7. Karn Gupta vs. Union of India & Anr. Delhi High Court W.P.(C) 5009/2018 and CM No. 19290/2018 Date of order: 23rd May, 2018
The Director of a company who has resigned from the Directorship would not incur disqualification u/s 164 of the Companies Act, 2013
FACTS
• Mr. KG in his writ petition complained that he had been appointed as a Director in a company registered under the name of M/s EWC Pvt. Ltd. on 11th July, 2012. He resigned on 5th December, 2012.
• The company failed to submit Form 32 regarding his resignation in accordance with the provisions of the erstwhile Companies Act, 1956 with the Registrar of Companies.
• On 6th September, 2017 and 12th September, 2017, MCA notified a list of Directors who had been disqualified u/s 164(2)(a) of the Companies Act, 2013 as Directors with effect from 1st November, 2016.
• Mr. KG’s name featured in this list, despite his resignation. As a result, he was prohibited from being appointed or re-appointed as a Director in any other company for a period of five years.
• It was submitted before the Delhi High Court that Mr. KG had resigned from the Directorship of the company a long time back. Therefore, he would not incur disqualification u/s 164 of the Companies Act, 2013.
• Consequently, he pleaded that the disqualification as notified in the lists dated 6th September, 2017 and 12th September, 2017 by the Registrar of Companies was incorrect and illegal.
HELD
• The Delhi High Court held that the disqualification of Mr. KG as notified in the impugned list as disqualified
Director of the company and the resultant prohibition u/s 164(2)(a) of the Companies Act, 2013 by virtue of his name featuring in the lists dated 6th September, 2017 and 12th September, 2017 was incorrect, set aside and quashed.
• The Court further directed the Registrar of Companies to ensure that its records are properly rectified to delete the name of Mr. KG from the lists.
8. The Registrar of Companies West Bengal vs. Sabyasachi Bagchi National Company Law Appellate Tribunal, New Delhi Company Appeal (AT) No. 12 of 2019 Date of order: 24th June, 2020
NCLT cannot ignore the provisions relating to minimum penalty for compounding of offence as per sub-section (6) of section 165 of Companies Act, 2013
FACTS
• Mr. SB was holding Directorship in 17 companies as on 1st April, 2014 when section 165(1) of the Act came into force. However, he vacated Directorship of three companies during the period from 1st April, 2014 to 31st March, 2015.
• Later, he received a show cause notice from the Registrar of Companies, West Bengal, (ROC). After receipt of the said notice, Mr. SB resigned from the Directorship of four companies on 22nd February, 2016; thus, he had contravened the provisions of section 165(1) of the Companies Act, 2013 for the period from 01st April, 2015 to 21st February, 2016 – i.e., for 326 days.
• The reply to the show cause notice of Mr. SB was found unsatisfactory; therefore, the ROC filed a complaint u/s 165 (6) against him before the Chief Metropolitan Magistrate, Kolkata. During the pendency of the prosecution, Mr. SB filed an application u/s 441(1) of the Act before the National Company Law Tribunal, Kolkata (NCLT) for compounding the offence.
• The ROC filed his report on the compounding application before the NCLT. After hearing the parties, NCLT allowed the application subject to payment of the compounding fees of Rs. 25,000 within 15 days from the date of the order.
• But the ROC being aggrieved with the NCLT order, preferred to file an appeal against this before the National Company Law Appellant Tribunal (NCLAT) along with an application for condonation of delay in filing the appeal. After hearing the parties and being satisfied, NCLAT, in exercise of its powers condoned the delay of 41 days in filing the appeal.
HELD
NCLAT observed and held that:
• Mr. SB had violated the provisions u/s 165(1) read with section 165(3) of the Act for the period from 1st April, 2015 to 21st February, 2016 which was punishable u/s 165(6) of the Act before amendment.
• Further, NCLAT noted that the Tribunal had failed to notice the minimum fine prescribed under sub-section 6 of section 165, which was applicable at the relevant time, i.e., before the amendment.
• Hence, taking into consideration the facts and circumstances of the case, NCLAT set aside the NCLT order and imposed a minimum fine at the rate of Rs. 5,000 for every day for the period from 1st April, 2015 to 21st February, 2016, i.e., 326 days, adding up to a total of Rs. 16,30,000. Thus, the appeal of the ROC was allowed.
9. In the Supreme Court of India, Civil Appellate Jurisdiction Civil Appeal No. 1650 of 2020 Dena Bank (now Bank of Baroda) vs. C. Shivakumar Reddy & Anr.
FACTUAL BACKGROUND
The instant appeal was filed u/s 62 of the Insolvency and Bankruptcy Code, 2016. It was filed against the judgment passed by the National Company Law Appellate Tribunal (NCLAT) which had held that the petition of the appellant bank u/s 7 of the IBC was barred by limitation. The verdict passed by the Supreme Court goes on to resolve issues regarding what can and what cannot be accepted as an acknowledgment of debt by the corporate debtor, the period of limitation, and whether belated filing of additional documents can be done at a later stage under the IBC.
