ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v. TULIP STAR HOTELS LIMITED & Ors.

Neeraj Kishan Kaul, Sr. Adv., Ms. Prerna Priyadarshini, Siddharth Ranade, Vividh Tandon, Ms. Priyashree Sharma PH, Deepak Joshi, Ms. Rushali Agarwal, Ms. Samrudhi Chotani, Pakashal Jain, Ms. Saloni Gupta, Shankh Sengupta, Ms. Tina Abraham, Advs. for the Appellant. Nakul Dewan, Sr. Adv., Mrs. Shally Bhasin, Mahesh Agarwal, Ankur Saigal, Himanshu Satija, Rohan Talwar, E. C. Agrawala, Advs. for the Respondents. The Judgment of the Court was delivered by INDIRA BANERJEE, J.

1. These appeals under Section 62 of the Insolvency and Bankruptcy Code 2016 (IBC) filed by the Financial Creditor, Asset Reconstruction Company (India) Limited are against a common judgment and final order dated 11th December 2019 passed by the National Company Law Appellate Tribunal (NCLAT), allowing Company Appeal (AT)(Insolvency) No.525 of 2019 and Company Appeal(AT) (Insolvency) No.627 of 2019 and holding that the Corporate Insolvency Resolution Process (CIRP) initiated by the Appellant against the Corporate Debtor, V. Hotels Ltd. was barred by limitation.

2. The Respondent No.1, Tulip Star Hotels Limited and the Respondent No.2 Tulip Hotels Private Limited are the shareholders of the Corporate Debtor, V. Hotels Limited. The Respondent Nos. 1 and 2 A B C D E F G H 1118 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G H each hold 50% share in the Corporate Debtor. Mr. Ajit B. Kerkar is the Managing Director of the Respondent No.1, Tulip Star Hotel Limited, Chairman of the Respondent No.2, Tulip Hotels Private Limited and also the Chairman of the Corporate Debtor.

3. On or about 8th March 2002, a loan agreement was executed by and between a consortium of banks consisting of Bank of India, Punjab National Bank, Union Bank of India, Vijaya Bank, Canara Bank and Indian Bank, led by Bank of India (hereinafter referred to collectively as the Consortium) and the Corporate Debtor, pursuant to which the Consortium collectively sanctioned loan to the extent of Rs.129,00,00,000/ - (Rupees One Hundred and Twenty-Nine Crore Only) to the Corporate Debtor.

4. On 5th June 2003, the Corporate Debtor entered into an arrangement with Abu Dhabi Commercial Bank (ADCB) whereby ADCB agreed to advance USD 29,000,000/- to the Corporate Debtor for repayment of the loan taken by the Corporate Debtor from the Consortium under the loan agreement executed on 8th March 2002. It is stated that the Corporate Debtor repaid the amount disbursed by Bank of India to the Corporate Debtor under the said loan agreement from out of funds disbursed to the Corporate Debtor by ADCB, between August and December 2003.

5. In August/ September 2008, a bank guarantee issued by Bank of India in favour of ADCB, on behalf of the Corporate Debtor was invoked by ADCB and Bank of India paid Rs.24,49,59,208/- (Twenty Four Crores Forty Nine Lakhs Fifty Nine Thousand Two Hundred and Eight) to ADCB under the Bank Guarantee.

6. Around the same time, Bank of India, Punjab National Bank and Union Bank of India also converted their facility under the loan agreement into a non-fund-based bank guarantee.

7. On 1st December 2008, the account of the Corporate Debtor in the Bank of India was classified as non-performing asset (NPA) and on 31st December 2008, an assignment agreement was executed by Bank of India assigning its receivables to the Appellant Financial Creditor.

8. By a letter dated 7th February 2011 addressed to the Appellant, the Corporate Debtor proposed a settlement which is as follows:- (i) The Corporate Debtor would pay interest to the Appellant Financial Creditor at an average rate of 21% per annum at quarterly rests. ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1119 (ii) The Corporate Debtor would pay a sum of Rs.9,02,00,000/ - being 10% of the aggregate assigned debt to the Appellant Financial Creditor immediately on acceptance of the settlement. (iii) The Corporate Debtor proposed that the balance aggregate assigned debt of Rs.154,13,00,000/- along with interest accrued thereon from the date of the payment of the initial amount up to 30th September 2011 would be repaid in three equated monthly instalments beginning from 15th October 2011.

9. On or about 10th February 2011, the Corporate Debtor submitted a revised proposal offering to pay interest on its outstanding dues to the Appellant at the rate of 22% per annum with monthly rests with effect from 1st July 2010. The Corporate Debtor also offered to pay Rs.10,00,00,000/- to the Appellant immediately upon acceptance of the revised proposal.

10. The Corporate Debtor also agreed to pay the settlement amount of Rs.150,75,83,970/- being the aggregate assigned debt as on 30th June 2010 along with interest at the rate of 22% per annum compounded at monthly rests from 1st July 2010 till 30th September 2011.

