Supreme Court Dismisses Axis Bank's Appeal, Upholds Condonation of Delay In CIRP By SBI Against Corporate Debtor

The Supreme Court today dismissed an appeal by Axis Bank Limited(appellant), thereby affirming the condonation of delay in initiating the Corporate Insolvency Resolution Process (CIRP) by the State Bank of India (SBI) against a corporate debtor under Section 7 of Insolvency and Bankruptcy Code(IBC), 2016.

The Court observed, “For all reasons recorded above, no merit in appeal the same is dismissed”.

The bench comprising Justices Vikram Nath and Ahsanuddin Amanullah was hearing an appeal filed by Axis Bank against a judgment of the National Company Law Appellate Tribunal(NCLAT) which had upheld the decision of the Adjudication Authority to condone the delay in filing the application for initiating CIRP by SBI.

The Axis Bank(Appellant) had preferred an appeal before the Supreme Court against Naren Seth(Resolution Professional of the Corporate Debtor) arrayed as Respondent No.1 and SBI(Respondent No. 2).

The case involved the SBI providing credit facilities and term loans to Shreem Corporation Limited(corporate debtor), whose account was declared a Non-Performing Asset (NPA) in 2013. Following this, SBI initiated proceedings under the SARFAESI Act, securing an order for the physical possession of assets in 2017. Crucially, in the Corporate Debtor's 2015 balance sheet, their debt liability to the State Bank of India was recorded.

SBI had applied in January 2020 to commence the CIRP under Section 7 of IBC based on the Corporate Debtor's default amounting to Rs. 681.87 crore. It also filed an application under Section 5 of the Limitation Act, 1963 requesting a condonation of the 1392-day delay in filing the Section 7 application.

The Adjudicating Authority extended the limitation period to March 31, 2018, based on the acknowledgement of liability in the corporate debtor's balance sheet as of March 31, 2015, in accordance with Section 18 of the Limitation Act. It also found that SBI had not been negligent in its pursuit of debt recovery, considering SBI's role as a public sector undertaking representing the collective community interest.

Notably, Axis Bank Limited, though not party to the original Section 7 application, filed an appeal challenging the Adjudicating Authority's decision, asserting its role as a mortgagee based on its license agreement for 11 floors of a building on the corporate debtor's immovable property.

The National Company Law Appellate Tribunal (NCLAT) endorsed the Adjudicating Authority's viewpoint, highlighting the acknowledgement in the balance sheet as a valid acknowledgement under Section 18 of the Limitation Act. The NCLAT cited Supreme Court precedents, including Dena Bank v. C Shivkumar Reddy, emphasizing the applicability of the Limitation Act in such cases.

It also referred to Collector, Anantnag v. Mst Katiji which held that the expression ‘sufficient cause’ in section 5 of the Limitation Act is adequately elastic to enable the Courts to apply the law in a meaningful manner, which subserves the ends of justice,

It had observed “When the Government is an Applicant, considerable delay is caused due to procedural red-tape in the process of their making decision. The State Bank of India also being a statutory body, under the control of the Government, the process of making decisions consumes considerable time is a known feature”.

In the case at hand, the tribunal emphasized that the State Bank of India had not been negligent in pursuing remedies for debt recovery, having initiated proceedings under the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act. The acknowledgement of liability in the balance sheet in March 2015 justified the fresh limitation period, which ended in March 2018.

The tribunal had concluded that there was no error in the Adjudicating Authority's decision to condone the delay in SBI's Section 7 application under the IBC

It observed “It cannot be said that discretion exercised by Adjudicating Authority in condoning the delay is perverse or against any provisions of law or violates any principle of law for determining the ‘sufficient cause’ under Section 5 of the Limitation Act. We, thus, do not find any error in the order of the Adjudicating Authority condoning the delay in filing the Application under Section 7 of the IBC by the State Bank of India.”

Aggrieved by this decision, the Axis Bank(Appellant) had moved to the Supreme Court.

Case title: Axis Bank Ltd. v. Naren Seth

Citation: 2023 LiveLaw (SC) 791; 2023INSC820

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