Rajendra Narottamdas Sheth vs Chandra Prakash Jain on 30 September, 2021
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Supreme Court of India
Rajendra Narottamdas Sheth vs Chandra Prakash Jain on 30 September, 2021
Author: L. Nageswara Rao
Bench: [ B ], [ N Rao]
Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION Civil Appeal No.4222 of 2020 Rajendra Narottamdas Sheth & Anr. .... Appellant(s) Versus Chandra Prakash Jain & Anr. …. Respondent(s) JUDGMENT
L. NAGESWARA RAO, J.
1. Respondent No. 2 filed an application under Section 7
of the Insolvency and Bankruptcy Code, 2016 (hereinafter
referred to as the ‘Code’) which was admitted by the National
Company Law Tribunal, Ahmedabad bench (hereinafter
referred to as the ‘NCLT’ or ‘Adjudicating Authority’) on
01.06.2020. The Appellants, who are the suspended
directors of the board of R.K. Infratel Ltd. (hereinafter
referred to as the ‘Corporate Debtor’), filed an appeal which
was rejected by the National Company Law Appellate
Tribunal, Delhi (hereinafter referred to as the ‘ NCLAT’).
Therefore, this Appeal.
2. The Corporate Debtor is in the business of setting up
underground fiber network in the cities of Surat, Ahmedabad,
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Vapi, Silvasa, Ankleswar and in South Gujarat, and providing
dedicated dark fiber, broadband, internet leased line, VPN,
point-to-point, wi-fi and wiMAX connections and CCTV
surveillance services to corporate entities, financial
institutions and other organisations. Respondent No. 2,
Union Bank of India (hereinafter referred to as the ‘ Bank’ or
‘Financial Creditor’), sanctioned a loan of Rs. 4.5 crore which
was cleared by the Corporate Debtor on 08.12.2012.
Another loan was granted by the Financial Creditor for Rs. 3.5
crore which was also repaid on 28.05.2018. Thereafter, loans
were granted by the Financial Creditor to the Corporate
Debtor but the Corporate Debtor was unable to settle the
dues of the Financial Creditor in time. On 30.09.2014, the
account of the Corporate Debtor was declared as non-
performing asset (NPA). The Financial Creditor issued notice
for recovery of all dues payable by the Corporate Debtor on
01.10.2014. Pursuant to the notice, the Financial Creditor
filed an application before the Ahmedabad bench of the Debt
Recovery Tribunal under Section 19 of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 for recovery
of the dues, which is still pending consideration.
3. On 25.04.2019, the Financial Creditor filed an
application under Section 7 of the Code, which was admitted
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on 01.06.2020. The Financial Creditor averred, in the
application filed under Section 7 of the Code, that the
Corporate Debtor owed an amount of Rs. 24.62 crore as on
31.03.2019. The Financial Creditor submitted documents in
support of its claim, including a debit balance confirmation
letter dated 07.04.2016 signed by the Corporate Debtor. On
the other hand, the Corporate Debtor contended that the
application was time-barred. It was further contended by the
Corporate Debtor that the application under Section 7 filed
by the Financial Creditor was legally untenable, as
proceedings before the Debt Recovery Tribunal, including a
counter claim by the Corporate Debtor, were still pending
consideration. After examining the material on record, the
Adjudicating Authority held, by an order dated 01.06.2020,
that the application under Section 7 was not barred by
limitation. The Adjudicating Authority referred to the debit
balance confirmation letter dated 07.04.2016 and regular
credit entries made after 07.04.2016 till May, 2018 to come
to the said conclusion. A letter by the Corporate Debtor
dated 17.11.2018 giving details of the amount repaid till
30.09.2018 and acknowledging the outstanding amount as
on 30.09.2018 was also referred to by the NCLT. In addition,
the reply of the Corporate Debtor was relied upon wherein
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payment of an amount of Rs. 16.17 lakh during the financial
year 2019-20 was admitted. The Adjudicating Authority
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.
