Limitation Period can be reset When Pleadings regarding Part Payments supported by Written Acknowledgment: NCLAT [Read Order]

The New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) has held that when there are specific pleadings under Section 9 of the IBC regarding part payments made by the Corporate Debtor which supported by a written acknowledgment to the demand notice, the limitation period can be reset in terms of Section 19 of the Limitation Act.

Paresh K. Mehta Investment Pvt. Ltd, a Suspended Director of the Corporate Debtor (“CD”) – M/s MKM Diamonds Pvt. Ltd. has filed appeal challenging the order dated 01.09.2023 passed by National Company Law Tribunal (“NCLT”), Mumbai Bench, Court-II admitting Section 9 application filed by the State Bank of India (“SBI”) (Respondent No.1 herein).

M/s MKM Diamonds Pvt. Ltd. (formerly known as ‘Eurostar Diamonds India Pvt. Ltd.’) is a company registered under the Companies Act, 1956. The sister company of the CD – Eurostar Diamond Traders NV, Antwerp Belgium (Eurostar Diamond Traders NV) is a company registered at Belgium.

The SBI, Antwerp Branch, Belgium granted a financial facilities in the nature of bill discounting facility to the Eurostar Diamond Traders NV. The sister concern of the CD has business transaction under which raw and polished diamonds are transacted between the parties. An Invoice No.9001602957 dated 03.10.2016 was issued by Eurostar Diamond Traders NV to Eurostar Diamonds India Pvt. Ltd. (earlier name of the CD), with regard to polished natural diamonds for an amount of USD 1394214.56, which was payable by 31.01.2017.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

The SBI, Antwerp, Belgium discounted the Invoices and made the payment to Eurostar Diamond Traders NV. The CD being bearer of the Invoices, who has endorsed the Invoices, made part payments towards the above Invoices. With respect to Invoice No.9001602957 dated 03.10.2016, the CD made part payment of USD 174214.56 to loan account of Eurostar Diamond Traders NV and another part payment was made by the CD for Invoice No.9001602984 dated 05.10.2016 for an amount of USD 1491407 on 26.09.2017.

The CD having not made the full payment to the SBI, Antwerp, Belgium, a demand notice was issued on

09.10.2020 to the CD, demanding total amount in default of Rs.16,77,17,132.21 with interest. The CD sent a reply dated 05.11.2020 denying the claim and raising of the demand notice. In the reply to demand notice, part payment made on 15.05.2017 and another part payment made on 26.09.2017 was stated.

The SBI filed Section 9 petition claiming total amount and default as Rs.21,28,72,302.48/-, which included principal amount of Rs.16,77,1.7,732.21/- and interest. The date of default mentioned was 15.02.2017. The Adjudicating Authority heard both the parties and by the impugned order dated 01.09.2023, admitted Section 9 application and appointed one Ms. Diplti Amit Thite as IRP. The Operational Creditor was directed to deposit an amount of Rs.5.00 lakhs towards the initial Corporate Insolvency Resolution Process (“CIRP”) cost by way of a demand draft.

The Adjudicating Authority in the impugned order rejected the submissions of the CD that there is no operational debt or default on the part of the CD. The ground raised by the CD that application is barred by time, having been filed three years’ after the amount became due on 31.01.2017 and 02.02.2017 and the application having been filed on 12.07.2022, the submission on the ground raised by the CD on limitation was not accepted by the Adjudicating Authority and it was held that application is not barred by time.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

The Tribunal noted that it is an admitted case of the Appellant that part payments were made on 15.05.2017 and 26.09.2017. Further, it is even in the reply to the demand notice, as noted above the Appellant has made a submission that amount was paid to the SBI. When the amount is directly paid to the creditor and there is acknowledgement in writing the conditions as provided in Section 19 are fulfilled.

It was observed that there are specific pleadings under section 9 of the IBC with respect to two part payments which is further supported by a written acknowledgement of the corporate debtor in reply to the demand notice. Thus, the requirements under section 19 of the Limitation Act are satisfied in this case.

The bench of Justice Ashok Bhushan and Mr. Barun Mitra (Technical Member) held that the application under Section 9 filed claiming principal amount of Rs. 16,77,17,132.21/- was well within time. The Adjudicating Authority has rightly taken the view that application filed under Section 9 was not barred by limitation.

The tribunal viewed that entire principal amount having being liquidated, there is no necessity to continue the CIRP any further. The CIRP initiated against the CD is closed. The CD is freed from rigors of the CIRP. The Appeal is disposed of accordingly.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates