Page 22 - Banking Finance November 2020

LEGAL UPDATE

LEGAL

CASES
CASES
CASES
CASES
CASES

The insolvency code’s con- decision, had dismissed the application NCLAT ruled that for any action under
of the financial creditor. The conten- the Code the limitation of time of
fusing clauses call for a re- tion that the audited financial state- three years prescribed Article 137

view ments of the corporate debtor dis- would apply and, hence, the action
Under the Insolvency and Bankruptcy closes the liability and such disclosure under the Code was time-barred.
Code, 2016 (the Code), where there is operates as an acknowledgement of In both above cases, NCLAT had relied
a default on the part of corporate debt did not find favour with the on several decisions of the Supreme
debtor in repaying a debt of Rs. 1 crore NCLAT. Court including Jignesh Shah and an-
or above, state of insolvency of the A majority of the bench of NCLAT ruled other vs. Union of India and another —
corporate debtor is presumed and a that if disclosures made in financial (2019) 10 SCC 750 and BK Educational
creditor has the option to set in mo- statements were to be treated as an Services Private Limited vs. Parag
tion the Corporate Insolvency Resolu- acknowledgement of debt limitation Gupta and Associates — (2018) SCC
tion Process (CIRP) to bring about reso- would never stop its running. It is worth Online SC 1921.
lution of insolvency. noting that other than the disclosures In fact, recently, in Babulal Vardharji
If no resolution happens, ipso facto, liq- in the financial statements, no other Gurjar Vs. Veer Gurjar Aluminium In-
uidation of the corporate debtor is or- document was produced to constitute dustries Pvt. Ltd. & Anr. (2020) SCC
dered. In view of the systemic flaws acknowledgement of the debt within a Online SC 647, the SC had held that the
and inefficiencies, during CIRP as well period of three years before the date application made by the Respondent
as during liquidation, the control over of the application under the Code. In a No. 2 under Section 7 of the Code in
the management of the insolvent cor- minority decision, a member had, how- the month of March 2018, seeking ini-
porate debtor gets placed in the hands ever, expressed his dissent. tiation of CIRP in respect of the corpo-
of a resolution professional and the Previously, in Ishrat Ali v Cosmos Coop- rate debtor with the specific assertion
Board of Directors remain suspended erative Bank Ltd and Others [Company of the date of default as July 8, 2011,
during those periods. Appeal (AT) (Ins) No.1121 of 2019 also, is clearly barred by limitation for hav-
In V. Padmakumar v Stressed Assets the NCLAT had formed a similar opin- ing been filed much later than the pe-
Stabilisation Fund (SASF) & Anr. de- ion while setting aside the order of riod of three years from the date of
cided by the National Company Law NCLT commencing the CIRP. In that default as stated in the Application.
Appellate Tribunal (NCLAT) on March case too, the account of the corporate So, the question is whether disclosures
12, 2020, the account had become debtor had become NPA in 2014 itself in audited financial statements would
NPA in 2011 itself and a claim of ?124 and the Bank had also taken posses- constitute an acknowledgement of the
crore. Despite the fact that there was sion of the movable assets under Sec- debt, or not. Financial statements
a decree passed by the DRT on August tion 13(4) of the ‘SARFAESI Act, 2002’ show the information derived from the
17, 2018, the NCLAT, by a majority as back as on 16 January 2017. Yet, the books of accounts in accordance with

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