Supreme Court Upholds SBI's Insolvency Petition Against Metal Closure Pvt. Ltd., Acknowledgment of Debt in Balance Sheets Extends Limitation Period, Allows CIRP to Proceed
In a significant ruling, the Supreme Court of India has upheld the insolvency proceedings initiated by the State Bank of India (SBI) against Metal Closure Pvt. Ltd., dismissing the appeal filed by the suspended Managing Director of the company. The apex court's decision comes after it examined the acknowledgment of debt in the balance sheets of the corporate debtor, effectively extending the limitation period for the insolvency petition.
The case, titled B. Prashanth Hegde v. State Bank of India, revolved around the application of Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, which allows financial creditors to initiate Corporate Insolvency Resolution Process (CIRP) against defaulting corporate debtors. The core issue was whether the insolvency petition was within the limitation period prescribed under the Limitation Act, 1963.
Initially, the National Company Law Tribunal (NCLT), Bangalore, admitted the CIRP petition filed by SBI and declared a moratorium under Section 14 of IBC. However, the managing director contested the application, arguing that it was filed beyond the three-year limitation period from the date of default. The NCLAT had earlier dismissed this appeal, stating that the limitation period was extended due to acknowledgments in balance sheets and restructuring agreements.
Upon further appeal, the Supreme Court, led by Justices P.S. Narasimha and Manoj Misra, delved into the intricacies of the case. The court acknowledged that various restructuring agreements and consortium agreements were signed between the debtor and creditor banks, which constituted acknowledgment of debt. This acknowledgment, as per Section 18 of the Limitation Act, effectively extended the limitation period.
The Supreme Court clarified that an acknowledgment in the balance sheets signed by the directors was sufficient to extend the limitation period under Section 18 of the Limitation Act. It emphasized that the restructuring efforts and subsequent agreements provided a fresh lease of life to the debt, thus justifying the NPA dates as the starting point for limitation computation.
Furthermore, the court dismissed the appellant's claims of malicious intent behind the insolvency proceedings, asserting that mere allegations of criminal offenses unrelated to the existence of financial debt cannot stifle proceedings under the IBC.
In conclusion, the Supreme Court found no merit in the appeal and upheld the insolvency proceedings initiated by SBI, marking a significant precedent in the application of acknowledgment in balance sheets as a tool for extending limitation periods under insolvency law.
Bottom Line:
Insolvency and Bankruptcy Code (IBC) - Application under Section 7 - Determination of limitation period based on acknowledgment of debt in balance sheets and restructuring agreements signed by the corporate debtor. Application not barred by limitation due to acknowledgments extending the limitation period.
Statutory provision(s): Section 7 of the Insolvency and Bankruptcy Code, 2016; Section 18 of the Limitation Act, 1963
B. Prashanth Hegde v. State Bank of India, (SC) : Law Finder Doc id # 2853065