11. On or about 28th February 2011 the parties entered into a Settlement Agreement, the key terms whereof were as follows:- (i) The Corporate Debtor agreed to pay the settlement amount of Rs.150,75,83,970/- (Rupees One Hundred Fifty Crores Seventy-Five Lakhs Eighty-three Thousand Nine Hundred and Seventy Only) being the Aggregate amount in default as on 30th June 2010 along with the accrued interest at the rate of 22% per annum to be compounded at monthly rests from 1st July 2010 till 30th September 2011. (ii) Rs. 10,00,00,000/- (Rupees Ten Crore Only) would be paid as upfront payment upon execution of the Settlement Agreement. (iii) The balance amount after adjusting the upfront payment of Rs.10,00,00,000/- (Rupees Ten Crore Only) would be repaid on or before 30th September 2011. A B C D E F G

12. On 12th September 2011, the Corporate Debtor addressed a letter to the Appellant, seeking an extension of time till 30th September H 1120 SUPREME COURT REPORTS [2022] 5 S.C.R. 2012 to pay its balance outstanding dues towards principal and interest. The Corporate Debtor acknowledged that its aggregate outstanding liability towards principal and interest to the Appellant was Rs.176,83,00,000/-. The Corporate Debtor offered to make an interim payment of Rs.15,00,00,000/- (Rupees Fifteen Crores Only) by 31st December 2011. On 29th September 2011, the agreement between the Corporate Debtor and the Appellant was modified.

13. On 30th December 2011, the Appellant accepted the request of the Corporate Debtor for extension, subject to the condition that the Corporate Debtor would pay Rs.15,00,00,000/- (Rupees Fifteen Crores Only) by 31st December 2011, and the balance portion of the aggregate assigned debt totalling Rs.150,75,83,970/-, outstanding as on 30th June 2010, along with accrued interest at the rate of 22% per annum, to be compounded at monthly rests from 1st July 2010 till the date of payment, that is, 31st March 2012.

14. On 17th March 2012, the Corporate Debtor confirmed that the aggregate assigned debt outstanding as on 31st March 2012 was Rs.192,89,46,697/- and requested for a further extension of time from 31st March 2012 to 31st December 2012 to pay the outstanding amounts.

15. On 6th August 2012, the Appellant accepted the aforesaid extension request and agreed to the extension for repayment of the aggregate assigned debt outstanding as on 30th September 2012.

16. On 10th September 2012, the Corporate Debtor sought further extension till 31st March 2013 for payment of outstanding principal and interest aggregating to Rs.211,35,16,073/-. On 5th December 2012, the Appellant accepted the extension subject to payment of processing fee of Rs.25,00,000/-.

17. On 6th April 2013, the Corporate Debtor again sought extension of the date for repayment of the then outstanding amount. The Corporate Debtor acknowledged the outstanding aggregate assigned debt (inclusive of principal and interest) which had increased to Rs.239,88,27,673/- as on 31st March 2013. The Corporate Debtor offered to make an interim payment of Rs.91,00,00,000/- (Indian Rupees Ninety One Crores Only) by 31st August 2013 and the balance outstanding amounts by 30th September 2013.

18. On 19th April 2013, the Corporate Debtor paid Rs.17,50,00,000/ - to the Appellant, towards part repayment of the aggregate assigned A B C D E F G H ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1121 debt. On 29th May 2013, the Appellant again accepted the request of the Corporate Debtor for extension of time. A

19. Ultimately, on 17th June 2013, the Appellant revoked the settlement and in terms of the default obligations under the Settlement Agreement, the rate of interest under the Deed of Variation was revised to 22%. By its letter dated 1st July 2013, the Corporate Debtor acknowledged its obligation to repay the aggregate assigned debt inclusive of interest.

20. On 10th July 2013, the Appellant sent the Corporate Debtor a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) in order to enforce security interests against the Corporate Debtor. On 14th October 2013, the Appellant, through its authorized officer, issued a possession notice under Section 13(4) of the SARFAESI Act.

21. On 6th May 2014, the Appellant invoked the personal guarantee of Mr. Ajit Kerkar, Managing Director of the Corporate Debtor. The aggregate assigned debt as on 6th May 2014 of principal and interest at 22% per annum was Rs.235,46,34,381/-.

22. The Corporate Debtor apparently acknowledged its liabilities towards the Appellant in its Financial Statements from 2008-09 to 2016- 17.

23. The Appellant has filed an application to bring on record additional documents which were part of the records below including the copies of the financial statements.

24. Mr. Neeraj Kishan Kaul, Senior Advocate appearing on behalf of the Appellant, rightly submitted that the Financial Statements provide a true and fair view of the state of affairs of a company in view of Sections 128 and 129 read with Section 134 of the Companies Act 2013 as also Sections 210, 211, 215, 216 and 217 of the Companies Act, 1956.

