made. The date of NPA will not shift, it will remain the foundation of debt and period of limitation gets triggered from that date. But if the prescribed period is computed in accordance with the Limitation Act, section 18 and 19 are attracted.

The Ld. Counsel for the Petitioner further argued that Section 18 & 19 of the Act are applicable to the applications filed u/s 7 & 9 of the Code. Section 18 & 19 of the Limitation Act are as follows:

"18. Effect of acknowledgment in writing.-

(1) Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. Explanation.-For the purposes of this section,-

(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;

(b) the word "signed" means signed either personally or by an agent duly authorised in this behalf; and

(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right".

"19. Effect of payment on account of debt or of interest on legacy.-Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made: " Provided that, save in the case of payment of interest made before the 1st day of January, 1928, an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment." Explanation -Explanation.-For the purposes of this section,-"

(a) where mortgaged land is in the possession of the mortgagee, the receipt of the rent or produce of such land shall be deemed to be a payment; (a) where mortgaged land is in the possession of the mortgagee, the receipt of the rent or produce of such land shall be deemed to be a payment;"

(b) "debt" does not include money payable under a decree or order of a court.

(b) "debt" does not include money payable under a decree or order of a court."

Further depositing ofTDS on interest amounts to part repayment of the loan in accordance with section 198 of Income Tax Act, section 198 reads as follows:

"All sum deducted in accordance with them forthgoing provisions of this chapter tells for the purpose of computing the income of an Assessee, be deemed to be income received.

Upon perusal of Section 194 and Section 198 of Income Tax Act, it can be said that the amount deposited by the Corporate Debtor as TDS u/s 194(A) of Income Tax Act are deemed to be income received by Financial Creditor".

The Hon'ble Supreme Court in Babulal Gurjer's case formulated a question, whether Sec.18 of Limitation Act, 1963 could be applied to the present case and held that Sec.18 of Limitation Act was not attracted in view of the facts and circumstances of the case. The Hon'ble Supreme Court did not hold that Sec.18 did not apply to the Code. However, Hon'ble NCLAT in the case of YogeshkumarThakker v. IOB vide Company appeal(AT) No.236 of 2020 on 14.09.2020 held as follows:

"As a matter of fact, sec.18 of the Limitation Act, 1963, is applicable for Suit and application involving 'Acknowledgement of liability' creating a fresh period of limitation which shall be computed from the date when the Acknowledgement was so signed."

The Hon'be NCLAT in MM Ramchandran v. south India Bank Ltd &Ors vide Company Appeal(AT) No.1509 of 2019 on 22.01.2020 agreed with the contentions of the Bank and dismissed the appeal filed by the Corporate Debtor aggrieved by order of admission of CIRP against the Corporate Debtor by NCLT. The Hon'ble NCLAT held that Sec.18 of Limitation Act applies to the proceedings under IBC and any communication which acknowledges that the subsisting jural relationship would constitute an acknowledgement under the Code.

The Hon'ble Supreme Court on 17.11.2020 dismissed the appeal filed by MM Ramchandran and confirmed the order of NCLAT which held that Sec.18 of Limitation Act, 1963 applies not only to suits but applications made under IBC. The order of Hon'ble Supreme Court statesas follows:

'Heard. We do not find any merit in the appeal. The appeal is, accordingly, dismissed, pending application(s) if any shall stand disposed of'.

Upon conjoint reading of the provisions of the IBC, the Limitation Act and settled propositions of law in catena of judgements of Hon'ble Supreme Court from VasudeoBhojwani's case, Gaurav Hargovindbhai Dave's case, BK educational Services's case, Jignesh Shah's case and judgements of Hon'ble NCLAT , it is fairly established that the Corporate Debtor failed to pay the amounts due as on 31.12.2014 and again on 31.03.2019 on the date of payment of TDS on interest by the Corporate Debtor,the limitation for filing a petition therefore starts on 31.03.2019 and extends for period of three years from 31.03.2019.Therefore, the petitioner's claim under Sec 3(6)(a) of the Code is established, further there is clear evidence of debt and default of non-payment of monies by Corporate Debtor.The ledger accounts produced by the Corporate Debtor further evidences the fact that the loans were converted into investment by the Corporate Debtor. Thus, an investment is payable on demand. Payment of TDSoninterest is not only an acknowledgment of debt which constitutes a confirmation of debt by Corporate Debtor that is liable to pay the principal sum borrowed and further extends the limitation of liability from the date of payment of last tranche of monies to the Income Tax department as reflected in Form 26 AS. Thus, the essential ingredients of the Section 7 of IBC aresatisfied and the Petition deserves admission.

On perusal of the documents placed and the reasons given above and after being satisfied that the debtor company defaulted in repaying its debt to the Financial Creditor, this Bench hereby admits the application under section 7 IBC, 2016 prohibiting all of the following of item-I, namely: -

I. (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(SARFAESI Act);

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

(II) That supply of essential goods or services to the corporate debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period.

(III) That the provisions of sub-section (1) Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(IV) That the order of moratorium shall have effect from 15.03.2021 till completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, as the case may be.

(V) That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code.

(VI) That this Bench hereby appoints, Mr.Shashi Agarwal, Subarna Apartment, 21N Block-A, New Alipore, Kolkata - 700053, West Bengal,having Registration No.: IBBI/IPA-001/IP-P00470/2017- 18/10813,e-mail: shashiagg@rediffmail.com, as Interim Resolution Professional to carry the functions as mentioned under Insolvency & Bankruptcy Code.

Accordingly, this CP (IB)/834/MB-IV/2020is admitted.

The Registry is hereby directed to communicate this order to the Financial Creditor and the Corporate Debtor immediately.