NCLAT dismisses Wadhawan's Appeal, Upholds Insolvency Proceedings against PPIL [Read Order]
The documents executed in 2017-2018 were a valid 'promise to pay' under Section 25(3) of the Contract Act, which revived the debt and started a fresh limitation period.
In a recent ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench in New Delhi, dismissed an appeal filed by Sarang Kumar Wadhawan, a shareholder of Privilege Power Infrastructure Limited (PPIL), and upheld the initiation of the Corporate Insolvency Resolution Process (CIRP) for a default of over Rs. 138 crore.
The appeal was against an NCLT order admitting a Section 7 application by Unity Small Finance Bank (formerly Punjab and Maharashtra Co-operative Bank). The debt originated from an overdraft facility availed by PPIL from 2007 to 2013, with the account being declared a Non-Performing Asset (NPA) in 2012.
Wadhawan, the Appellant, contested the petition, primarily arguing it was time-barred as the default occurred in 2012 and the application was filed in 2020. He further contended that the transactions were fraudulent, involving collusion between the bank's officials and the corporate debtor, and therefore did not qualify as 'financial debt' under the IBC. He argued that documents executed in 2017-2018 were a fictitious attempt to artificially revive a time-barred debt.
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Unity Small Finance Bank, the Financial Creditor, argued that the petition was well within the limitation period. They contended that the limitation period only began when the fraud was discovered following an RBI-led re-audit, which concluded on 27.12.2019.
The bank also relied on acknowledgments of debt and part payments made by the Corporate Debtor until 2019, and crucially, on the execution of mortgage deeds and a demand promissory note in 2017-2018, which they argued constituted a written 'promise to pay' a time-barred debt under Section 25(3) of the Indian Contract Act, thereby creating a fresh cause of action.
The NCLAT bench, comprising Justice Ashok Bhushan (Chairperson), Barun Mitra, and Arun Baroka (Members), held that the Financial Creditor's application was maintainable and within limitation on multiple grounds. The Tribunal agreed that the limitation period started from the discovery of fraud in 2019 under Section 17 of the Limitation Act.
It also held that the documents executed in 2017-2018 were a valid 'promise to pay' under Section 25(3) of the Contract Act, which revived the debt and started a fresh limitation period. The bench rejected the appellant's arguments, noting that he was an active participant in concealing the default and could not be allowed to take advantage of his own wrong.
The NCLAT found no infirmity in the NCLT's findings and dismissed the appeal, thereby upholding the initiation of the CIRP against PPIL.
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