25. On 3rd April 2018, the Appellant, as Financial Creditor, filed an application under Section 7(2) of the IBC in the National Company Law Tribunal (NCLT), Mumbai for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor which was registered and numbered CP(IB) No.532 of 2018. B C D E F G

26. The Corporate Debtor filed a Miscellaneous Application being Misc. App. No.693 of 2018 in CP (IB) No.532 of 2018 before the NCLT, H 1122 SUPREME COURT REPORTS [2022] 5 S.C.R. Mumbai praying for dismissal of the application of the Appellant under Section 7(2) of the IBC, inter alia, contending that the application was barred by limitation. By an order dated 1st May 2019, the Adjudicating Authority (NCLT), Mumbai dismissed the said Miscellaneous Application filed by the Corporate Debtor.

27. By an order dated 31st May 2019, the Adjudicating Authority (NCLT) admitted the said application under Section 7(2) of the IBC and appointed one Mr. Anish Nanavaty as the Interim Resolution Professional (IRP). The Committee of Creditors confirmed the appointment of Mr. Anish Nanavaty as the Resolution Professional of the Corporate Debtor.

28. The Corporate Debtor filed an appeal being Company Appeal (AT) (Insolvency) No.525 of 2019 before NCLAT against the order dated 1st May 2019, dismissing the Miscellaneous Application filed by the Corporate Debtor, seeking dismissal of the application of the Appellant Financial Creditor under Section 7(2) of the IBC.

29. The shareholders of the Corporate Debtor, that is, the Respondent No.1, Tulip Star Hotels Limited and the Respondent No.2, Tulip Hotels Private Limited, filed an appeal being Company Appeal (AT) (Insolvency) No.627 of 2019 in the NCLAT against the order dated 31st May of the Adjudicating Authority, admitting the application of the Appellant under Section 7(5)(a) of the IBC.

30. Both the appeals have been allowed by the common judgment of the Appellate Tribunal (NCLAT) dated 11th December 2019, impugned in these appeals.

31. On behalf of the Corporate Debtor, it has been argued: (i) There is no debt due and payable from the Corporate Debtor to the Appellant. The amounts advanced by the Consortium to the Corporate Debtor have been repaid. (ii) In the statutory notice issued by the Appellant to the Corporate Debtor under Section 13(2) of the SARFAESI Act, the Appellant had claimed that principal amount of Rs.90.35 Crores was due from the Corporate Debtor to the Appellant. (iii) The Corporate Debtor has paid the Appellant much more than the Principal amount claimed by the Appellant, as per the table set out below:- A B C D E F G H ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1123 A B C D E F G H (iv) Even though the principal amount had been paid in the full, in the Application under Section 7 of the IBC, the Appellant claimed that principal amount of Rs.35,43,72,852/- and towards interest. (v) There is no amount outstanding towards principal, and there is a long standing dispute in respect of the amount of interest payable by the Corporate Debtor to the Appellant. (vi) In the Application under Section 7 of the IBC, the Appellant has claimed a principal amount of Rs.35,43,72,852/- and interest of Rs.149,91,24,581/- on the basis of the settlement agreement dated 28.02.2011 which was later revoked by the Appellant on 1124 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G H

17.06.2013. The amount of principal claimed in the Application under Section 7 of the IBC is at complete variance with the principal amount claimed in the statutory Notice under Section 13(2) of the SARFAESI Act. (vii) By an order dated 19.10.2018, passed in relation to proceedings between the Appellant and the Corporate Debtor in the Debt Recovery Tribunal, the High Court had held that the Appellant was not entitled to claim 22% interest since it had revoked the settlement agreement on the basis of which such interest had been claimed. (viii) The High Court had, by its aforesaid order dated 19.10.2018, directed DRT to determine the interest payable by the Corporate Debtor to the Appellant. Since no determination has been done by the DRT, the interest amount has not become due and payable. (ix) The Appellant could not have appropriated the amounts paid by the Corporate Debtor towards interest. (x) The principal having been paid and the interest not being due, there is no financial debt payable by the Corporate Debtor to the Appellant. (xi) The Application of the Appellant under Section 7 of the IBC is hopelessly barred by limitation, the same having been filed about eight/nine years after the account of the Corporate Debtor was declared NPA on 01.12.2008. (xii) Even assuming the Corporate Debtor had acknowledged liability, the last letter of acknowledgment was written in April 2013. The period of limitation still expired in April 2016. (xiii) The Corporate Debtor has not acknowledged any debt in its financial statements. (xiv) The Corporate Debtor and/or its Promoters have paid its entire Principal dues to the CoC (Committee of Creditors) consisting of the Appellant and Pegasus.

