Financial Creditor Has To Prove That Application Filed U/s 7 IBC Is Not Barred By Limitation, But Materials Produced By Corporate Debtor Can Be Examined
Case: Rajendra Narottamdas Sheth vs Chandra Prakash Jain
Coram: Justices L. Nageswara Rao, BR Gavai and BV Nagarathna
Case No: CA .4222 of 2020
Court Observation: 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. “
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 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.
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 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.
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.