NCLAT Sets Aside NCLT Order In Encore ARC Case; Says COVID Limitation Directions & Section 18 Acknowledgment Overlooked
NCLAT Sets Aside NCLT Order In Encore ARC Case; Says COVID Limitation Directions & Section 18 Acknowledgment Overlooked
Introduction
The National Company Law Appellate Tribunal (NCLAT) has set aside an order of the NCLT Mumbai Bench which had dismissed a Section 7 application filed by Encore Asset Reconstruction Company Pvt Ltd against Pandhe Constructions Pvt Ltd as barred by limitation. The appellate tribunal held that the Adjudicating Authority failed to correctly apply the Supreme Court’s COVID-19 limitation extension directions and did not properly consider acknowledgment of debt under Section 18 of the Limitation Act, 1963.
Factual Background
Pandhe Constructions Pvt Ltd had executed a corporate guarantee in respect of financial facilities granted by DNS Bank Ltd to Pandhe Infracons Pvt Ltd. The loan account was classified as a Non-Performing Asset (NPA) on June 30, 2018. A demand notice under Section 13(2) of the SARFAESI Act was issued on September 4, 2018. Subsequently, by notice dated November 4, 2019, the corporate guarantee was invoked and payment was demanded within 15 days. The NCLT recorded November 19, 2019 as the date of default. Encore ARC thereafter filed an application under Section 7 of the Insolvency and Bankruptcy Code seeking initiation of CIRP against the corporate guarantor.
Procedural Background
The NCLT rejected the contention that limitation should run from the earlier SARFAESI notice of September 4, 2018 and accepted November 19, 2019 as the date of default. However, it dismissed the CIRP application as time-barred, holding that the petition filed on August 20, 2023 was beyond limitation even after applying the Supreme Court’s COVID-19 limitation extension orders. Aggrieved, Encore ARC approached the NCLAT challenging the computation of limitation and the failure to consider acknowledgment of debt.
Issues
1. Whether the NCLT correctly applied the Supreme Court’s COVID-19 limitation extension directions in computing limitation.
2. Whether acknowledgment of debt under Section 18 of the Limitation Act was duly considered.
3. Whether the Section 7 application was in fact barred by limitation.
Contentions of the Parties
The appellant contended that once the date of default was taken as November 19, 2019, the entire period from March 15, 2020 to February 28, 2022, as directed by the Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020, had to be excluded while computing limitation. It was further submitted that the NCLT failed to take into account acknowledgment of debt, including references to a one-time settlement proposal. The respondents supported the NCLT’s conclusion and questioned the limitation of computation. It was also pointed out that no documentary evidence of the alleged OTS proposal had been placed on record.
Reasoning and Analysis
The NCLAT observed that the Adjudicating Authority had not considered the Supreme Court’s COVID limitation directions in their correct perspective. It held that where the date of default was November 19, 2019, the period from March 15, 2020 to February 28, 2022 was liable to be excluded entirely in computing limitation. The balance limitation period available as on March 15, 2020 would recommence from March 1, 2022.
The bench of Judicial Member Justice Mohd. Faiz Alam Khan and Technical Members Mr. Arun Baroka and Mr. Indevar Pandey further noted that the NCLT failed to properly examine Section 18 of the Limitation Act and the pleadings regarding acknowledgment of debt, though such averments were recorded in the impugned order.
At the same time, the tribunal recorded that while reliance was placed on a one-time settlement proposal dated November 10, 2019, no documentary evidence thereof had been produced. In view of the misapplication of law on limitation and incomplete consideration of acknowledgment, the NCLAT found the dismissal unsustainable.
Decision
The NCLAT set aside the NCLT’s order dismissing the Section 7 application as time-barred and remanded the matter for fresh consideration in accordance with law, including proper computation of limitation and examination of acknowledgment under Section 18 of the Limitation Act.
In this case the appellant was represented by Mr. Tushar A John and Mr. Midrash Mathew, Advocates. Meanwhile the respondent was represented by Mr. Palash S Singhai, Mr. Harshal Sareen, Ms. Aashima Gautam, Mr. Sanjeev Singh, Ms. Sandipa Bhattacharjee, Ms. Anshitha Argal, Mr. Jay Rathi, Advocates.
