Read Judgment: Rajendra Narottamdas Sheth vs. Chandra Prakash Jain

Pankaj Bajpai

New Delhi, October 1, 2021: The Supreme Court has held that general authorization given to an officer of bank by power of attorney, would not disentitle him to act as authorized representative of financial creditor while filing an application u/s 7 of Insolvency & Bankruptcy Code, 2016 (IBC). 

The Larger Bench of Justice L. Nageswara Rao, Justice B. R. Gavai & Justice B. V. Nagarathna observed that while the decision to admit an application u/s 7 of IBC was 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. 

The background of the case was that the second respondent financial creditor (Union Bank of India) filed an application u/s 7 of IBC which was admitted by the NCLT. The appellants, who were the suspended directors of the board of R.K. Infratel Ltd. (Corporate Debtor), filed an appeal which was rejected by the NCLAT. 

The Corporate Debtor was in the business of setting up underground fiber network in various cities. The second respondent sanctioned certain loan to the Corporate Debtor but the Corporate Debtor was unable to settle the dues of the Financial Creditor in time. On September 30, 2014, the account of the Corporate Debtor was declared as non-performing asset (NPA).

Thereafter, the financial creditor issued notice for recovery of all dues payable by the Corporate Debtor. Pursuant to the notice, the Financial Creditor filed an application before the Ahmedabad bench of the Debt Recovery Tribunal u/s 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDBFI) for recovery of the dues, which was still pending consideration. 

Later the Financial Creditor filed an application u/s 7 of IBC, which was admitted. The corporate debtor contended that the application was time-barred. It was further contended by the corporate debtor that the application u/s 7 filed by the Financial Creditor was legally untenable, as proceedings before the Debt Recovery Tribunal (DRT), including a counter claim by the Corporate Debtor, were still pending consideration. 

After examining the material on record, the Adjudicating Authority held that the application u/s 7 was not barred by limitation. The Adjudicating Authority also rejected the contention of the Corporate Debtor that the application filed by the power of attorney holder on behalf of the Financial Creditor was not maintainable. 

The Apex Court noted that in the present case, Mr. Praveen Kumar Gupta had been given general authorization by the Bank with respect to all the business and affairs of the Bank, including commencement of legal proceedings before any court or tribunal with respect to any demand and filing of all necessary applications in this regard. 

Such authorization, having been granted by way of a power of attorney pursuant to a resolution passed by the Bank’s board of directors on December 06, 2008, does not impair Mr. Gupta’s authority to file an application u/s 7 of IBC. 

The Top Court therefore said that it is clear that the application has been filed by an authorized person on behalf of the Financial Creditor and the objection of the Appellants on the maintainability of the application on this ground is untenable. 

Hence, the burden of prima facie proving occurrence of the default and that the application filed u/s 7 of IBC is within the period of limitation, was entirely on the financial creditor, added the Court. 

The Larger Bench observed that there is sufficient material in the present case to justify enlargement of the extension period in accordance with Section 18 of the Limitation Act and such material has also been considered by the Adjudicating Authority before admitting the application u/s 7 of IBC. 

The plea of Section 18 of the Limitation Act not having been raised by the Financial Creditor in the application filed u/s 7 cannot come to the rescue of the Appellants in the facts of this case, added the Bench. 

The Bench also clarified that the onus on the financial creditor, at the time of filing an application u/s 7, to prima facie demonstrate default with respect to a debt, which is not time-barred, is not sought to be diluted herein. 

The Apex Court therefore concluded that if the documents constituting acknowledgement of the debt beyond April, 2016 had not been brought on record by the Corporate Debtor, the application would have been fit for dismissal on the ground of lack of any plea by the Financial Creditor before the Adjudicating Authority with respect to extension of the limitation period and application of Section 18 of the Limitation Act. 

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