Excerpts of the Order;
# 1. Challenge in this Appeal is to the Impugned Order dated 19.02.2020 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Division Bench – I), in MA/114/2019 in MA/453/2018 in TCP/95/2017, by which Order, the Learned Adjudicating Authority has allowed the Application preferred by the Liquidator for M/s. Surana Industries Ltd./the ‘Corporate Debtor’ in liquidation, seeking direction to the Respondent to pay the dues to the ‘Corporate Debtor’.
# 2. Submissions of the Learned Counsel appearing on behalf of the Appellant:
• Learned Counsel for the Appellant submitted that Corporate Insolvency Resolution Process (‘CIRP’) in respect of the ‘Corporate Debtor’ was initiated under Section 9 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as ‘The Code’) vide Order dated 02.01.2018 and subsequently the Liquidation Order was passed on 12.10.2018 and Mr. R. Sada Sivan, the RP was appointed as a Liquidator. It is stated that the Liquidator issued a Demand Notice dated 14.05.2018 and a reminder Notice dated 14.11.2018 to the Appellant herein calling upon them to pay the outstanding amount to the ‘Corporate Debtor’, in response to which, the Appellant replied vide letter dated 07.12.2018 stating that the outstanding dues were duly settled by way of arrangement of inter-company transfer dated 08.01.2016, between the Appellant and one M/s. Thribovan Enterprises Ltd. (‘Thribovan’) and the ‘Corporate Debtor’.
• It is submitted that the Liquidator is seeking recovery of a sum of Rs.24.36Crs./- from the Appellant who is the third party alleging that their dues were payable to the ‘Corporate Debtor’ in the year 2015. Learned Counsel submitted that the Appellant had undertaken the transaction with respect to sale of Scrap Metal with the ‘Corporate Debtor’ as it was itself facing financial difficulties and was declared as an NPA and was undergoing restructuring. It is contended that the very same Scrap Metal was supplied to the Sister Concern of the ‘Corporate Debtor’, Thribovan and the sum due was later set off between the ‘Corporate Debtor’, Thribovan and the Appellant by way of a Tripartite Agreement and therefore no sum is payable by the Appellant.
• It is submitted that the entire transaction is supported by delivery challans showing that all the materials was delivered to Thribovan. It is further contended that the invoices are dated 25.05.2015 and that there is not a single Demand Notice till 05.02.2018.
• It is only after the onset of the CIRP Proceedings, that the Appellant came to know that the ‘Corporate Debtor’, Thribovan, (their Sister Concern), and Vinayaga Infra Ltd. (‘Vinayaga’) were engaged in a fraud and a criminal complaint was also lodged by IDBI which again led to the lodging of an FIR on 01.11.2019. The Forensic Audit confirms that Thribovan, Vinayaga and the ‘Corporate Debtor’ are Sister Concerns. There is no mention of the Appellant in the FIR are nor has it been implicated till date and it is submitted that the Appellant is only an innocent bystander who entered into this transaction in good faith.
• The Adjudicating Authority has erroneously allowed Section 60(5) of the Application rejecting the non-maintainability on the ground of Limitation under Section 60(6) read with Section 14. It is denied that the Appellant has forged the Tri-partite documents over the 8 months pendency of the Application between 20.02.2019 to 21.10.2019. The Appellant was not able to produce the documents as it was subjected to SARFAESI Proceedings and has to shift in his office on April 2019.
• The ‘Corporate Debtor’ is alleged to have committed fraudulent transactions of over 2000Crs./-, and the sole reliance of the Adjudicating Authority on the Books of Accounts of the ‘Corporate Debtor’, without any discussion of the same, is erroneous.
• When there are disputed questions of fact, the Adjudicating Authority cannot be converted into a Trial Court under the guise of Section 60(5) at best, the Adjudicating Authority ought to have granted the Official Liquidator permission under Section 33(5) read with Section 30(1)(k) to institute suits or other legal proceedings against the Appellant.
