Material placed on record by the Corporate Debtor may be examined to determine if an application under Section 7 of IBC is time barred

Factual matrix:

The Hon’ble Supreme Court in its judgment dated 30.09.2021 in the matter of “Rajendra Narottamdas Sheth & Anr. vs. Chandra Prakash Jain & Anr. (Civil Appeal No. 4222 of 2020)” had the occasion to deal with the issue as to whether the Adjudicating Authority can examine material placed on record by the Corporate Debtor to determine if an application filed under Section 7 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”) is barred by limitation or not.

In the present matter, a company called R.K. Infratel (hereinafter referred to as “Corporate Debtor”) availed certain loans from Respondent No. 2 i.e. Union Bank of India (hereinafter referred to as “Financial Creditor”) but was unable to settle the dues in time. This led to the account of the Corporate Debtor be declared as Non-Performing Asset on 30.09.2014. Pursuant to this, the Financial Creditor filed an application under Section 7 of the Code on 25.04.2019 against the Corporate Debtor which was opposed by the Corporate Debtor on the ground that the application was time barred as the cause of action arose on 30.09.2014 and the Financial Creditor only filed a debit balance confirmation letter dated 07.04.2016 which acknowledged the debt along with the Section 7 application which was filed on 25.04.2019 so, even if the relaxation under Section 18 of the Limitation Act is given, the application would still be time barred. However, the NCLT, Ahmedabad Bench vide order dated 01.06.2020, while relying  on a letter dated 17.11.2018 which was placed on record by the Corporate Debtor which acknowledged the outstanding debt held that the application was not time barred and thus, admitted the said application and appointed Respondent No. 1 as the Interim Resolution Professional.

Aggrieved by this order, the Appellants, who are the suspended directors of the Corporate Debtor filed an appeal before the NCLAT, Delhi contending that the NCLT should have only relied on materials that were placed on record by the Financial Creditor along with the application under Section 7 of the Code and not on the materials placed on record by the Corporate Debtor. The NCLAT vide its order dated 18.12.2020 dismissed the appeal.

Aggrieved, the Appellants filed a Civil Appeal before the Hon’ble Supreme Court.

Analysis of the Judgment:

The Hon’ble Supreme Court vide order dated 30.09.2021 dismissed the appeal filed by the Appellants and upheld the decision passed by the NCLT, Ahmedabad Bench and NCLAT, Delhi.

The main issue in the appeal that needed adjudication was that whether the Adjudicating Authority i.e. the NCLT could have relied on material filed by the Corporate Debtor to determine if the application was time barred when it is well established that it is the responsibility of the Financial Creditor to prove if the Section 7 application is within limitation.

The Hon’ble Supreme Court held that, while it is true that the decision to admit an application under Section 7 is typically made on the basis of material furnished by the financial creditor, the Adjudicating Authority is not barred from examining the material that is placed on record by the corporate debtor to determine that such application is not beyond the period of limitation. In the present case, the letter dated 17.11.2018 filed by the Corporate Debtor which acknowledged the debt, would mean that a new period of limitation would start as per Section 18 of the Limitation Act and thus, the adjudicating authority was correct in admitting the application under Section 7 of the code and holding that the said application was not barred by limitation.