General authorization with respect to business & affairs of the Bank does not impair POA holder’s authority to file application under Section 7 of IBC

General authorization with respect to business & affairs of the Bank does not impair POA holder’s authority to file application under Section 7 of IBC A general authorization with respect to all the business and affairs of the Bank before any court or tribunal does not impair POA holder’s authority to file an application under Section 7 of the Code Rajendra Narottamdas Sheth & Anr vs Chandra Prakash Jain & Anr; Civil Appeal 4222 of 2020; Supreme Court of India; 30.09.2021

Facts and Issue:

Respondent No. 2, Union Bank of India (hereinafter referred to as the ‘Bank’ or ‘Financial Creditor’), sanctioned a loan of Rs. 4.5 crore which was cleared by the Corporate Debtor on 08.12.2012. Another loan was granted by the Financial Creditor for Rs. 3.5 crore which was also repaid on 28.05.2018. Thereafter, loans were granted by the Financial Creditor to the Corporate Debtor but the Corporate Debtor was unable to settle the dues of the Financial Creditor in time. On 30.09.2014, the account of the Corporate Debtor was declared as nonperforming asset (NPA). The Financial Creditor issued notice for recovery of all dues payable by the Corporate Debtor on 01.10.2014. Pursuant to the notice, the Financial Creditor filed an application before the Ahmadabad bench of the Debt Recovery Tribunal under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for recovery of the dues, which is still pending consideration. On 25.04.2019, the Financial Creditor filed an application under Section 7 of the Code, which was admitted on 01.06.2020. The Financial Creditor averred, in the application filed under Section 7 of the Code, that the Corporate Debtor owed an amount of Rs. 24.62 crore as on 31.03.2019. The Appellants, who are the suspended directors of the board of R.K. Infratel Ltd. (hereinafter referred to as the ‘Corporate Debtor’), filed an appeal which was rejected by the National Company Law Appellate Tribunal, Delhi (hereinafter referred to as the ‘NCLAT’). Therefore, this Appeal.

Appellants’ contention:

The Corporate Debtor contended that the application filed by the power of attorney holder on behalf of the Financial Creditor was not maintainable. The power of attorney in favour of the individual who has signed the application under Section 7 of the Code had been granted prior to the Code coming into force without any specific authorisation to initiate proceedings under the Code, and therefore, the application was not maintainable.

Observations and judgment:

A. Maintainability of the application under Section 7 when filed by a power of attorney holder:

• The NCLAT in its judgment in Palogix Infrastructure Private Limited vs ICICI Bank Limited; 2017 SCC Online NCLAT 266 held that a PoA holder is not competent to file an application u/s 7 on behalf of the financial creditor. However, the NCLAT was of the opinion that general authorization given to an officer of the financial creditor by means of a power of attorney, would not disentitle such officer to act as the authorized representative of the financial creditor while filing an application under Section 7 of the Code, merely because the authorization was granted through a power of attorney. If the officer was authorized to sanction loans and had done so, the application filed under Section 7 of the Code cannot be rejected on the ground that no separate specific authorization letter has been issued by the financial creditor in favour of such officer. In such cases, the corporate debtor cannot take the plea that while the officer has power to sanction the loan, such officer has no power to recover the loan amount or to initiate corporate insolvency resolution process, in spite of default in repayment.
• In present case, Mr. Praveen Kumar Gupta has been given general authorization by the Bank with respect to all the business and affairs of the Bank, including commencement of legal proceedings before any court or tribunal with respect to any demand and filing of all necessary applications in this regard.
• Such authorization, having been granted by way of a power of attorney pursuant to a resolution passed by the Bank’s board of directors on 06.12.2008, does not impair Mr. Gupta’s authority to file an application under Section 7 of the Code.
• It is therefore clear that the application has been filed by an authorized person, on behalf of the Financial Creditor and the objection of the Appellants on the maintainability of the application on this ground was held to be untenable.

B. Limitation

• 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 scrutinize 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. (See: Noharlal Verma v. District Cooperative Central Bank Limited, Jagdalpur, (2008) 14 SCC 445)
• 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 (2019) 11 SCC 633)
• In the instant case, there is no dispute that the date of default is 30.09.2014 and the application under section 7 of the Code was filed on 25.04.2019. According to the Financial Creditor, section 18 of the Limitation Act is applicable in view of the Corporate Debtor acknowledging its debt by way of letters, written in and after 2018, giving details of amount repaid, acknowledging the amount outstanding and requesting consideration of OTS proposal.
• 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 is no dispute that the date of default in this case is 30.09.2014, as mentioned by the financial creditor in its application under Section 7. However, the Corporate Debtor had, in its reply before the Adjudicating Authority, placed on record a letter dated 17.11.2018, which detailed the amount repaid till 30.09.2018 and acknowledged the amount outstanding as on 30.09.2018. On the basis of this letter and the record showing that the Corporate Debtor had executed various documents amounting to acknowledgement of the debt even in the financial year 2019-20, the NCLT was of the opinion that the application was filed within the period of limitation. The said view was upheld by the NCLAT.
• 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.
• Appeal dismissed.

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