• There is no semblance between Section 60(5) of the Code and Section 446(2) of the Companies Act, 1956 as the latter Application is to be adjudicated as if it were a suit by following a procedure envisaged under the Code.
• The last set of invoices is dated 25.05.2015, and the CIRP commenced on 02.01.2018 and the Liquidation on 12.10.2018 and this Application under Section 60(5) of the Code was filed only on 25.01.2019 after the period of three years Limitation from the date of the last invoice and hence the demand is completely ‘barred by Limitation’.
• Section 60(6) read with Section 14 shows that there is no embargo on the RP under Section 14 to institute Recovery Proceedings on behalf of the ‘Corporate Debtor’ under Section 25(2)(b) for the benefit of the ‘Corporate Debtor’. Learned Counsel relies on the principle of reddendo singular singulis; under Section 60(6), the exclusion of period of Limitation for any suit or Application by or against a ‘Corporate Debtor’ is for which an Order of moratorium has been made under Section14 and not otherwise. The words 'by' or 'against a Corporate Debtor' as found ·in Section 60(6) are to be read reddendo singular singulis with the context of those words, which are found in Section 14(1)(a), which clarify the applicability of the word 'against', and in Section 14(l)(b) and Section 14(1)(c), which clarify the applicability of the word 'by'. Only those actions specifically mentioned in Sections 14(1)(a), 14(l)(b) and 14(1)(c) are to be excluded for the purposes of calculation of Limitation period by virtue of Section 60(6), that too only with respect to the ‘Corporate Debtor’ itself, and the same cannot be made applicable to third parties, or, as in the present case, the Debtors of the Corporate Debtor. The applicability of the maxim reddendo singular singulis is illustrated in ‘Nabha Power Ltd.’ Vs. ‘Punjab SPCL’1.
• Section 14(1)(a) is restricted to against the ‘Corporate Debtor’. It is submitted that the RP on behalf of the ‘Corporate Debtor’ can institute a recovery again even during a Moratorium period. Prohibition under Moratorium is enforced merely on recovery of any amount from the ‘Corporate Debtor’.
• The Legislative intent of Section 60(6) of the Code is different from that of Section 458A, of the Companies Act, 1956. The period excluded under Section 60(6) has deliberately not been specified as starting from the CIRP commencement date until the date of Liquidation or Successful Resolution. Moratorium under Section 60(6) is not to be read as synonymous with period of CIRP. Section 60(6) read with Section 60(5) cannot be read to extend the period of Limitation by a further period of three years from the date of Liquidation. If a suit is ‘time-barred’ as in the present case, it cannot be revived in the guise of Section 60(5) of the Application filed beyond the period of Limitation.
3. Submission of the Learned Counsel appearing on behalf of the Respondents/Liquidator:
• It is submitted that Section 66 of the Code is similar to Section 458A of the Parent Companies Act, 1956, which deals with ‘exclusion of certain Limitation period’; that the effect of Section 458A of the Parent Companies Act, 1956 is that, in respect of a legally enforceable claim, which could have been made by the Company on the date on which the Application for winding-up is made, the period of Limitation will not run against the Company from the date of commencement of the winding-up Proceedings, i.e., from the date on which the Application for winding-up is made, till the date on which the winding-up Order is made (both inclusive).
• It is stated that such a claim could be filed by the Official Liquidator by taking the benefit of one year period, immediately following the date of the winding-up Order, as provided under Section 458A of the Act and the three years period provided under Article 137 of the Limitation Act, 1963 and hence in respect of a legally enforceable claim, which could have been made by the Company on the date on which the Application for winding-up is made, the Official Liquidator could file Claim within a period of four years from the date on which the winding-up Order is made.
• It is submitted that Section 60(6) of the Code says that ‘notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of Limitation specified ‘for any suit or Application by or against a ‘Corporate Debtor’, for which an Order of Moratorium has been made under this part’, the period during which such Moratorium is in place shall be excluded’. In other words, in respect of a legally enforceable claim, which could have been made by the Company on the date on which the Order of Admission of CIRP is made, the period of Limitation will not run against the Company from the date of commencement of CIRP till the date on which the winding-up Order is made i.e., Moratorium under Section 14 of the Code.