32. The NCLAT held: “23. In the present case, ‘Asset Reconstruction Company (India) Ltd.’- (‘Financial Creditor’) has failed to bring on record any acknowledgment in writing by the ‘Corporate Debtor’ or its authorised person acknowledging the liability ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1125 in respect of debt. The Books of Account cannot be treated as an acknowledgement of liability in respect of debt payable to the ‘Asset Reconstruction Company (India) Ltd.’- (‘Financial Creditor’) signed by the ‘Corporate Debtor’ or its authorised signatory. ****

25. In fact, the case of ‘Asset Reconstruction Company (India) Ltd.’- (‘Financial Creditor’) is covered by its own decision in “Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. And Another” (supra)

26. The Adjudicating Authority having failed to appreciate the aforesaid fact, the impugned order dated 1st May, 2019 rejecting the objections of the ‘Corporate Debtor’ and the impugned order dated 31 st May, 2019 passed by the Adjudicating Authority admitting the application under Section 7 are set aside. ‘V. Hotels Limited’- (‘Corporate Debtor’) is released from all the rigours of law and is allowed to function independently through its Board of Directors from immediate effect. The ‘Interim Resolution Professional’/ ‘Resolution Professional’ will submit its fees and costs of ‘Corporate Insolvency Resolution Process’ before the Adjudicating Authority who will determine the same and amount as is payable is to be paid by ‘Asset Reconstruction Company (India) Ltd.’ who moved application under Section 7 which was not maintainable. The ‘Interim Resolution Professional’ will hand over the management, assets and records to the Board of Directors. Both the appeals are allowed. No costs.”

33. Citing Asset Reconstruction Company (India) Limited. v. Bishal Jaiswal and Anr 1 Mr. Nakul Dewan, Senior Advocate argued that all financial statements issued by a company would not amount to acknowledgment for the purpose of Section 18 of the Limitation Act and thereby extend the period of limitation under the Code.

34. In Bishal Jaiswal (supra) this Court: “21. Importantly, this judgment in Bengal Silk Mills [Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine 1 (2021) 6 SCC 366 A B C D E F G H 1126 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G Cal 128 : AIR 1962 Cal 115] holds that though the filing of a balance sheet is by compulsion of law, the acknowledgment of a debt is not necessarily so. In fact, it is not uncommon to have an entry in a balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor’s report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgment of debt for reasons given in the said note. ***

35. A perusal of the aforesaid sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7). Equally, the auditor’s report may also enter caveats with regard to acknowledgments made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills [Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128 : AIR 1962 Cal 115] , that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act.”

35. The Respondents argued that the Appellant was relying on the Financial Statements from 2014-15 onwards as acknowledgments to save limitation. It was argued that the said Financial Statements would not constitute acknowledgement for the reasons as demonstrated in the Written Notes of submissions of the Corporate Debtor reproduced hereinbelow: (i) Financial Statement for 2014-15 (Pages 6-18 of IA 125766) wherein: H ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1127 (a) At page 8 of IA 125776, it is stated that ‘indebtness’ is to be read with Note No.5 in the notes of Accounts. A (b) At page 15-16 of IA, in the Notes of Accounts, the Respondent No.3 has clearly stated that pursuant to the Orders of this Court, the parties entered into a Settlement which was unilaterally revoked by the Appellant on 17.06.2013 and thus the Respondent No.3 had been legally advised that the interest for the loans cannot be 22% as stated in the revoked settlement but 12.85% and that the rate of interest will be subject to the decision of the DRT, Mumbai. (ii) Financial Statement for 2015-2016 (Pages 19-30 of IA 125766), wherein similar disputes are raised in the notes (at page 21, 29-30 of IA). (iii) Financial Statement for 2016-17 (pages 31-42 of IA 125766) where a similar statement is made as stated above in the Notes to the Financial Statement for 2015-16 (at page 33, 41-42 of IA).

36. Counsel argued that a perusal of the above Statements from 2014-2015 to 2016-2017 shows that the Corporate Debtor has not made any unequivocal acknowledgment of debt and has further questioned the interest sought to be recovered by the Appellant. Thus, it is submitted that the present case falls within the category provided in the judgment in Bishal Jaiswal (supra), where this Court noted that “it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act.”

37. It was also argued that contrary to the claims of the Appellant, the recovery in the present case is not of “public monies”. Nor is the recovery beneficial to the public. There is no public funding in the form of holdings by any Public Sector Banks in the subject transaction. Such arguments are irrelevant to the issue in this appeal of whether the Application of the Appellant Financial Creditor under Section 7 of the IBC should have been rejected, and that too on the sole ground of the same being barred by limitation.

38. For the purpose of computing limitation, the most relevant balance-sheet is the balance-sheet for the financial year 2014-15, which, B C D E F G H 1128 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G as pointed out by Mr. Kaul, was signed on 14.5.2015. The balance-sheet acknowledged the continuance of the jural relationship of debtor and creditor between the Appellant and the Corporate Debtor and the existence of financial liability of the Corporate Debtor to the Appellant. The only remark made by the Corporate Debtor related to the rate of interest which, according to the Corporate Debtor, would be 12.85% and not 22% in view of the revocation of the Settlement Agreement by the Appellant. The application of the Appellant under Section 7 of the IBC was filed on 3.4.2018, well within three years from 14.5.2015, being the date on which the balance-sheet was signed. Similarly, the balance-sheet for the following financial year signed on 29.8.2016 also acknowledged the existence of jural relationship of debtor and creditor between the Appellant and the Corporate Debtor and the existence of financial liability of the Corporate Debtor to the Appellant. The balance-sheet only contained a similar additional remark with regard to the rate of interest.

