NCLAT Says COVID Limitation Ruling Not Properly Considered In Encore ARC's CIRP Against Pandhe Constructions

The National Company Law Appellate Tribunal (NCLAT) has set aside an order of the NCLT Mumbai bench that had dismissed a CIRP plea filed by Encore Asset Reconstruction Company Pvt Ltd against Pandhe Constructions Pvt Ltd as time-barred.

The appellate tribunal held that the NCLT misapplied the Supreme Court's COVID-19 limitation directions and failed to properly consider acknowledgment of debt under Section 18 of the Limitation Act.

A bench of Judicial Member Justice Mohd. Faiz Alam Khan and Technical Members Arun Baroka and Indevar Pandey observed:

“Therefore, the aforesaid factual and legal position would suggest that the Adjudicating Authority has not considered the law laid down by the Hon'ble Supreme Court in Suo Motu Writ Petition (c) No. 3 of 2020 in its correct prospective and has also failed to take into cognizance Section 18 of the Limitation Act as also the averments made by the financial creditor with regard to acknowledgment of debt by principal borrower, which has been duly recorded by the Adjudicating Authority in para 2.7 of the impugned order.”

Pandhe Constructions Pvt Ltd had executed a corporate guarantee in respect of a loan granted by DNS Bank Ltd to Pandhe Infracons Pvt Ltd.

The loan account was declared a Non-Performing Asset (NPA) on June 30, 2018. A demand notice under Section 13(2) of the SARFAESI Act was issued on September 4, 2018. A subsequent notice dated November 4, 2019, invoked the corporate guarantee and demanded payment within 15 days.

The NCLT held that the date of default was November 19, 2019. It rejected the corporate debtor's contention that limitation should run from the earlier SARFAESI notice of September 4, 2018.

However, the NCLT dismissed the CIRP plea as time-barred. It held that although the default date was November 19, 2019, the petition filed on August 20, 2023, fell outside the limitation after applying the Supreme Court's COVID extension directions.

The NCLAT disagreed with this computation.

It held that once the default date was taken as November 19, 2019, the entire period from March 15, 2020 to February 28, 2022 had to be excluded in computing limitation. The balance period available as on March 15, 2020 would revive from March 1, 2022.

The appellate tribunal also noted that the financial creditor had relied on a one-time settlement proposal that was made in November 10, 2019. However, no documentary evidence of the OTS proposal had been placed on record.

In view of these findings, the NCLAT set aside the NCLT's order and remanded the matter for fresh consideration.