NCLAT Order Vitiated If It Fails To Look Into A Vital Aspect On Which NCLT Had Recorded A Specific Finding : Supreme Court

A Bench comprising Justices Hemant Gupta and V. Ramasubramanian allowed an appeal challenging the order of the NCLAT which reversed the order of the NCLT wherein the Adjudicating Authority had held that the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was not time-barred. The Bench remanded the matter back to the NCLAT for fresh consideration in the light of the observations and the principles of law indicated in its order.

Factual Background

On 20.04.2018, the operational creditor ("appellant") filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("the Code") against one M/s. Arpita Filaments Pvt. Ltd before the National Company Law Tribunal ("NCLT"). The operational creditor claimed that they had sold fabrics to the corporate debtor, which was irregular in making payments. A demand notice under Section 8 of the Code was issued, but it was not responded to.

The corporate-debtor raised four major objections, one of them being the issue of limitation. On perusal of a letter dated 28.09.2015, the NCLT found that six cheques had been issued in favor of the operational creditor, which had eventually returned dishonoured when presented for payment. The corporate-debtor argued that it had lost those cheques and issued 'stop payment instructions' to the bank on 04.03.2017. It further contended that the letter dated 28.09,2015 was issued by one Shree Adeshwar Textiles. The NCLT was of the view that there was acknowledgement of liability on the part of the corporate debtor vide letter dated 28.09.2015 and therefore, the application was within the period of limitation as per Section 18 of the Limitation Act. As per the said provision, where before expiration of period of suit in respect to any right an acknowledgement of liability is made in writing and signed, a fresh period of limitation shall be computed from such time of acknowledgment. Consequently, the application was admitted and a moratorium was declared.

On appeal, that National Company Law Appellate Tribunal ("NCLAT") reversed the decision of the NCLT on the ground that the acknowledgment of liability in terms of Section 18 of the Limitation Act ought to have been on or before 07.10.2016 for the dues that arose between 11.08.2013 to 02.09.2013, but, the cheques were dated December, 2017.

Decision of the Supreme Court

The Court observed that the NCLAT had not considered the letter dated 28.09.2015 and the six cheques. It noted that the cheque numbers mentioned in the letter were the same as the ones allegedly lost by the corporate debtor in March, 2017. It stated -

"The failure of the NCLAT as the first appellate authority to look into a very vital aspect such as this, vitiates its order, especially when NCLT has recorded a specific finding of fact on this."

Referring to a catena of judgments, the Court noted that the Apex Court had even gone to the extent ofholding that an entry in the balance sheet of the company could be treated as an acknowledgment in writing so far as application of Section 18 of the Limitation Act is concerned. The Court noted that the NCLAT has also not discussed the applicability of Section 18 and the circumstances under which it would apply.

[Case Name: S.V. Fashions Pvt. Ltd. (Earlier Known As SVG Fashions Ltd).  v. Ritu Murli Manohar Goyal And Anr.

Citation: 2022 LiveLaw (SC) 326

Case No. and Date: Civil Appeal No. 4228 of 2020 | 29 Mar 2022

Corum: Justices Hemant Gupta and V. Ramasubramanian]

Headnotes

NCLAT completely overlooked the pleadings revolving around the letter dated 28.09.2015 and the six cheques - the failure of the NCLAT as the first appellate authority to look into a very vital aspect such as this, vitiates its order, especially when NCLT has recorded a specific finding of fact on this.

Section 18 of the Limitation Act - where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment 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 acknowledgment was so signed - the law as it has developed on the applicability of Section 18 of the Limitation Act and the circumstances in which it would apply, have not been examined by NCLAT - Therefore, the order of NCLAT is liable to be set aside and the matter liable to be remanded back for a fresh consideration.

Insolvency and Bankruptcy Code, 2016 - Appellate Function of NCLAT - The failure of the NCLAT as the first appellate authority to look into a very vital aspect such as this, vitiates its order, especially when NCLT has recorded a specific finding of fact on this. (Para 8)