NCLT Mumbai launches CIRP against GIT Textiles
The National Company Law Court (“NCLT”), Mumbai Bench, consisting of Shri Rohit Kapoor (Judicial Member) and Shri Harish Chander Suri (technical member), when examining an application filed in UCO Bank v GIT Textiles Manufacturing Limitedinitiated the Corporate Insolvency Resolution (“CIRP”) process against GIT Textiles Manufacturing Ltd. for a default that occurred in 2012 and kept this limitation updated each subsequent year when the debtor company recognized the financial debt in its financial statements.
UCO Bank (“Financial Creditor”) had sanctioned credit facilities in the amount of Rs. 20,41,00,000/- to GIT Textiles Manufacturing Limited (“Debtor Company”) see a letter of sanction dated 16.06.2008 and subsequently, the Credit Facilities were renewed several times. The Debtor Company did not reimburse the Financial Creditor and its account was declared NPA on 30.09.2012.
On 04.04.2019, the financial creditor had filed a petition under section 7 of the Insolvency and Bankruptcy Code 2016 (“IBC”) requesting the initiation of CIRP against the debtor company for a failure to Rs.54,33,52,844.37/-.
Litigation of the debtor company
The Debtor Company argued that the Financial Creditor had resorted to forum shopping because the latter had also brought an action before the Debt Recovery Court for the same cause. It was further argued that the petition was time-barred because the alleged defect and NPA classification occurred on 30.09.2012, while the petition was filed in April 2019. The statute of limitations had already expired on 30.09.2015.
NCLT bench decision
The Chamber observed that the balance sheets of the Debtor Company for the years 2012 to 2019 showed multiple acknowledgments of debt owed to the Financial Creditor by the Debtor Company. The Chamber relied on the judgment of the Supreme Court in Laxmi Pat Surana v Union Bank of India & Anr., where it was found that:
“Section 18 of the Limitation Act, 1963 is drawn at the time of written acknowledgment signed by the party against which such right to initiate resolution proceedings under Section 7 of the Code ensues. section 18 of the Limitation Act would come into play whenever the principal borrower and/or the surety company (debtor company), as the case may be, acknowledges their obligation to pay the debt, but this acknowledgment must be prior to the expiry of the limitation period including the new limitation period due to the acknowledgment of the debt, from time to time, for the institution of the procedure under Article 7 of the Code.”
Also in the judgment of the Supreme Court in Innovative Industries Ltd. against ICICI Bank(2018) 1 SCC 407, it was held that:
“…in the case of a corporate debtor defaulting on a financial debt, the contracting authority need only see the information service records or other evidence produced by the financial creditor to ascertain that a default has occurred. It does not matter whether the debt is disputed as long as it is “due”, i.e. payable unless prohibited by law or is not yet due in the sense that it is payable at a later date.
Further, in Khan Bahadur Shapoor Freedom Mazda vs. Durga Prasad(1962) 1 SCR 140, the Supreme Court held:
“… The words used in the acknowledgment must, however, indicate the existence of a legal relationship between the parties, such as that of debtor and creditor, and it must appear that the declaration is made with the intention of admitting such a legal relationship. This intention may be implicit in the nature of the admission, and need not be expressed in words. If the statement is clear enough, the intention to admit a legal relationship may be The admission in question need not be express, but must be made in circumstances and in terms from which the court can reasonably infer that the person making the admission intended to refer to a liabilities subsisting at the date of the declaration.”
On the basis of these judgements, the panel held that because of the specific admissions of debt by the debtor company, section 18 of the Limitation Act 1963 was applicable and that this resulted in a recalculation of the period limitation period of three years from the date of recognition in each balance sheet. “Given that the last of these admissions was made on 31.03.2019, the statute of limitations would last until 31.03.2022. Thus, the present motion was found to be well within the limits of the statute of limitations.”
The bench ruled that there was a liability and a default and therefore the CIRP was initiated against the debtor company and Mr. Sunil Kumar Agarwal was appointed as the interim resolution professional.
Case title: UCO Bank v GIT Textiles Manufacturing Limited, CP (IB) No 600/KB/2019
For the Financial Creditor: Mr. Rahul Auddy, Mr. Shaunak Mitra, Mr. Aditya Goopty, lawyers.
For the corporate debtor: Mr. Ritesh Agarwal, Mr. Patita Paban Bishwal, lawyers.
Click here to read/download the order