ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED versus TULIP STAR HOTELS LIMITED & ORS.

Citation: [2022] 5 S.C.R. 1112 · Decided: 01-08-2022 · Supreme Court of India · Bench: INDIRA BANERJEE · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2022] 5 S.C.R.
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED
v.
TULIP STAR HOTELS LIMITED & ORS.
(Civil Appeal Nos. 84-85 of 2020)
AUGUST 01, 2022
[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]
Insolvency and Bankruptcy Code, 2016 – ss. 7(2), 62 & 238A
– Limitation Act, 1963 – s. 18 – Corporate Insolvency Resolution
Process (CIRP) – Extension of period of limitation –
Acknowledgement in books of account – A loan agreement was
executed between the consortium of banks and the corporate debtor
– Pursuant to which, a loan amount of Rs.129 crore was sanctioned
to corporate debtor – Corporate debtor was classified as non-
performing asset (NPA) – Thereafter, parties entered into a settlement
agreement – There were extensions of time and revised settlements –
Ultimately, the appellant revoked the settlement – Corporate debtor
acknowledged its liabilities towards the appellant in its financial
statement from 2008-09 to 2016-17 – Application was filed by the
appellant u/s 7(2) of IBC before the NCLT for initiation of CIRP
against the corporate debtor – Corporate debtor filed a application
seeking dismissal of application u/s 7(2) as time barred – NCLT
dismissed the application of corporate debtor and admitted the
application for initiation of CIRP – NCLAT held that CIRP was
barred by limitation and the books of account cannot be treated as
an acknowledgement of liability in respect of debt – On appeal,
held: IBC has overriding effect over other laws – There is no specific
period of limitation prescribed in the Limitation Act, 1963, for an
application under the IBC – Therefore, it is to be governed by the
Article 137 of 1963 Act which prescribes period of limitation as 3
years – It is well settled that entries in books of accounts and/or
balance sheets of a corporate debtor would amount to an
acknowledgment u/s. 18 of the Limitation Act – Hence, an application
u/s. 7 of the IBC would not be barred by limitation, if there were an
acknowledgement of the debt by the corporate debtor before expiry
of the period of limitation of 3 years – NCLAT erred in law in holding
that the books of account of a company could not be treated as
acknowledgement – In the present case, corporate debtor
[2022] 5 S.C.R. 1112
1112
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acknowledge its liability in its financial statement from 2008-09 to
2016-17 and the application u/s. 7(2) was filed on 03.04.2018 –
Hence, the application was well within the extended period of
limitation – Impugned Judgment and order of NCLAT set aside.
Allowing the appeals, the Court
HELD:1.Under the scheme of the IBC, the Insolvency
Resolution Process begins, when a default takes place, in the
sense that a debt becomes due and is not paid. Where any
Corporate Debtor commits default, a Financial Creditor, an
Operational Creditor or the Corporate Debtor itself may initiate
Corporate Insolvency Resolution Process in respect of such
Corporate Debtor, in the manner as provided in Chapter II of the
IBC. The provisions of the IBC are designed to ensure that the
business and/or commercial activities of the Corporate Debtor
are continued by a Resolution Professional, upon imposition of a
moratorium, to give the Corporate Debtor some reprieve from
coercive litigation, which could drain the Corporate Debtor of its
financial resources. The IBC is not just a statute for recovery of
debts. It is also not a statute which only prescribes the modalities
of liquidation of a corporate body, unable to pay its debts. It is
essentially a statute which works towards the revival of a corporate
body, unable to pay its debts, by appointment of a Resolution
Professional [Paras 44-46, 55][1130-B; 1146-C-E; 1149-D]
2. IBC has overriding effect over other laws. Section 238
of the IBC provides that the provisions of the IBC shall have
effect, notwithstanding anything inconsistent therewith contained
in any other law, for the time being in force, or any other
instrument, having effect by virtue of such law. The IBC is a
beneficial legislation for equal treatment of all creditors of the
Corporate Debtor, as also the protection of the livelihoods of its
employees/workers, by revival of the Corporate Debtor through
the entrepreneurial skills of persons other than those in its
management, who failed to clear the dues of the Corporate Debtor
to its creditors. It only segregates the interests of the Corporate
Debtor from those of its promoters/persons in management.
Relegation of creditors to the re

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