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Judiciary

The Failure of NCLAT to Look into a Very Vital Aspect On NCLTs Specific Finding, Vitiates NCLATs Order: Supreme Court

By LawStreet News Network      31 March, 2022 12:47 AM      0 Comments
The Failure of NCLAT Vital Aspect NCLT Supreme Court

The Supreme Court Bench comprising Justices Hemant Gupta and V. Ramasubramanian, on 29th March2022 held that the failure of NCLAT as the first appellate authority to look into a vital aspect of the matter regarding which NCLT had already recorded a specific finding of fact, would vitiate its order. 

"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."

The Supreme Court bench had allowed an appeal challenging the order of NCLAT which reversed the order of the NCLT wherein the Adjudicating Authority had held that Section 9 of the Insolvency and Bankruptcy Code, 2016 had a limitation period attached to it.  The Supreme Court bench has remanded the matter back to NCLAT for a renewed consideration upon material facts and necessary principles of law.

In the instant case, on 20.04.2018, the operational creditor, herein the appellant, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 against one M/s. Arpita Filaments Pvt. Ltd before the National Company Law Tribunal. 

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 heeded to. The corporate-debtor raised four major objections, one of them being the issue of limitation i.e. time bar attached to filing of the said application. 

On perusal of a letter dated 28.09.2015, the NCLT found that six cheques had been issued in favour 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 said that the letter dated 28.09,2015 was issued by one Shree Adeshwar Textiles. 

Upon comprehending the said facts, 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. 

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

Referring to a catena of judgments, the Court noted that the Apex Court had even gone to the extent of holding 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. 

Quorum: Justices Hemant Gupta and V. Ramasubramanian



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