• It is argued that a ‘Claim’ filed by the Liquidator under sub-Section (5) of Section 60 of the Code is governed by Article 137 of the Limitation Act, 1963, and the right to file a ‘Claim’ under the said sub-Section, in respect of a ‘Claim’ enforceable at law on the date of the winding-up Order, arises on the date on which the winding-up Order is passed.
• It is submitted that the RP is to complete the CIRP and try to revive the ‘Corporate Debtor’ by finding the suitable Resolution Applicants in time bound manner. Hence, the RP cannot spend more time in filing of multiple suits for recovery of receivables before multiple fora since which are expensive and time-consuming. Moreover, any trade receivables as on the date of commencement of CIRP, which shall part of the current/non-current assets of the Company so if any Prospective Resolution Applicants comes, they will submit the Plan after taking into consideration the said trade receivables.
• It is argued that the Recovery Proceedings can be initiated within three years from the date of Liquidation Order since the ‘Corporate Debtor’ was under CIRP and Moratorium was effected from 02.01.2018 to 12.10.2018, thereby such period shall be excluded in computing the period of Limitation specified for any suit or Application by or against the ‘Corporate Debtor’ in accordance with the provisions of sub-Section (6) of Section 60 of the Code.
• The maxim reddendo singular singulis in order to interpret the Section 60(6) of the Code, is erroneous. The said maxim has been vividly explained and interpreted by the Apex Court in various cases. It is only a guide of interpretation by applying or assigning ‘each to each’. This rule was formulated in an Irish case ‘M. Neel’ Vs. ‘Crommelin’ [1858] 9 Ir CLR 61, as follows:
“Where there are general wards of description, following and enumeration of particular things such general words are to be construed distributively reddendo singule singulis; and if the general words will apply to some things and not to others, the general words are to be applied to those things to which they will, and not to those which they will not apply; that rule is beyond all controversy”.
• In this case, a ‘Claim’ against the Appellant is very much legally enforceable as on the date of CIRP as well as on the date of Liquidation by exclusion of Limitation as provided under Section 60(6) of the Code.
• Rule 39 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, clearly spells out that a Liquidator shall make an attempt to recover and realise all the assets and outstanding of a ‘Corporate Debtor’ in a time bound manner for the purpose of ‘Maximisation of Value of the Stakeholders’.
• It is submitted that Section 60(5) of the Code should be considered in two-fold viz., when the provisions of Section 60(5) five being invoked by the Resolution Professional during the CIRP and when the provisions of Section 60(5) being invoked by the Liquidator during the Liquidation Process since the role of Resolution Professional under CIRP and the role of Liquidator during the Liquidation process are entirely different.
• It is submitted that Sections 33 (5) and 35 (k) of the Code confers powers on the Liquidator to Institute or defend any suit, prosecution, or other legal proceeding, civil, or criminal in the name and on behalf of the Company. The said provisions are akin to the provisions of Section 457 of the Parent Companies Act, 1956 and therefore the real intent of the Sections 33(5) and 35(k) of the Code can be seen from the reading of several Court rulings made under Section 457 of the Companies Act, 1956. One significant rolling is in the Official Liquidator Transpower Engineering Limited on 26.07.2018, the Hon’ble Bombay High Court wherein it is observed that the Liquidator can file an Application under Section 60(5) and 35(k) for recovery legally enforceable claim owes to the ‘Corporate Debtor’ before the Adjudicating Authority itself during the Liquidation Process and no other Courts having authority or jurisdiction to dispose such kind of Applications.