39. As held by this Court in Innoventive Industries Ltd. v. ICICI Bank and Anr2., the Adjudicating Authority, considering an application under Section 7 of the IBC, is only required to see if there is the existence of a debt and default. Any dispute with regard to the quantum of debt is immaterial. The relevant part of the judgment of this Court in Innoventive Industries Ltd. (supra) is set out hereinbelow:- “29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing—i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.

30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of H 2 (2018) 1 SCC 407 ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1129 the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”

40. As argued by Mr. Kaul appearing on behalf of the Appellant, any part payments made by the Respondent would first be appropriated towards the interest amount due, as held by this Court in Industrial Credit & Development Syndicate Now Called I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Others3.

41. In Industrial Credit & Development Syndicate (supra), this Court held :-

6. In Venkatadri Appa Row v. Parthasarathi Appa Row [(1920-21) 48 IA 150 : AIR 1922 PC 233] the Judicial Committee of the Privy Council had held that upon taking an account of principal and interest due, the ordinary rule with regard to payments by the debtor unappropriated either to principal or interest is that they are first to be applied to the discharge of the interest. This Court in Meghraj v. Bayabai [(1969) 2 SCC 274: (1970) 1 SCR 523] reiterated the position of law and held that the normal rule was that in the case of a debt due with interest, any payment made by the debtor was in the first instance to be applied towards satisfaction of interest and thereafter to the principal. It was for the debtor to plead and prove the agreement, if any, that the amounts paid or deposited in the Court by him were accepted by the creditor/decree-holder subject to the condition imposed by him. …”

42. Even otherwise, in this case, the quantum of debt was well in excess of Rs. 1 crore and many times in excess of Rs.1 lakh, being the threshold amount under the IBC for initiation of CIRP proceedings at the material time. Subsequently, in 2020, the threshold limit was enhanced to Rs.1 crore. 3 (1999) 3 SCC 80 A B C D E F G H 1130 SUPREME COURT REPORTS [2022] 5 S.C.R.

43. In our view, the NCLAT erred in law in holding that the Books of Account of a company could not be treated as acknowledgement of liability in respect of debt payable to a financial creditor.

44. 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. Some of the relevant provisions of the IBC, are set out hereinbelow for convenience:- “3 Definitions..—In this Code, unless the context otherwise requires,— ... (6) “claim” means— (a)a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b)right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; (7) “corporate person” means a company as defined in clause (20) of Section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub- section (1) of Section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider; (8) “corporate debtor” means a corporate person who owes a debt to any person; ….. (10) “creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder; (11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; A B C D E F G H ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1131 (12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be;

4. Application of this Part.—(1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.

5. Definitions.—In this Part, unless the context otherwise requires— ... (7) “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; (8) “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes— (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire-purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; A B C D E F G H 1132 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G H (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;

6. Persons who may initiate corporate insolvency resolution process.—Where any corporate debtor commits a 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 under this Chapter.

7. Initiation of corporate insolvency resolution process by financial creditor.—(1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6-A) of Section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is less: Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1133 one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less: Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission. Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish— (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3): A B C D E F G H 1134 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G H Provided that if the Adjudicating Authority has not ascertained the existence of default and passed an order under sub-section (5) within such time, it shall record its reasons in writing for the same.] (5) Where the Adjudicating Authority is satisfied that—(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub- section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5). (7) The Adjudicating Authority shall communicate— (a) (b) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be. ***

12. Time-limit for completion of insolvency resolution process.—(1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process. (2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1135 and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of sixty- six per cent of the voting shares. (3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject-matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days: Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once: Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor: Provided also that where the insolvency resolution process of a corporate debtor is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019. 12-A. Withdrawal of application admitted under Section 7, 9 or 10.—The Adjudicating Authority may allow the withdrawal of application admitted under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified.

13. Declaration of moratorium and public announcement.— (1) The Adjudicating Authority, after admission of the application under Section 7 or Section 9 or Section 10, shall, by an order— A B C D E F G H 1136 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G H (a) declare a moratorium for the purposes referred to in Section 14; (b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under Section 15; and (c) appoint an interim resolution professional in the manner as laid down in Section 16. (2) The public announcement referred to in clause (b) of sub- section (1) shall be made immediately after the appointment of the interim resolution professional.

14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely— (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. Explanation.—For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1137 suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (2-A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. (3) The provisions of sub-section (1) shall not apply to— (a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority; (b) a surety in a contract of guarantee to a corporate debtor. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. ...

16. Appointment and tenure of interim resolution professional.—(1) The Adjudicating Authority shall appoint A B C D E F G H 1138 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G H an interim resolution professional on the insolvency commencement date. (2) Where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor, as the case may be, the resolution professional, as proposed respectively in the application under Section 7 or Section 10, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him. (3) Where the application for corporate insolvency resolution process is made by an operational creditor and— (a) no proposal for an interim resolution professional is made, the Adjudicating Authority shall make a reference to the Board for the recommendation of an insolvency professional who may act as an interim resolution professional; (b) a proposal for an interim resolution professional is made under sub-section (4) of Section 9, the resolution professional as proposed, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him. (4) The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority under sub- section (3), recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending. (5) The term of the interim resolution professional shall continue till the date of appointment of the resolution professional under Section 22.

