Axis Bank Ltd. vs. Naren Sheth
Citation: 2024 INSC 105; [2024] 1 S.C.R. 1183
Bench: Justice Vikram Nath, Justice Satish Chandra Sharma
Background
This case arose from a complex commercial dispute involving Axis Bank Ltd., which entered into a leave and license agreement with Universal Premises and Textiles Pvt. Ltd. for several floors in a building. The premises were later sold to Rajput Retail Ltd., and subsequently, the entities merged to become Shreem Corporation Ltd. Axis Bank had furnished a substantial security deposit and was granted a simple mortgage over the property. When Shreem Corporation Ltd. defaulted on its obligations, its account was declared a Non-Performing Asset (NPA) by State Bank of India (SBI) on June 28, 2013. SBI initiated Corporate Insolvency Resolution Process (CIRP) against Shreem Corporation Ltd. under Section 7 of the Insolvency and Bankruptcy Code (IBC), with an application for condonation of delay.
Legal Issues
The main issues before the Supreme Court were:
Whether the application filed by SBI under Section 7 of the IBC was within the limitation period, considering the acknowledgments of debt made by the corporate debtor.
Whether documents acknowledging the debt, submitted at the appellate stage, could be relied upon to extend the limitation period.
Whether the creditor was to be treated as a "secured" or "unsecured" creditor under the proceedings.
Supreme Court’s Analysis
Limitation and Acknowledgment of Debt:
The Court reiterated that the limitation period for filing an application under Section 7 of the IBC is three years from the date of default (in this case, the NPA date). However, this period can be extended if there is a valid acknowledgment of debt under Section 18 of the Limitation Act. The Court found four major acknowledgments by the corporate debtor after the NPA declaration and within the limitation period, including balance sheets and One Time Settlement (OTS) proposals, which effectively extended the limitation period.
Admissibility of Evidence at Appellate Stage:
The Court held that even if some acknowledgment documents were produced at the appellate stage, they could be considered for the purpose of deciding limitation, as the right to recover dues and initiate proceedings under the IBC should not be defeated on technical grounds.
Secured Creditor Status:
In a clarification order dated January 19, 2024, the Supreme Court corrected its previous judgment to state that Axis Bank should be treated as a "secured creditor" rather than an "unsecured creditor" in the context of the proceedings.
Decision
The Supreme Court upheld the admission of SBI’s application under Section 7 of the IBC, finding it within limitation due to valid acknowledgments of debt. The Court also clarified Axis Bank’s status as a "secured creditor" in the matter.
Significance
This judgment reinforces the principle that acknowledgments of debt can extend limitation for insolvency proceedings, allows for flexibility in the stage at which such documents are produced, and clarifies the distinction between secured and unsecured creditors in IBC matters.
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