4. The Corporate Debtor reiterated its stand that the
application under Section 7 of the Code was barred by
limitation before the NCLAT. According to the Corporate
Debtor, the payments made by it to the Bank after its
account was declared as NPA could not extend the period of
limitation. It was further contended by the Corporate Debtor
that the “cut back offer” cannot be taken into account for
attracting Section 19 of the Limitation Act, 1963 (hereinafter
referred to as the ‘Limitation Act’). It was argued on behalf
of the Corporate Debtor that Section 18 of the Limitation Act
is also not applicable to the facts of this case. The further
argument of the Corporate Debtor was that the power of
attorney in favour of the individual who has signed the
application under Section 7 of the Code had been granted
prior to the Code coming into force without any specific
authorisation to initiate proceedings under the Code, and
therefore, the application was not maintainable.
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5. The NCLAT examined the power of attorney given by
the Bank to Mr. Praveen Kumar Gupta and found no merit in
the argument of the Corporate Debtor that the application
under Section 7 of the Code was not maintainable as it was
filed by a power of attorney holder. In so far as limitation is
concerned, the NCLAT referred to all the documents as well
as the “cut back arrangement” relied on by the NCLT to hold
that the application under Section 7 of the Code was filed
within the prescribed time. It was further observed by the
NCLAT that the Corporate Debtor could not demonstrate any
error in the order of the Adjudicating Authority. Accordingly,
the NCLAT dismissed the appeal of the Corporate Debtor.
6. Essentially, there are two issues that arise for
consideration in this Appeal. The first pertains to the
maintainability of the application under Section 7 of the Code
filed by a power of attorney holder. The second relates to the
question of limitation.
Maintainability of the application under Section 7
when filed by a power of attorney holder
7. Mr. Rana Mukherjee, learned Senior Counsel appearing
for the Appellants, submitted that the application filed on
behalf of the Financial Creditor under Section 7 of the Code
was on the basis of a power of attorney. He relied upon a
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judgment of the NCLAT in Palogix Infrastructure Private
Limited v. ICICI Bank Limited1 in which it was held that an
‘authorised person’, distinct from a ‘power of attorney
holder’, can file an application under Section 7 and that a
‘power of attorney holder’ is not competent to file an
application on behalf of a financial creditor. According to Mr.
Mukherjee, the defect in filing of the application by an
unauthorised person is not curable. Assuming it is curable,
the Financial Creditor failed to rectify the defect within the
time stipulated under Section 7 (5) of the Code, in spite of an
order passed by the Adjudicating Authority on 22.01.2020
granting time to the Financial Creditor. He submitted that
the person who filed the application under Section 7 of the
Code is not the authorised representative of the Financial
Creditor and therefore, the application was liable to be
dismissed.
8. On the other hand, the Financial Creditor contended
that the power of attorney was executed in favour of Mr.
Praveen Kumar Gupta, which was perused by both the
Adjudicating Authority and the NCLAT to conclude that the
application was filed by the authorised person. Mr. Alok
Kumar, the learned Counsel appearing for the Financial
Creditor, also relied upon the judgment in Palogix
1 2017 SCC Online NCLAT 266
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Infrastructure (supra) and argued that a person authorised
by way of a power of attorney can file an application under
Section 7 of the Code.
9. Initiation of the corporate insolvency resolution process
by a financial creditor is dealt with under Section 7 of the
Code. Section 7 (2) provides that the financial creditor shall
make an application in such form and manner and
accompanied with such fee as may be prescribed. As per
Rule 4 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 (hereinafter, ‘ the 2016
Rules’), the financial creditor is required to make an
application for initiating the corporate insolvency resolution
process against the corporate debtor under Section 7 of the
Code in Form 1, accompanied with documents and records
required therein. Form 1 is in a tabular form and the financial
creditor has to give particulars of the details sought. Further,
the Form is required to be signed by the “person authorised
to act on behalf of the financial creditor”.