17. Management of affairs of corporate debtor by interim resolution professional.—(1) From the date of appointment of the interim resolution professional,— (a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional; (b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional; ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1139 (c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional; (d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional.

18. Duties of interim resolution professional.—(1) The interim resolution professional shall perform the following duties, namely— (a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to— (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; A B C D (iii) list of assets and liabilities as on the initiation date; E (iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under Sections 13 and 15; (c) constitute a committee of creditors; (d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors; (e) file information collected with the information utility, if necessary; and (f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information F G H 1140 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G H utility or the depository of securities or any other registry that records the ownership of assets including— (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; (vi) assets subject to the determination of ownership by a court or authority; (g) to perform such other duties as may be specified by the Board. Explanation.— For the purposes of this section, the term “assets” shall not include the following, namely— (a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment; (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.

20. Management of operations of corporate debtor as going concern.—(1) The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.

21. Committee of creditors.—(1) The interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors. ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1141 (2) The committee of creditors shall comprise all financial creditors of the corporate debtor: A Provided that a financial creditor or the authorised representative of the financial creditor referred to in sub- section (6) or sub-section (6-A) or sub-section (5) of Section 24, if it is a related party of the corporate debtor, shall not have any right of representation, participation or voting in a meeting of the committee of creditors: Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares or completion of such transactions as may be prescribed, prior to the insolvency commencement date.

22. Appointment of resolution professional.—(1) The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors. (2) The committee of creditors, may, in the first meeting, by a majority vote of not less than sixty-six per cent of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional. (3) Where the committee of creditors resolves under sub-section (2)— (a) to continue the interim resolution professional as resolution professional subject to a written consent from the interim resolution professional in the specified form, it shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority; or (b) to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for resolution the appointment of professional along with a written consent from the proposed resolution professional in the specified form. the proposed B C D E F G H 1142 SUPREME COURT REPORTS [2022] 5 S.C.R. (4) The Adjudicating Authority shall forward the name of the resolution professional proposed under clause (b) of sub- section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board. (5) Where the Board does not confirm the name of the proposed resolution professional within ten days of the receipt of the name of the proposed resolution professional, the Adjudicating Authority shall, by order, direct the interim resolution professional to continue to function as the resolution professional until such time as the Board confirms the appointment of the proposed resolution professional.

23. Resolution professional to conduct corporate insolvency resolution process.—(1) Subject to Section 27, the resolution professional shall conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the corporate insolvency resolution process period: Provided that the resolution professional shall continue to manage the operations of the corporate debtor after the expiry of the corporate insolvency resolution process period, until an order approving the resolution plan under sub-section (1) of Section 31 or appointing a liquidator under Section 34 is passed by the Adjudicating Authority. (2) The resolution professional shall exercise powers and perform duties as are vested or conferred on the interim resolution professional under this Chapter. (3) In case of any appointment of a resolution professional under sub-sections (4) of Section 22, the interim resolution professional shall provide all the information, documents and records pertaining to the corporate debtor in his possession and knowledge to the resolution professional. ***

25. Duties of resolution professional.—(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. A B C D E F G H ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1143 (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely— A (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; B (c) raise interim finances subject to the approval of the committee of creditors under Section 28; C ***

27. Replacement of resolution professional by committee of creditors.- (1) Where, at any time during the corporate insolvency resolution process, the committee of creditors is of the opinion that a resolution professional appointed under Section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under this section. ***

30. Submission of resolution plan.—(1) A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under Section 29-A to the resolution professional prepared on the basis of the information memorandum. (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan— (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than— D E F G H 1144 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G H (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of Section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of Section 53 in the event of a liquidation of the corporate debtor. Explanation 1.—For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.

31. Approval of resolution plan.—(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan: Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub- section, satisfy that the resolution plan has provisions for its effective implementation. ***

33. Initiation of liquidation.—(1) Where the Adjudicating Authority,— (a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1145 the corporate insolvency resolution process under Section 12 or the fast track corporate insolvency resolution process under Section 56, as the case may be, does not receive a resolution plan under sub-section (6) of Section 30; or (b) rejects the resolution plan under Section 31 for the non-compliance of the requirements specified therein, A B it shall— (i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter; (ii) issue a public announcement stating that the corporate debtor is in liquidation; and C (iii) require such order to be sent to the authority with which the corporate debtor is registered. (2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the committee of creditors approved by not less than sixty-six per cent of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). the decision of Explanation.—For the purposes of this sub-section, it is hereby declared that the committee of creditors may take the decision to liquidate the corporate debtor, any time after its constitution under sub-section (1) of Section 21 and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum. (3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). D E F G H 1146 SUPREME COURT REPORTS [2022] 5 S.C.R. (4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (5) Subject to Section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor: Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.”

