Published on: 19 September 2023 at 10:59 IST
The Supreme Court of India has delivered a significant judgment in an Insolvency and Bankruptcy Code (IBC) related case, dismissing an appeal filed by Axis Bank Limited and affirming the condonation of delay by the State Bank of India (SBI) in a Corporate Insolvency Resolution Process (CIRP).
The Court ruled that One-Time Settlement (OTS) proposals made by the Corporate Debtor had not been challenged by the suspended Directors.
This verdict came in response to an appeal under Section 62 of the IBC, 2016, against the judgment of the National Company Law Appellate Tribunal (NCLAT), which had upheld the Adjudicating Authority’s decision to admit the application under Section 7 of the IBC after condoning the delay.
A two-Judge Bench comprising Justice Vikram Nath and Justice Ahsanuddin Amanullah emphasized, “Presently in this appeal, the said issue cannot be taken up for two reasons: firstly, the Adjudicating Authority as well as NCLAT have accepted the explanation of Respondent No.2 for the delay caused in filing the Section 7 IBC petition to be satisfactory and have condoned the same. Secondly, in view of the first and second OTS proposals by the Corporate Debtor being not questioned by the suspended Directors, there is no reason to disbelieve or to cast any doubt on the said documents at the instance of the appellant.”
The case revolved around a leave and license agreement between the appellant and a company, which involved the furnishing of a security deposit. Subsequently, this company underwent a merger under the orders of the Bombay High Court and was renamed. Despite issuing notices for the refund of the security deposit, the appellant did not receive the amount, prompting them to file eight summary suits for a refund in the High Court.
Meanwhile, the respondent, State Bank of India (SBI), declared the Corporate Debtor as a Non-Performing Asset (NPA) due to default. The High Court granted the Corporate Debtor permission to defend itself, subject to the deposit of the security deposit. Eventually, the suits were decreed in favor of the appellant, and they applied to the High Court for the recovery of dues, leading to a proclamation of sale ordered in their favor.
During this period, the respondent, SBI, submitted separate applications at different times, which were reviewed by the adjudicating authority. The authority subsequently condoned the delay and issued an order for admission, appointing an Interim Resolution Professional (IRP). Dissatisfied with this decision, Axis Bank filed an appeal before the NCLAT, which was ultimately dismissed, leading to the matter being brought before the Supreme Court.
After considering the arguments presented by both parties, the Supreme Court noted, “First point on which case laws have been referred to is that a time-barred application cannot be entertained under Section 7 IBC. The same would not be relevant or of any help to the appellant as it has already been held that the application of Respondent No.2 would be entitled to benefit of Sections 5 and 18 of the Limitation Act and, therefore, was within time.”
The Court also addressed the second point related to the applicability of Section 14 of the Limitation Act, stating that such case laws were irrelevant in this context as it had been established that no benefit could be claimed by the respondent under this provision.
In response to the third point concerning the acknowledgment of debt under Section 18 of the Limitation Act, the Court found that, based on factual evidence, the acknowledgments, including the date of acknowledgment of debt in the Balance Sheet and the three OTS proposals, were within the legal limitation or the extended limitation due to acknowledgments. Consequently, the case laws relied upon had no relevance in the present circumstances.
In conclusion, the Supreme Court dismissed the appeal, thereby upholding the condonation of delay by SBI and confirming the satisfactory nature of the OTS proposals made by the Corporate Debtor. This ruling provides clarity in IBC cases regarding the treatment of delay and OTS proposals.