10. The authorisation, in terms of the power of attorney,
given by the Financial Creditor to Mr. Praveen Kumar Gupta
who has filed the application under Section 7 of the Code has
been placed on record. Pursuant to the resolution passed by
the board of directors of the Bank on 06.12.2008, the power
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of attorney was executed by the general managers in 2011.
By way of the said power of attorney, Mr. Praveen Kumar
Gupta was appointed by the Bank to act as its constituted
attorney with respect to “all the business and affairs of the
Bank and to conduct and manage and to assist in the
conduct and management of all such businesses and affairs
of the Bank, both within and outside India and to do all acts,
deeds and things necessary or proper for carrying on the
business and affairs of the Bank”. Further, Mr. Praveen Kumar
Gupta has also been authorised to “commence, prosecute,
endorse, defend, answer and/or oppose any suit or other
legal proceedings including any civil or criminal proceedings
in any Court or Tribunals and any demand touching any
matters in which the Bank may or may hereafter be
interested or concerned and also, … compromise, refer to
arbitration, abandon, submit to judgement or become non-
suited, in any such suits or proceedings, to appoint advocate,
solicitors and pleaders as occasion shall require and to make
sign, execute, present and file all applications, plaints,
petitions, written statements, vakalatnamas or any other
papers expedient or necessary … to be made, signed,
executed, presented or filed”.
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11. The NCLAT in its judgment in Palogix Infrastructure
(supra) held that a ‘power of attorney holder’ is not
competent to file an application under Section 7 on behalf of
the financial creditor. However, the NCLAT made certain
further observations, as reproduced below:
“41. In so far as the present case is concerned, the
‘Financial Creditor’-Bank has pleaded that by Board’s
Resolutions dated 30th May, 2002 and 30th October,
2009, the Bank authorised its officers to do needful in
the legal proceedings by and against the Bank. If
general authorisation is made by any ‘Financial
Creditor’ or ‘Operational Creditor’ or ‘Corporate
Applicant’ in favour of its officers to do needful in legal
proceedings by and against the ‘Financial Creditor’ /
’Operational Creditor’ / ‘Corporate Applicant’ in favour
of its officer, mere use of word ‘Power of Attorney’ while
delegating such power will not take away the authority
of such officer and for all purposes it is to be treated as
an ‘authorization’ by the ‘Financial Creditor’ /
‘Operational Creditor’ / ‘Corporate Applicant’ in favour
of its officer, which can be delegated even by
designation. In such case, officer delegated with power
can claim to be the ‘Authorized Representative’ for the
purpose of filing any application under section 7 or
Section 9 or Section 10 of ‘I &B Code’.”The NCLAT was of the opinion that general authorisation
given to an officer of the financial creditor by means of a
power of attorney, would not disentitle such officer to act as
the authorised representative of the financial creditor while
filing an application under Section 7 of the Code, merely
because the authorisation was granted through a power of
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attorney. Moreover, the NCLAT in Palogix Infrastructure(supra) has held that if the officer was authorised to sanction
loans and had done so, the application filed under Section 7
of the Code cannot be rejected on the ground that no
separate specific authorisation letter has been issued by the
financial creditor in favour of such officer. In such cases, the
corporate debtor cannot take the plea that while the officer
has power to sanction the loan, such officer has no power to
recover the loan amount or to initiate corporate insolvency
resolution process, in spite of default in repayment. We
approve the view taken by the NCLAT in Palogix
Infrastructure (supra).
12. In the present case, Mr. Praveen Kumar Gupta has been
given general authorisation 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 authorisation,
having been granted by way of a power of attorney pursuant
to a resolution passed by the Bank’s board of directors on
06.12.2008, does not impair Mr. Gupta’s authority to file an
application under Section 7 of the Code. It is therefore clear
that the application has been filed by an authorised person
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on behalf of the Financial Creditor and the objection of the
Appellants on the maintainability of the application on this
ground is untenable.