45. 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.

46. 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.

47. Under Section 7(2) of the IBC, read with the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, hereinafter referred to as “2016 Adjudicating Authority Rules” made in exercise of powers conferred, inter alia, by clauses (c) (d) (e) and (f) of sub-section (1) of Section 239 read with Sections 7, 8, 9 and 10 of the IBC, a financial creditor is required to apply in the prescribed Form 1 for initiation of the Corporate Insolvency Resolution Process, against a Corporate Debtor under Section 7 of the IBC, accompanied with documents and records required therein, and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, hereinafter referred to as the “2016 IB Board of India Regulations”.

48. Statutory Form 1 under Rule 4(1) of the 2016 Adjudicating Authority Rules comprises Parts I to V, of which Part I pertains to particulars of the Applicant, Part II pertains to particulars of the Corporate Debtor and Part III pertains to particulars of the proposed Interim Resolution Professional. Parts IV and V which require particulars of A B C D E F G H ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1147 Financial Debt with Documents, Records and Evidence of default, is extracted hereinbelow:- A PART IV PART V

49. Since a Financial Creditor is required to apply under Section 7 of the IBC, in Statutory Form 1, the Financial Creditor can only fill in particulars as specified in the various columns of the Form. There is no scope for elaborate pleadings. An application to the Adjudicating Authority B C D E F G H 1148 SUPREME COURT REPORTS [2022] 5 S.C.R. A B C D E F G H (NCLT) under Section 7 of the IBC, in the prescribed form, cannot therefore, be compared with the plaint in a suit, and cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law.

50. Section 7(3) requires a financial creditor making an application under Section 7(1) to furnish records of the default recorded with the information utility or such other record or evidence of default as may be specified; the name of the resolution professional proposed to act as an Interim Resolution Professional and any other information as may be specified by the Insolvency and Bankruptcy Board of India.

51. Section 7(4) of the IBC casts an obligation on the Adjudicating Authority to ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor within fourteen days of the receipt of the application under Section 7. As per the proviso to Section 7(4) of the IBC, inserted by amendment, by Act 26 of 2019, if the Adjudicating Authority has not ascertained the existence of default and passed an order, within the stipulated period of time of fourteen days, it shall record its reasons for not doing so in writing. The application does not lapse for non-compliance of the time schedule. Nor is the Adjudicating Authority obliged to dismiss the application. On the other hand, the application cannot be dismissed, without compliance with the requisites of the Proviso to Section 7(5) of the IBC.

52. Section 7(5)(a) provides that when the Adjudicating Authority is satisfied that a default has occurred, and the application under sub- section (2) of Section 7 is complete and there is no disciplinary proceeding pending against the proposed resolution professional, it may by order admit such application. As per Section 7(5)(b), if the Adjudicating Authority is satisfied that default has not occurred or the application under sub-Section (2) of Section 7 is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application, provided that the Adjudicating Authority shall, before rejecting the application under sub-section (b) of Section 5, give notice to the applicant, to rectify the defects in his application, within 7 days of receipt of such notice from the Adjudicating Authority.

53. The Corporate Insolvency Resolution Process commences on the date of admission of the application under sub-section (5) of Section ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1149 7 of the IBC. Section 7(7) casts an obligation on the Adjudicating Authority to communicate an order under clause (a) of sub-section (5) of Section 7 to the Financial Creditor and the Corporate Debtor and to communicate an order under clause (b) of sub-section (5) of Section 7 to the financial creditor within seven days of admission or rejection of such application, as the case may be. Sections 8 and 9 of IBC pertain to Insolvency Resolution by an Operational Creditor and are not attracted in the facts and circumstances of this case. Section 10 pertains to initiation of Corporate Insolvency Resolution Process by the Corporate Debtor itself, and is also not attracted in the facts and circumstances of the case.

54. Section 12(1) of the IBC requires the Corporate Insolvency Process to be completed within a period of 180 days from the date of admission of the application to initiate such process. The period of 180 days is not extendable more than once.

55. 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.

56. In Swiss Ribbons Private Limited & Anr. v. Union of India and Ors.4, authored by Nariman, J. this Court observed: - “28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor’s assets from further dilution, and also protects all its 4 (2019) 4 SCC 17 A B C D E F G H 1150 SUPREME COURT REPORTS [2022] 5 S.C.R. creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends.”

57. 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.

58. Unlike coercive recovery litigation, the Corporate Insolvency Resolution Process under the IBC is not adversarial to the interests of the Corporate Debtor, as observed by this Court in Swiss Ribbons Private Limited v. Union of India (supra).

59. On the other hand, 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.

60. Relegation of creditors to the remedy of coercive litigation against the Corporate Debtors could be detrimental to the interests of the Corporate Debtor and its creditors alike. While multiple coercive proceedings against a Corporate Debtor in different forums could impede its commercial/business activities, deplete its cash reserves, dissipate its assets, moveable and immoveable and precipitate its commercial death, such proceedings might not be economically viable for the creditors as well, because of the length of time consumed in the litigations, the expenses of litigation, and the uncertainties of realisation of claims even after ultimate success in the litigation.