HELD BY NCLT & NCLAT
In October, 2018, the appellant bank filed the petition before the NCLT u/s 7 of the IBC. Further, in 2019, it filed an application under Rule 11 of the NCLT Rules, 2016 read along with Rule 4 for permission to place on record the final judgment of the DRT and the Recovery Certificate that was issued; this application was allowed by the Adjudicating Authority. In March, 2019, a similar application was filed once again, this time to take permission to place on record additional documents, including the letter dated 3rd March, 2017 of the corporate debtor (CD) to the said bank proposing a one-time settlement; the annual report of the CD for the years 2016-2017; the financial statement of the CD for the period from 1st April, 2016 to 31st March, 2017; and also for the period from 1st April, 2017 to 31st March, 2018 – and this application, too, was allowed.
Further, in February, 2019, the CD filed its preliminary objections to the petition filed by the bank u/s 7 of the IBC, inter alia contending that the said petition was barred by limitation. This objection was rejected by the Adjudicating Authority, the petition filed by the bank was allowed and an Interim Resolution Professional was appointed in March, 2019. The CD filed an appeal against this order before the NCLAT u/s 61 of the IBC. The NCLAT allowed the appeal and set aside the earlier judgment passed by the NCLT, stating that the petition filed by the appellant bank u/s 7 of the IBC was barred by limitation.
ISSUES INVOLVED
Whether a petition u/s 7 of the IBC would be barred by limitation on the sole ground that it had been filed beyond three years from the declaration of the loan account as an NPA, even though the corporate debtor may have subsequently acknowledged the liability?
Whether a final judgment and decree of the DRT in favour of the financial creditor, or a Recovery Certificate, would give rise to a fresh cause of action to initiate proceedings u/s 7 of the IBC?
Whether there is any bar in law to the amendment of pleadings to include additional documents under a section 7 petition?
APPELLANT’S CONTENTIONS
(1) It was contended that the corporate debtor had, in its annual reports for the financial years 2016-2017 and 2017-2018, acknowledged its liability in respect of the loan taken by it from the appellant bank.
(2) That NCLAT reversed the initial judgment of the Adjudicating Authority and held that the petition was barred by limitation on the basis of the fact that there was nothing on record that suggested that the CD had acknowledged its debt to the appellant bank, thereby ignoring the documents filed by the bank which were allowed by the Adjudicating Authority. The petition u/s 7 of the IBC was filed well within three years from the date of such acknowledgment.
(3) Further, placing reliance on Sesh Nath Singh and Anr. vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. and Ors.; Laxmi Pat Surana vs. Union Bank of India and Ors.; and Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Ors., it was argued that section 18 of the Limitation Act applied to proceedings under the IBC.
RESPONDENT’S CONTENTIONS
(A) Under the scheme of the IBC, NCLAT is the final forum for determination of facts and the factual determination by the NCLAT is that the records reveal no acknowledgment of debt for the purpose of extending limitation. Since this appeal has been filed on the basis of documents that were brought on record before the Adjudicating Authority (NCLT) at a belated stage, it was contrary to the provisions of IBC and the law laid down by this Court.
(B) The appellant bank filed its petition u/s 7 of the IBC on 12th October, 2018, about five years after the date of default, and was thus well beyond the period of limitation of three years under Article 137 of the Schedule to the Limitation Act.
(C) That u/s 7(3) of the IBC, a financial creditor is required to furnish ‘record of the default recorded with the information utility or record of evidence of default as may be specified’ and ‘any other information as may be specified by the Board’.
(D) Section 62 of the IBC, under which the instant appeal has been filed, is restricted to questions of law, unlike an appeal to the NCLAT from an order of the Adjudicating Authority (NCLT), which is an appeal both on facts and in law. Further, it was contended that the foundation for a plea of extension of limitation by virtue of acknowledgment of debt should be in the pleadings and cannot be developed at a later stage.
(E) Lastly, that the petition u/s 7 of the IBC was not based on the Recovery Certificate issued by the DRT or the judgment and order of the DRT. Therefore, there could be no question of reckoning limitation from the date of failure to make payment in terms of the Recovery Certificate.
COURT’S OBSERVATIONS
(i) An application to the Adjudicating Authority (NCLT) u/s 7 of the IBC in the prescribed form cannot be compared with the plaint in a suit.
(ii) The application does not lapse for non-compliance of the time schedule. Nor is the Adjudicating Authority obliged to dismiss the application. On the other hand, the application cannot be dismissed without compliance with the requisites of the proviso to section 7(5) of the IBC.
(iii) As per the provisions of the IBC, and in particular the provisions of section 7(2) to (5) of the IBC read
with the 2016 Adjudicating Authority Rules, there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed.
(iv) There is no penalty prescribed for inability to cure the defects in an application within seven days from the date of receipt of notice, and in an appropriate case the Adjudicating Authority may accept the cured application, even after expiry of seven days for the ends of justice.
HELD BY SUPREME COURT
The Supreme Court has inter alia held that a final judgment, decree and / or a recovery certificate passed / issued by a court or tribunal would give rise to a fresh cause of action for a financial creditor to initiate proceedings u/s 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The Court, while placing reliance on Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Anr.; Bengal Silk Mills Co. vs. Ismail Golam Hossain Ariff; and Re Pandem Tea Co. Ltd., held that an acknowledgment of liability that is made in a balance sheet can amount to an acknowledgment of debt. Thus, entries in books of accounts and / or balance sheets of a corporate debtor would amount to an acknowledgment u/s 18 of the Limitation Act.
