NCLAT Finds Insolvency Plea Within Limitation Citing Debt Acknowledgment and COVID Exclusion [Read Order]

The Delhi Bench of National Company Law Appellate Tribunal(NCLAT)  found the insolvency plea filed by Respondent No. 1 to be within the limitation period, citing debt acknowledgment and COVID-19 exclusion.

Rohit Suri, the appellant, argued that Respondent No. 1,financial creditor had sanctioned a loan of ₹3.50 Crores in July 2009, disbursing ₹2.40 Crores, with repayment due in 19 equal quarterly installments. However, before the first payment, financial creditor issued a demand notice and recalled the loan in January 2010, citing default. In February 2010, financial creditor took possession of the mortgaged property. Despite court challenges, settlement proposals were rejected, and timely recovery actions were not taken.

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The appellant contended that financial creditor filed the Company Petition in August 2021, which was barred by limitation. The appellant argued that the delay was wrongly condoned by the Adjudicating Authority, relying on COVID-19 extensions, even though the limitation period had expired.

Respondent No. 1 argued that the loan agreement had a six-month moratorium on principal repayments and acted in accordance with the State Financial Corporation Act. The appellant had defaulted on interest payments, leading to the loan recall and possession of the property. Settlement proposals from 2011 to 2017 were rejected, and Respondent No. 1 maintained the legitimacy of the insolvency proceedings.

Respondent No. 1 also pointed out that the Corporate Debtor failed to participate in proceedings, even after several notices. The Adjudicating Authority proceeded ex-parte due to the appellant's continued non-engagement. The absence of the date of default in Form-I was considered a minor, curable defect and did not affect the petition's maintainability.

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Respondent No. 1 clarified that interim orders from the High Court did not prevent the initiation of insolvency proceedings. The Adjudicating Authority was within its rights to admit the petition, and the petition was filed within the limitation period, supported by the appellant's acknowledgment of debt and settlement proposals.

The Adjudicating Authority's order, dated 17.05.2024, was deemed legally sound. The lockdown and Supreme Court rulings had extended the limitation period, further justifying the timeliness of the petition. Respondent No. 1 asserted that the homebuyers’ claims were adequately addressed within the insolvency process.

Finally, Respondent No. 1 argued that the restrictions imposed by the High Court’s order did not stop its attempts to recover the dues, including over 80 attempts to auction the mortgaged property. Respondent No. 1 sought dismissal of the appeal, while Respondent No. 2 asked for recognition of the IRP’s entitlement to professional fees for services rendered during the process.

The three member bench comprising Justice Rakesh Kumar Jain(Judicial Member),Naresh Salecha(Technical Member) and Indevar Pandey(Technical Member) noted that the only issue in the appeal was whether the company petition filed by Respondent No.1 was barred by limitation.

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It observed that the loan was disbursed in July 2009, and multiple one-time settlement (OTS) proposals were made by the borrower between 2011 and 2017. The last such OTS dated 16.05.2017 was treated as an acknowledgment of debt, which extended the limitation period until 15.05.2020.

The tribunal further noted that the Supreme Court, through its suo moto order dated 10.01.2020 in light of the pandemic, excluded the period from 15.03.2020 to 28.02.2022 for the purpose of limitation. Since the company petition was filed on 12.08.2021, it was considered within time.

Despite being given four opportunities, the appellant did not file any rejoinder to dispute the facts presented by the financial corporation. Hence, the appellate Tribunal accepted those facts and concluded that the petition was not time-barred.

Citing the Supreme Court’s ruling in Pathapati Subba Reddy v. LAO, the NCLAT reiterated that limitation involves both fact and law, and can be raised at any stage. However, in this case, it found no merit in the appeal and upheld the filing as within the prescribed limitation period.

To Read the full text of the Order CLICK HERE

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