• It is argued that there was no issue raised by the Appellant Debtor with regard to impugned transaction entered with the ‘Corporate Debtor’ and transaction amount therein. There were two issues raised by the Appellant Debtor before the Adjudicating Authority that the impugned Claim is ‘barred by Limitation’ and send outstanding dues was settled by way of inter-company transfer pursuant to Tripartite Agreement entered amongst the ‘Corporate Debtor’, the Appellant and other Company called Thribovan Enterprises Limited. However, the Respondent has failed to submit the alleged Tripartite Agreement before the Adjudicating Authorityand moreover no such arrangement was entered by the ‘Corporate Debtor’. Since there was no issue with regard to the impugned transaction and transaction amount as stated supra which amounting to admitted facts and therefore admitted facts need not be proved under Section 58 of the Law of Evidence Act, 1872.
• As per regulation 44 of the Liquidation Process Regulations, 2016, the Liquidator shall liquidate the ‘Corporate Debtor’ within two years and therefore this kind of frivolous Appeal will lead to the endless process of the Liquidation and thereby the very object of purpose of the Code will be defeated.
Assessment:
# 4. The main issues which arise in this Appeal are:
(a) whether the claim filed by Liquidator under sub-Section (5) of Section 60 of the Code is governed by Article 137 of the Limitation Act, 1963 and if the claim is enforceable by law as on the date of the Liquidation Order, or is it ‘barred by Limitation’?
(b) the second issue which arises for consideration is whether the amount is ‘due and payable’ as it is the case of the Appellant that the dues were settled by way of inter-company transfers pursuant to a Tripartite Agreement entered into between the ‘Corporate Debtor’, its Sister Concern and the Appellant.
# 5. At the outset, we address to the question of Limitation. It is the case of the Appellant that Section 60(6) cannot save Limitation in respect of a ‘time barred’ Claim and that the Moratorium under Section 14 does not create any embargo on the institution of suits and proceedings by/on behalf of the ‘Corporate Debtor’ during the CIRP. It is the further case of the Appellant that the Liquidator cannot convert the Adjudicating Authority into a Trial Court under Section 60(5) of the Code by filing an Application for recovery against alleged debt instead of instituting a Civil Suit under Section 35(1)(k) before the appropriate forum.
# 6. At this juncture, we find it relevant to reproduce Section 60(5) and Section 60(6) of the Code as hereunder:
“60. Adjudicating authority for corporate persons. – (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of—
(a) any application or proceeding by or against the corporate debtor or corporate person;
(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.
(6) Notwithstanding anything contained in the Limitation Act, 1963 (36 of 1963) or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded.” -
# 7. The object of Section 60(5) of the Code is to prevent multiplicity of suits and have several fora determining the cases which may effect the assets or liabilities of the ‘Corporate Debtor’, under Liquidation. The Hon’ble Supreme Court in ‘Central Bank of India’ Vs. ‘Elmot Engineering Company Ltd.’1994 SCC (4) 159, the Hon’ble Supreme Court has observed as follows:
“When a winding-up order is made, the Court, acting by its officer the Official Receiver lays its hand upon the assets and says, no creditor or claimant must touch these assets or take proceedings by way of action, execution or attachment pending the distribution by the Court in due course of administration. This protection is indispensable equally in winding-up and in bankruptcy to prevent a scramble for the assets, but it is not always enough. An even- handed justice requires that the Court should have power to intervene at an early stage for the protection of the assets, and this power is given by this section”.
“This section aims at safeguarding the assets of a company in winding-up against wasteful or expensive litigation as far as matters which could be expeditiously and cheaply decided by the company court are concerned. In granting leave under this section, the court always takes into consideration whether the company is likely to be exposed to unnecessary litigation and cost”.
