Duty of Court/Authority to consider if instant matter within limitation: Limitation Act, 1963

Duty of Court/Authority to consider if instant matter within limitation: Limitation Act, 1963

The order passed by the NCLT in the matter of Pegasus Asset Reconstruction Pvt. Ltd. vs. Yashomati Hospitals Pvt. Ltd. was found deserving to be set aside by the NCLAT

In the matter of Pegasus Asset Reconstruction Pvt. Ltd. vs. Yashomati Hospitals Pvt. Ltd., the Hon'ble National Company Law Appellate Tribunal (NCLAT) has remitted the matter back to the Adjudicating Authority (National Company Law Tribunal/NCLT, Bengaluru Bench) with a direction to permit the Appellant (M/s. Pegasus Asset Reconstruction Pvt. Ltd. - financial creditor) to rectify the defect in the format and file documents with regard to limitation.

Herein, the Appellant had filed this Appeal against the Impugned Order passed by the Adjudicating Authority. The Appellant is an assignee of the South Indian Bank (SIB) and had filed a Company Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the Adjudicating Authority.

In the application filed under the IBC, the respondent – Corporate Debtor filed an Interim Application to dismiss the Company Petition. The Adjudicating Authority allowed the Interim Application (IA) and dismissed the Company Petition (CP) reserving liberty to the Appellant to file a fresh Company Petition in accordance with the law after the High Court of Karnataka decided the issues pending before the High Court. Thus, the present Appeal…

It was argued by the Appellant that in the proceeding which was filed before the Karnataka High Court, it was relating only to the action initiated under SARFAESI and the Appellant was not party to the litigation and had not been restrained from pursuing its statutory remedy under Section 7 of the Code. The SIB was not party to any individual actions of the State Bank of India and the SIB was not even arrayed as party in the Writ Petition and Adjudicating Authority wrongly expected SIB to get permission from the High Court.

The Appellate Tribunal opined that the application under Section 7 of the IBC filed is not confined to debt as arising in the arrangement due to Consortium Lending which was a term loan, but was also towards an independent overdraft facility and amounts due in that context. As such, even if one were to stretch the order of the High Court dated 4 December, 2015 to say that it affects SIB, still the South Indian Bank was competent to maintain Section 7 Application on the basis of overdraft facility which was provided outside the Consortium. Thus, it appeared that the order passed by the Adjudicating Authority was not at all justified and deserved to be set aside.

The Appellate Tribunal also observed that when Section 3 of the Limitation Act is read with Sub-Section 5 of Section 7 of the IBC, it must be said that it was the duty of the Adjudicating Authority to look into the format submitted and to consider whether prima facie, the form 1 read with documents disclosed material to show debt due which is payable in law or in fact and if such debt is in default.

According to the Appellate Tribunal, the Format's Part IV (2) read with Part V (8) would be relevant to show "existence" of debt. If not satisfied, the Adjudicating Authority would be required to call upon the Applicant to rectify the defect if the application does not show how the debt is due and within limitation.

Entry - 19A showed that after the application under Section 7 of the IBC was filed in the present matter, Section 238A of IBC extending provisions of the Limitation Act was inserted in the IBC with effect from 6 June, 2018. When this is so, in fairness, it would be appropriate to give an opportunity to the Financial Creditor to rectify the defect in the application before the Adjudicating Authority.

The Appellate Tribunal opined that it was necessary under Rule 11 of the NCLAT Rules, 2016, to exercise inherent powers to do justice to pass such orders.