Limitation
13. Mr. Rana Mukherjee, learned Senior Counsel appearing
for the Appellants, contended that the date of default is
shown as 30.09.2014 in the application filed under Section 7
of the Code. He submitted that the application under Section
7 filed on 25.04.2019 was barred by limitation as it was not
filed within three years from the date of default. He further
argued that apart from the debit balance confirmation letter
dated 07.04.2016, no other document extending the period
of limitation has been filed along with the application under
Section 7 of the Code. No other information has been
provided by the Financial Creditor to show that the
application under Section 7 was filed within the period of
limitation. The balance sheet referred to by the Financial
Creditor in the application relates to the financial year 2015-
2016 which does not save the period of limitation. He
argued that the application ought to have been rejected at
the threshold in view of the absence of any pleading or proof
that the application was filed within limitation. Reliance was
placed by him on a judgment of this Court in Babulal
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Vardharji Gurjar v. Veer Gurjar Aluminium Industries
Private Limited & Anr.2.
14. In response, Mr. Alok Kumar, learned Counsel appearing
for the Financial Creditor, submitted that no error was
committed by the Adjudicating Authority in admitting the
application filed under Section 7 of the Code, after perusing
the documents filed by the Financial Creditor along with the
application. It was further submitted that the material
placed on record by the Corporate Debtor before the
Adjudicating Authority clearly shows acknowledgement of the
debt till the year 2019. Therefore, the application under
Section 7 filed on 25.04.2019 cannot be said to be beyond
the period of limitation in terms of Section 18 of the
Limitation Act.
15. Section 7 (1) of the Code enables a financial creditor to
file an application for initiating corporate insolvency
resolution process against a corporate debtor before the
adjudicating authority when a default has occurred. Sub-
section (2) thereof provides that the application shall be in
the form and manner as prescribed. Sub-section (3)
obligates the financial creditor to furnish the record of default
recorded with the information utility or such other record or
evidence of default as may be specified, along with the
2 (2020) 15 SCC 1
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application. On the basis of records of an information utility
or on the basis of other evidence furnished by the financial
creditor under sub-section (3), the Adjudicating Authority
within a period of 14 days shall ascertain the existence of a
default, as stipulated under sub-section (4). According to
sub-section (5), the Adjudicating Authority may admit the
application filed under sub-section (2), where the
Adjudicating Authority is satisfied that a default has occurred,
the application filed is complete and no disciplinary
proceedings are pending against the proposed resolution
professional. As per sub-section (6), the corporate
insolvency resolution process shall commence from the date
of admission of the application.
16. Rule 4 of the 2016 Rules prescribes that the application
under Section 7 of the Code shall be filed in Form 1,
accompanied by documents and records required therein and
as specified in the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons)
Regulations, 2016. Regulation 2-A of the said Regulations
permits the financial creditor to furnish, as evidence of
default, (a) certified copy of entries in the relevant account in
the bankers’ book as defined in clause (3) of section 2 of the
Bankers’ Books Evidence Act, 1891, and (b) an order of a
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court or tribunal that has adjudicated upon the non-payment
of a debt, where the period of appeal against such order has
expired. Form 1 is in a printed format and in five parts,
wherein the financial creditor shall give his particulars, the
particulars of the corporate debtor, the proposed interim
resolution professional and the financial debt. The date on
which the default has occurred shall be provided by the
financial creditor as required in Part IV. In Part V of Form 1,
the financial creditor is required to furnish documents as
listed therein as well as other documents that may be
relevant to prove the existence of financial debt, the amount
and the date of default.
17. The date of default in the Babulal Vardharji Gurjar
case (supra) was 08.07.2011, being the date of the NPA. The
particulars of financial debt with documents and evidence on
record as required in Part V of the application were not
furnished by the financial creditor. As no foundation was laid
in the application suggesting any acknowledgement or any
other date of default, the financial creditor was not permitted
to make submissions at a later stage to the effect that the
application filed was with the limitation period. In the said
fact situation, this Court in Babulal Vardharji Gurjar
(supra) held that Section 18 of the Limitation Act and the
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principles thereof were not applicable. In Dena Bank v. C.