# 8. Section 60(6) of the Code is similar to Section 458A of the Parent Company Act, 1956, which deals with exclusion of certain Limitation period. Likewise, Section 60(6) of the Code says that ‘notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force in computing the period of Limitation specifies for any Suit or Application by or against a ‘Corporate Debtor’, for which an Order of Moratorium has been made under this part the period during which Moratorium is in place shall be excluded’. If the claim is legally enforceable, the period of Limitation will run from the date of commencement of CIRP till the date on which the winding-up Order is made i.e., Moratorium under Section 14 of the Code. A ‘Claim’ filed by the Liquidator under sub-Section (5) of Section 60 of the Code is governed by Article 137 of the Limitation Act, 1963, and the right to file a ‘Claim’ under the said sub-Section, in respect of a ‘Claim’ enforceable by law arises on the date on which the winding-up Order is passed. In the instant case, the last invoices for the supply of good by the ‘Corporate Debtor’ is dated 16.06.2015 and it is the case of the Appellant that the Recovery Proceedings, if any, ought to have been initiated within three years i.e., on or before 16.06.2018. In this case, the Moratorium was in effect from 02.01.2018 to 12.10.2018 and this period shall be excluded in computing the period of Limitation specified for any Suit or Application by or against the ‘Corporate Debtor’ in accordance with the provisions of sub-Section (6) of Section 60 of the Code.
# 9. Article 137 Limitation Act, 1963, reads as follows:
Article | Description of Application | Period of Limitation | Time from which the period begins to run |
137 | Any other applicable for which no period of limitation is provided elsewhere in this division. | Three years | When the right to apply accrues. |
# 10. We hold that the period of Limitation of three years would therefore be either from the date of the CIRP or Liquidation Order since the Resolution Professional or Liquidator can act on behalf of the ‘Corporate Debtor’ only after their appointment and if the impugned Claim is legally enforceable as on the date of the CIRP as well as on the date of Liquidation, by exclusion of Limitation as provided for under Section 60(6) of the Code, it cannot be said that the Claim is ‘barred by Limitation’.
# 11. The object of sub-Section (2) of Section 446 of the Companies Act, 1956 and Section 60 (5) of the Code is only to save the Company in Liquidation from multiple Litigations and to accelerate the disposal of the winding-up Proceedings. We also place reliance on the Judgement of the Apex Court in ‘Sudarshan Chits (I.) Ltd.’ Vs. ‘Sukumaran Pillai’ (1984) 4 SCC 657, in which it is observed that sub-Section (2) of Section 446 specifies the contours of the jurisdiction of the Code which is the winding-up Company it confers special jurisdiction of the Code, notwithstanding anything contained in any other law for the time being in force. Section 238 of the Code reads as hereunder:
“238. Provisions of this Code to override other laws. -
The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”
# 12. Regulation 39 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, clearly spells out that a Liquidator shall make all attempts to recover the assets and outstanding dues of the ‘Corporate Debtor’ in a time bound manner for the purpose of ‘Maximisation of Value of the Stakeholders’.
# 13. Now we address to the contention of the Learned Counsel for the Appellant that the Liquidator ought to have instituted a Civil Suit under Section 35(1)(k) before the appropriate form and the Application filed by them was not maintainable before the Adjudicating Authority. We find force in the contention of the Learned Counsel for the Respondent that Section 33(5) and 35(k) of the Code are akin to the provisions of Section 457 of the Parent Companies Act, 1956 and therefore the real intent of the said Sections should be interpreted from the reading of the ratio of the Judgements of the Hon’ble Supreme Court made under Section 457 of the Companies Act, 1956.