61. It is, therefore, imperative that the provisions of the IBC and the Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute.

62. On a careful reading of the provisions of the IBC and in particular the provisions of Section 7(2) to (5) of the IBC read with the 2016 Adjudicating Authority Rules, there is no bar to the filing of A B C D E F G H ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1151 documents at any time until a final order either admitting or dismissing the application has been passed. A

63. The time stipulation of fourteen days in Section 7(4) to ascertain the existence of a default is apparently directory not mandatory. The proviso inserted by amendment with effect from 16th August 2019 provides that if the Adjudicating Authority has not ascertained the default and passed an order under sub-section (5) of Section 7 of the IBC within the aforesaid time, it shall record its reasons in writing for not doing so. No other penalty is stipulated.

64. Furthermore, the proviso to Section 7(5)(b) of the IBC requires the Adjudicating Authority to give notice to an applicant, to rectify the defect in its application within seven days of receipt of such notice from the Adjudicating Authority, before rejecting its application under Clause (b) of sub-section (5) of Section 7 of the IBC. When the Adjudicating Authority calls upon the applicant to cure some defects, that defect has to be rectified within seven days. However, in the absence of any prescribed penalty in the IBC for inability to cure the defects in an application within seven days from the date of receipt of notice, in an appropriate case, the Adjudicating Authority may accept the cured application, even after expiry of seven days, for the ends of justice.

65. The Insolvency Committee of the Ministry of Corporate Affairs, Government of India, in a report published in March 2018, stated that the intent of the IBC could not have been to give a new lease of life to debts which were already time barred. Thereafter Section 238A was incorporated in the IBC by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Act 26 of 2018), with effect from 6th June 2018.

66. Section 238A of the IBC provides as follows:- “238A. The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.”

67. In Sesh Nath Singh & Anr. v. Baidyabati Sheoraphuli Cooperative Bank Ltd.5, authored by one of us (Indira Banerjee, J.), this Court held:- 5 2021 SCC Online SC 244 B C D E F G H 1152 SUPREME COURT REPORTS [2022] 5 S.C.R. “91. Legislature has in its wisdom chosen not to make the provisions of the Limitation Act verbatim applicable to proceedings in NCLT/NCLAT, but consciously used the words ‘as far as may be’. The words ‘as far as may be’ are not meant to be otiose. Those words are to be understood in the sense in which they best harmonise with the subject matter of the legislation and the object which the Legislature has in view. The Courts would not give an interpretation to those words which would frustrate the purposes of making the Limitation Act applicable to proceedings in the NCLT/NCLAT ‘as far as may be’. xxx xxx

94. The use of words ‘as far as may be’, occurring in Section 238A of the IBC tones down the rigour of the words ‘shall’ in the aforesaid Section which is normally considered as mandatory. The expression ‘as far as may be’ is indicative of the fact that all or any of the provisions of the Limitation Act may not apply to proceedings before the Adjudicating Authority (NCLT) or the Appellate authority (NCLAT) if they are patently inconsistent with some provisions of the IBC. At the same time, the words ‘as far as may be’ cannot be construed as a total exclusion of the requirements of the basic principles of Section 14 of the Limitation Act, but permits a wider, more liberal, contextual and purposive interpretation by necessary modification, which is in harmony with the principles of the said Section.”

68. There is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the Adjudicating Authority (NCLT). An application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the Schedule to the said Act. Under Article 137 of the Schedule to the Limitation Act, the period of limitation prescribed for such an application is three years from the date of accrual of the right to apply.

69. There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date A B C D E F G H ASSET RECONSTRUCTION COMPANY (INDIA) LTD. v. TULIP STAR HOTELS LTD. [INDIRA BANERJEE, J.] 1153 of default. In Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd.6 authored by Nariman, J. this Court held:- A “6. …...The present case being “an application” which is filed under Section 7, would fall only within the residuary Article 137.”

70. In B. K. Educational Services Private Limited v. Parag Gupta and Associates7, this Court speaking through Nariman, J. held:- “42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.”

71. In Jignesh Shah v. Union of India8 this Court speaking through Nariman, J. reiterated the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC was three years from the date of accrual of the right to sue, that is, the date of default.

72. In Radha Exports (India) (P) Ltd. v. K.P. Jayaram9, this Court held:- “32. The proposition of law which emerges from Innoventive Industries Ltd. [Innoventive Industries Ltd. v. Icici Bank, (2018) 1 SCC 407 : (2018) 1 SCC (Civ) 356] is that the insolvency resolution process begins when a default takes place. In other words, once a debt or even part thereof becomes due and payable, the resolution process begins. Section 3(11) defines “debt” as a liability or obligation in respect of a claim and the claim means a right to payment even if it is disputed. The Code gets triggered the moment