Shivkumar Reddy & Anr.3, this Court had occasion to deal
with the pleadings and the documents required to be filed at
the time of making of an application under Section 7 of the
Code. It was observed therein that the financial creditor can
only fill in the particulars as mentioned in Form 1 and there is
no scope for elaborate pleadings. This Court was of the view
that an application under Section 7 cannot be compared with
a plaint in a suit. It was further held in the said judgment
that there is no bar for filing of documents as required under
Section 7, until a final order either admitting or dismissing
the application has been passed. While concluding, this
Court had opined that in case of inordinate delay, the
Adjudicating Authority, at its discretion, may allow or decline
the request of the applicant to file additional pleadings and /
or documents before passing the final order.
18. While examining the question of maintainability of an
application filed under Section 7 of the Code in the absence
of a plea regarding the acknowledgement of liability, this
Court in Asset Reconstruction Company (India) Limited
v. Bishal Jaiswal & Anr.4, gave an opportunity to the
financial creditor to amend its pleadings before the NCLAT on
3 2021 SCC Online SC 543
4 (2021) 6 SCC 366
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payment of costs of Rs.1 lakh. In the said case, the
corporate debtor’s account was declared as NPA from 2010.
The NCLT admitted the application under Section 7 on the
ground that there was a continuing cause of action. The
NCLAT dismissed the appeal of the corporate debtor on the
ground that limitation would commence from the date on
which the Code came into force, i.e., 01.12.2016. This Court
remanded the matter back to the NCLAT to re-examine the
question of limitation. After remand, the NCLAT allowed the
appeal filed by the corporate debtor on the ground that the
three years’ period from the date of the corporate debtor’s
account being classified as NPA, prescribed under Section
137 of the Limitation Act, had expired on 30.12.2017. In the
appeal filed against the order passed by the NCLAT before
this Court, the financial creditor argued that there was
acknowledgement on the part of the corporate debtor. On
the other hand, the corporate debtor contended that there
was no pleading either before the NCLT or the NCLAT
regarding the acknowledgement of liability extending
limitation. An application was filed by the financial creditor
before this Court to amend the pleadings, arguing that such
amendment could be permitted by this Court. Noting that
the financial creditor had been remiss in pleading
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acknowledgement of liability but given the staggering
amounts allegedly due, the financial creditor was given an
opportunity to amend its pleadings before the NCLAT in
support of its contention that there was acknowledgement of
liability, subject to payment of costs.
19. Any suit, appeal or application filed after the prescribed
period of limitation shall be dismissed in spite of limitation
not being set up as a defence, as per Section 3 of the
Limitation Act. Section 238A of the Code makes the
provisions of the Limitation Act applicable to the proceedings
before the Adjudicating Authority, as far as may be.
Therefore, the Adjudicating Authority is duty-bound to
scrutinise the application filed under Section 7 of the Code
and come to a conclusion on whether such application is
barred by limitation, even in the absence of any plea with
respect to limitation. (See: Noharlal Verma v. District
Cooperative Central Bank Limited, Jagdalpur5)
20. There can be no doubt that it is the responsibility of the
financial creditor to give all particulars relating to the debt
due and the date of default, along with the requisite
documents, at the time of filing of an application under
Section 7 of the Code. A plain reading of Section 7, Rule 4 of
the 2016 Rules and Form 1 makes it clear that the
5 (2008) 14 SCC 445
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Adjudicating Authority may admit an application under
Section 7 only if he is satisfied that a default has occurred.
