IBC: Balance & Security Confirmation Letters Sufficient Acknowledgment Of Debt For Extending Limitation Under Section 18 Of The Limitation Act

Published date09 June 2021
Subject MatterFinance and Banking, Litigation, Mediation & Arbitration, Debt Capital Markets, Financial Services, Securitization & Structured Finance, Trials & Appeals & Compensation
Law FirmPhoenix Legal
AuthorMr Vasanth Rajasekaran, Saurabh Babulkar and Anand Chichra

The National Company Law Appellate Tribunal, Chennai Bench ("NCLAT") in its recent judgement 'Lakshmi Narayan Sharma v. Punjab National Bank'1, held that 'balance and security confirmation letters' would amount to sufficient 'acknowledgment of debt' to extend limitation under Section 18 of the Limitation Act, 1963 ("Limitation Act") for initiating insolvency proceedings.

Background

M/s Saptarishi Hotels Pvt. Ltd. ("Corporate Debtor") along with Maha Hotels Projects Pvt. Ltd. was awarded a public private partnership project to develop and operate a four-star hotel on build operate transfer basis with the National Institute of Tourism and Hospitality Management. To facilitate the project, the Corporate Debtor was sanctioned a 'consortium loan' by Punjab National Bank ("Respondent No. 1") along with Punjab & Sindh Bank as per a 'consortium loan agreement' and 'sanction letters'.

Due to several delays and complications in the completion of the project, the Corporate Debtor defaulted in its interest payments. Against such default, Respondent No. 1 preferred an application under Section 7 (Section 7 Application) of the Insolvency and Bankruptcy Code, 2016 ("IBC") on 18 July 2019 before the National Company Law Tribunal, Hyderabad Bench, ("Adjudicating Authority").

The Adjudicating Authority vide its order dated 18 January 2021 ("Impugned Order") admitted the Section 7 Application filed by Respondent No. 1, holding that the financial creditor had established the 'debt and default' through various documents filed, and thus declared the moratorium under Section 14 of the IBC.

The Impugned Order came to be challenged before the NCLAT by a Promoter/Suspended Director of the Corporate Debtor ("Appellant") as an aggrieved person.

Contentions of the parties

The Appellant sought to challenge the correctness of the Impugned Order on the ground of limitation. The Appellant contended that the Section 7 Application was preferred beyond the prescribed limitation period and the Adjudicating Authority committed grave error in admitting the same. As per the Appellant, the date of default for all facilities given by Respondent No. 1, as per the Section 7 Application was 30 March 2016, whereas the Section 7 Application was filed only on 18 July 2019 which is beyond the three (3) year period of limitation. The Appellant drew support from the judgement of the Supreme Court in 'Babulal Varsharji Gurjar v. Veer Gurjar Aluminum Industries Pvt. Ltd. & Anr.'2 to strengthen its case.

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