The IBC is not just another statute for recovery of debts, says SC

The Supreme Court has ruled that the Insolvency and Bankruptcy Code (IBC) is not merely a statute for recovering debts. It clarified that an application under Section 7 of the IBC will not be barred by limitation if there was an acknowledgement of debt by the corporate debtor within the limitation period. Such an acknowledgement extends the limitation by a further three years, providing a fresh cause of action.

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1650 OF 2020

Dena Bank (now Bank of Baroda)

Appellant(s)

versus

C. Shivakumar Reddy and Anr.

Respondent(s)

J U D G M E N T

1. By a letter dated 23rd December, 2011 the Appellant Bank had sanctioned Term Loan and Letter of Credit Cum Buyers’ Credit in favour of the Corporate Debtor, with an upper limit of Rs.45.00 Crores.

2. On 20th September, 2013 the Corporate Debtor defaulted in repayment of its dues to the Appellant Bank. The Loan Account of the Corporate was therefore declared Non Performing Asset (NPA) on 31st December 2013.

3. On 9th January 2019, the Appellant Bank filed an application before Adjudicating Authority under Rule 11 of the National Company Law Tribunal Rules 2016 hereinafter referred to as the ‘NCLT Rules’, read with Rule 4 of the 2016 Adjudicating Authority Rules, being I.A. No.27/2019 dated 9th January 2019 in CP(IB) No.244/BB/2018, for permission to place on record additional documents, including the final judgment and order dated 27.03.2017 of the DRT in OA No.16/2015 and the Recovery Certificate No.2060/2017 dated 25.05.2017 issued by the DRT.

4. Relying on the aforesaid judgment, Mr. Shivshankar contended that the foundation for a plea of extension of limitation by virtue of acknowledgment of debt should be in the pleadings and cannot be developed at a later stage. Mr. Shivshankar emphatically argued that in this case, there was no foundation in the pleadings for a case of extension of limitation under Section 18 of the Limitation Act.

5. As observed above, the Appellant Bank filed the Petition under Section 7 of the IBC on 12th October 2018. Within three months, the Appellant Bank filed an application in the NCLT, for permission to place additional documents on record including the final judgment and order/decree dated 27.3.2017 in O.A. 16/2015 and the Recovery Certificate dated 25.5.2017, enabling the Appellant Bank to recover Rs.52 crores odd. The judgment and order/decree of the DRT and the Recovery Certificate gave a fresh cause of action to the Appellant Bank to initiate a petition under Section 7 of the IBC.

6. To sum up, in our considered opinion 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.

7. For the reasons discussed above, the impugned judgment and order is unsustainable in law and facts. The appeal is accordingly allowed, and the impugned judgment and order of the NCLAT is set aside.

Please find attached the enclosed file for the full judgement