Summary
The Court restored admission of Dena Bank’s insolvency application, rejecting the conclusion that it was time barred merely because the loan account became non-performing in 2013. Timely acknowledgments could restart limitation, while the 2017 DRT adjudication and recovery certificate independently supplied a fresh cause of action. The NCLT could consider additional documents and supporting amendments allowed before its final decision. The NCLAT’s contrary order was set aside.
Issues
- Whether acknowledgments and a DRT recovery certificate made the Section 7 application timely.
- Whether the NCLT could permit additional documents and amendments before deciding admission.
Provisions considered
- Sections 7 and 238A, Insolvency and Bankruptcy Code, 2016The prescribed application procedure permitted supplementation before decision; limitation law applied to the insolvency application. (¶¶ 71, 73, 91, 98, 139, 144)
- Section 18 and Schedule Article 137, Limitation Act, 1963The ordinary three-year period was subject to timely signed acknowledgments; the bank also applied within three years of its recovery certificate. (¶¶ 100, 113, 127, 139, 141, 142)
Held
- An application under Section 7 ordinarily attracts Article 137’s three-year period from default. Section 18 applies: a written, signed acknowledgment of subsisting liability made before limitation expires starts a fresh period; an express promise to pay is unnecessary. (¶¶ 100, 101, 113, 114, 127, 142)
- A balance-sheet admission can acknowledge debt, but the document and accompanying directors’ report must be read together. Statutory compulsion to prepare accounts does not prevent an acknowledgment. An offer to settle a live claim within limitation can also qualify; the financial statements and settlement offer relied on here supported the bank. (¶¶ 118, 119, 120, 121, 126, 141)
- The DRT adjudication and recovery certificate gave the bank a fresh cause of action to initiate insolvency proceedings while the adjudicated dues remained unpaid. Its October 2018 application was within three years of the May 2017 certificate. Mere institution or pendency of recovery proceedings is different from obtaining such an adjudication. (¶¶ 128, 130, 135, 138, 139, 143)
- Form 1 is not a plaint requiring elaborate pleadings. Additional evidence and supporting amendments may be permitted before a final admission or rejection order. Babulal Vardharji Gurjar did not prohibit amendments; inordinate delay may nevertheless justify refusal in the adjudicating authority’s discretion. The documents here were properly received and considered. (¶¶ 73, 91, 106, 107, 110, 111, 134, 137, 144)
- The fourteen-day period to ascertain default is directory. Before rejecting for incompleteness the applicant must be afforded the statutory opportunity to rectify defects; an appropriate case may justify accepting rectification beyond seven days. (¶¶ 75, 92, 93)
Result
Appeal allowed; NCLAT order set aside, leaving the NCLT’s admission of the Section 7 application restored.