The definition of ‘default’ under Section 3 (12) of the Code
refers to non-payment of debts which are “due and payable”
in law, meaning thereby that an application under Section 7
of the Code is maintainable only with respect to debts that
are not time-barred. (See: B.K. Educational Services
Private Limited v. Parag Gupta and Associates 6) The
primary obligation of making out a prima facie case of
default is on the financial creditor. There is no necessity for
the corporate debtor to provide any information at the stage
of admission of the application under Section 7 of the Code,
as the burden of showing non-payment of a legally
recoverable debt, which is not time-barred, is on the financial
creditor. At the same time, it is clear from the judgments of
this Court in Asset Reconstruction (supra) and Dena
Bank (supra) that non-furnishing of information by the
financial creditor at the time of filing an application under
Section 7 of the Code need not necessarily entail in dismissal
of the application. An opportunity can be provided to the
financial creditor to provide additional information required
for satisfaction of the Adjudicating Authority with respect to
the occurrence of the default.
6 (2019) 11 SCC 633
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21. In the instant case, there is no dispute that the date of
default is 30.09.2014 and the application under Section 7 of
the Code was filed on 25.04.2019. According to the Financial
Creditor, Section 18 of the Limitation Act is applicable in view
of the Corporate Debtor acknowledging its debt by way of
letters, written in and after 2018, giving details of amount
repaid, acknowledging the amount outstanding and
requesting consideration of one-time settlement proposal.
Sub-section (1) of Section 18 of the Limitation Act reads as
under:
18. Effect of acknowledgement in writing. – (1)
Where, before the expiration of the prescribed period
for a suit or application in respect of any property or
right, an acknowledgement of liability in respect of
such property or right has been made in writing signed
by the party against whom such property or right is
claimed, or by any person through whom he derives
his title or liability, a fresh period of limitation shall be
computed from the time when the acknowledgement
was so signed.
It is no more res integra that Section 18 of the
Limitation Act is applicable to applications filed under Section
7 of the Code. In case the application under Section 7 is filed
beyond the period of three years from the date of default and
the financial creditor furnishes the required information
relating to the acknowledgement of debt, in writing by the
corporate debtor, before the Adjudicating Authority, with
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such acknowledgement having taken place within the initial
period of three years from the date of default, a fresh period
of limitation commences and the application can be
entertained, if filed within this extended period.
22. There is no dispute that the date of default in this case
is 30.09.2014, as mentioned by the financial creditor in its
application under Section 7. A copy of the debit balance
confirmation letter dated 07.04.2016 was filed along with the
application. As the application was filed only on 25.04.2019,
which is beyond a period of three years even after taking into
account the debit balance confirmation letter dated
07.04.2016, the application was barred by limitation.
However, the Corporate Debtor had, in its reply before the
Adjudicating Authority, placed on record a letter dated
17.11.2018, which detailed the amount repaid till 30.09.2018
and acknowledged the amount outstanding as on
30.09.2018. On the basis of this letter and the record
showing that the Corporate Debtor had executed various
documents amounting to acknowledgement of the debt even
in the financial year 2019-20, the NCLT was of the opinion
that the application was filed within the period of limitation.
The said view was upheld by the NCLAT.
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23. We have already held that the burden of prima facie
proving occurrence of the default and that the application
filed under Section 7 of the Code is within the period of
limitation, is entirely on the financial creditor. While 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. Undoubtedly, 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
under Section 7 of the Code. The plea of Section 18 of the
Limitation Act not having been raised by the Financial
Creditor in the application filed under Section 7 cannot come
to the rescue of the Appellants in the facts of this case. It is
clarified that the onus on the financial creditor, at the time of
filing an application under Section 7, to prima facie
demonstrate default with respect to a debt, which is not
time-barred, is not sought to be diluted herein. In the present
case, if the documents constituting acknowledgement of the
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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.
24. In view of the aforesaid, the Appeal is dismissed.
…………………………………..J.
[L. NAGESWARA RAO]
…………………………………..J.
[ B. R. GAVAI ]
…………………………………..J.
[ B. V. NAGARATHNA ]
New Delhi,
September 30, 2021
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