# 14. To understand the purport and the exact intent of the said Sections, at this juncture, we place reliance on the Judgement of the Hon’ble Bombay High Court in the matter of the Official Liquidator Transpower Engineer Ltd. in Company Petition No.606/1998 wherein the Hon’ble Bombay High Court has observed as follows:
“Section 457 confers power on him to institute or defend any suit, prosecution, or other legal proceeding, civil or criminal in the name and on behalf of the company. Power is conferred upon him to sell the properties both moveable and immovable of the company and to realize the assets of the company and this was to be done for the purpose of distributing the assets of the company amongst the claimants. Now, at a stage when a winding up order is made the company may as well have subsisting claims and to realize these claims the liquidator will have to file suits. To avoid this eventuality and to keep all incidental proceedings in winding up before the Court which is winding up the company, its jurisdiction was enlarged to entertain petition amongst others for recovering the claims of the company. In the absence of a provision like Section 446(2) under the repealed Indian Companies Act, 1913, - the Official Liquidator in order to realize and recover the claim and subsisting debts owed to the company had the unenviable fate of filing suits. These suits as is not unknown dragged on through the trial Court and Courts of appeal resulting not only in multiplicity of proceedings but would hold up the progress of the winding up proceedings. To save the company which is ordered to be wound up from this prolix and expensive litigation and to accelerate the disposal of winding up proceedings, the Parliament devised a cheap and summary remedy by conferring jurisdiction on the Court winding up the company to entertain petitions in respect of claims for and against the company. This was the object behind enacting Section 446(2) and, therefore, it must receive such construction at the hands of the court as would advance the object and at any rate not thwart it.”
# 15. We are of the view that the Liquidator can file an Application under Sections 60(5) and 35(k) for recovering the legally enforceable claims owed to the ‘Corporate Debtor’ before the Learned Adjudicating Authority during the Liquidation Process as these Applications are filed keeping in view the objective of time bound and the ‘Maximisation of Assets of the Stakeholders’ and also to avoid multiplicity of proceedings.
# 16. Learned Counsel for the Appellant submits that this matter is covered by ‘Shri Ramchandra D. Choudhary’ Vs. ‘Bansal Trading Company’, in which this Tribunal has held that claims of Sundry Debtors which are disputed and require voluminous evidence cannot be decided in summary Proceedings. The facts in the instant case can easily be differentiated as there are no multiple Sundry Debtors, no dispute regarding quantity or the quality of the goods supplied requiring voluminous evidence and further the Appellant is already undergoing SARFAESI Proceedings and the code envisages that multiplicity of litigations be avoided. It is pertinent to mention that the Appellant has never denied the supply of goods nor raised any dispute regarding the quality or short supply. It is only their case that the outstanding dues were settled by way of inter-company transfers pursuant to Tripartite Agreements entered into between the ‘Corporate Debtor’, Thribovan, (the Sister Concern of the ‘Corporate Debtor’) and the Appellant herein. It is observed from the record that there is no such Tripartite Agreement which was filed along with the reply before the Adjudicating Authority showing that the amounts were paid to the Sister Concern of the ‘Corporate Debtor’. We are conscious of the fact that this Tripartite Agreement was filed after 8 months. It is the case of the Appellant that the 8 months delay was because they were undergoing SARFAESI Proceedings and could not find the documents. When the amount payable is to a tune of Rs.24,36,00,048/-, it is not understood as to how even a copy of the Tripartite Agreement was not traceable/could not be placed for 8 long months. The communication relied upon by the Appellant is dated 08.01.2016 and does not give any details with respect to the authorised signatory, nor any acceptance by the ‘Corporate Debtor’ for this request of transfer. The Learned Counsel for the Respondent vehemently denies that such an Agreement was ever entered into.
# 17. As regarding the CBI enquiry and the other issues raised by the Appellant are not being adjudicated in this Appeal as they are not within our domain regard being had to the facts of the matter on hand. The only question which needs to be addressed to, is whether the Adjudicating Authority was justified in allowing a Liquidator to claim the amount ‘due and payable’ to the ‘Corporate Debtor’. In the absence of any concrete evidence on record that the amounts were indeed transferred to the Sister Concern, nor any acceptance letter by the ‘Corporate Debtor’, agreeing to such transfer, and also having regard to the fact that there is no denial by the Appellant herein with respect to the actual transactions, having been executed, we do not see any illegality or infirmity in the Impugned Order.
# 18. For all the aforenoted reasons, this Appeal fails and is accordingly dismissed. No order as to costs.
# 19. However, the Adjudicating Authority has given six weeks time for payment. This Tribunal is of the earnest view that in the interest of Justice, four weeks time from the date of Order i.e., 05.12.2022 be given to the Appellant for payment of the amount.
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