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C R Badrinath Versus Eight Capital India (M) Limited and Another
Court / Forum : National Company Law Appellate Tribunal Citation : Company Appeal (AT) (Insolvency) No. 132 of 2020 Coram : Mr. Justice Venugopal M., Member (Judical), Mr. V. P. Singh, Member (Technical), Mr. Alok Srivastava, Member (Technical) Subject : Section 61 of the Insolvency and Bankruptcy Code, 2016 Date of Decision : July 24, 2020
The Respondent No. 1 (Financial Creditor) is a Debenture Holder of Respondent No. 2 (Corporate Debtor) by virtue of a Master Facility Agreement and Debenture Subscription Agreement dated May 21, 2007 executed between the Respondent No.1 (“R-1”) and 2 (“R-2”). Based on these Agreements, a sum of Rs 15 crores was disbursed to the R-2 Company, and the R-1 Company subscribed to two series of fully convertible debentures with each of it for 84 months.
As per Clause 1 of Schedule-V of the Debenture Subscription Agreement, during the subsistence of the Agreement and until the date on which fully convertible debentures are converted into equity shares, the fully convertible debentures shall earn interest quarterly @ 12% per annum and additional 6% per annum in the event of delay in payment of the amount due.
The R-2 defaulted on payment to the R-1 on May 24, 2014 and failed to convert the debentures into equity share capital. Thereafter, on April 18, 2017, the R-1 and R-2 entered into a Memorandum of Agreement to which the R-2 did not cooperate with the R-1 for making payments and monetizing the assets.
R-1 claims that it has been the debenture holder all along and that the said debentures were never converted into equity. R-1 is shown as Debenture Holder in the balance sheet of R-2 for Financial Year 2016-17 and under the heading “long term borrowings” reflecting the debt repayable to the R-1.
The Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was admitted by the Adjudicating Authority vide the Impugned Order.
Hence the Impugned Order was challenged on grounds of limitation.
Whether the Application filed by the R-1 before the National Company Law Tribunal Chennai Bench, barred by limitation?
Reliance was placed on the judgement of “Jignesh Shah v. Union of India”, (2019) 10 SCC 750 [Para 21], wherein, the Supreme Court has reiterated the law laid down in the case of B.K. Educational (supra), wherein the Supreme Court has clearly held that when the time for limitation begins to run, it can only be extended in the manner provided under the Limitation Act 1963. For example, an acknowledgment of liability under Section 18 of the Limitation Act 1963, would certainly extend the limitation period, but a suit of recovery which is a separate and independent proceeding, in no manner impacts the limitation for winding-up proceeding.
In this case, since default first started in December 2007 and after a lapse of 11 years, acknowledgement of liability in the form of Memorandum of Agreement has been executed on April 18, 2017. Therefore, in this case, a fresh period of limitation will not accrue w.e.f. April 18, 2017.
Thus, in the light of the above discussion, we are of the considered opinion that the Adjudicating Authority erred in admitting the Application filed under Section 7 of the Code, even though it was time-barred. Therefore, the Appeal succeeds, and the Impugned Order is set aside.