Absence Of Assignee Name In Balance Sheet Of Corporate Debtor Does Not Negate Applicability Of Section 18 Of Limitation Act: NCLAT

It further held that the debt at the time of filing an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) is only considered, and the amount mentioned in the assignment agreement has no relevance in determining debt and default against the corporate debtor for the purpose of the Section 7 application.

Brief Facts:

M/s. Fairdeal Supplies Limited (corporate debtor) had obtained financial facilities from Allahabad Bank in the year 2010 for an amount of Rs. 34.50 crore to purchase a property at Coimbatore through auction sale conducted in the High Court of Judicature at Madras through official liquidator.

The bank declared account NPA on 30.09.2011. On 27.09.2013, Allahabad Bank assigned its debt to the Pegasus by a registered assignment deed.

In the year 2017, a suit was filed by the corporate debtor, challenging the assignment agreement in favour of the financial creditor being Suit No. 195/2017. On 18.08.2022, Section 7 application was filed by Respondent Pegasus claiming an amount debt in default amounting to Rs. 145,74,89,265/- as on 04.08.2022.

The Adjudicating Authority, by order dated 19.03.2024, admitted the Section 7 application after hearing both parties. It held that the application filed by the financial creditor was not barred by limitation. The Adjudicating Authority relied on the corporate debtor's balance sheets from the financial years 2013–14 to 2019–20, which acknowledged the debt of Allahabad Bank.

It also held that the corporate debtor could not dispute the legality of the assignment deed. Additionally, the Authority noted a record of default issued by NeSL. It concluded that the debt and default were established.

Contentions:

The Appellant submitted that as per the amended Section 28 of the Registration Act, 1908, applicable to the State of Tamil Nadu, every document affecting immovable property must be presented for registration at the office of the Sub-Registrar within whose sub-district the whole or part of the property is situated.

It was further submitted that under Clause (b) of the amended provision, any document registered outside the State of Tamil Nadu, in violation of Clause (a), shall be deemed null and void.

It was also submitted that in view of the aforesaid, assignment agreement being void application under Section 7 filed by the Respondent No. 1 on basis of such assignment agreement is not maintainable and deserves to be rejected.

It was further contended that balance sheet of the corporate debtor on which the reliance is placed, there is no acknowledgment of debt in favour of the Respondent Pegasus, hence, Respondent No. 1 cannot claim any acknowledgement for extension of limitation under Section 18 of the Limitation Act.

Per contra, the Respondent submitted that even if it is accepted that any document relating to immovable property situated in Coimbatore was required to be registered at the office of the Sub-Registrar within whose sub-district the property is located, that alone does not render the entire assignment void or inoperative.

It was further submitted that at most, the assignment deed may not confer rights concerning the immovable property in Coimbatore. However, since the financial debt owed by the corporate debtor to Allahabad Bank was assigned, Respondent No. 1 was fully entitled to file the Section 7 application based on the strength of the assignment.

Lastly, it was submitted that the balance sheet of the corporate debtor from 2013–2014 to 2019–2020 continuously acknowledged the debt. Acknowledgement of debt, even if the balance sheet does not refer to the Respondent No. 1 and refers to only the Allahabad Bank from whom facilities was taken by corporate debtor the said is valid acknowledgment from extension of limitation.

Observations:

The Tribunal observed that Section 28 of the Registration Act deals with the registration of documents relating to land. Sub-clause (a) mandates that every document affecting immovable property must be registered in the office of the Sub-Registrar within whose sub-district the property is situated.

It further added that sub-clause (b) provides that any document registered outside the State of Tamil Nadu, in violation of clause (a), shall be deemed null and void.

Based on the above, it held that the document must be treated as null and void with respect to property situated in Tamil Nadu if it was not registered within the state.

It held that consequently, the assignment agreement, to the extent it pertains to immovable property located in Tamil Nadu, is null and void, and no rights can be claimed by the financial creditor over such property.

The Tribunal opined that Section 7 application includes a plea that an equitable mortgage was created in respect of land situated in Coimbatore. In light of the provisions under Section 28(a) and (b) of the Registration Act, it is clear that the assignment deed, insofar as it relates to the immovable property located in Coimbatore, as referred to in Part V of the Section 7 application, is void. Accordingly, the assignment must be treated as void in relation to the said property.

It further held that the appellant's submission under Section 28(a) and (b) of the Registration Act, as applicable in Tamil Nadu, is valid to the extent that no rights can be claimed by the financial creditor over assets situated in Coimbatore, as the assignment deed creating any interest in such immovable property is void. However, this does not render the entire assignment null and void.

The Tribunal further said that the acknowledgements in the corporate debtor's balance sheets constitute acknowledgements of debt, which are relevant for extending the period of limitation. The continuous acknowledgements by the corporate debtor support this.

It further held that the fact that the debt was assigned to Pegasus and Pegasus was not named in the balance sheets does not, in the present case, negate the applicability of Section 18 of the Limitation Act.

It concluded that the relevant amount is the amount due at the time of filing of Section 7 application as claimed in Part IV. The amount mentioned in the assignment, agreement has no relevance to find debt and default of the corporate debtor.

Accordingly, the present appeal was dismissed.

Case Title: Saurabh Jhunjhunwala (Suspended Board of Director of Fairdeal Supplies Limited.) Versus Pegasus Assets Reconstruction Company Private Limited & Anr.

Case Number:Company Appeal (AT) (Insolvency) No. 648 of 2024

Judgment Date: 01/05/2025

For Appellant : Mr. Krishnendu Datta and Mr. Abhijit Sinha, Sr. Advocates with Ms. Aditi Sharma and Mr. Kaushik Banerjee, Advocates.

For Respondents : Mr. Amar Dave, Sr. Advocate with Mr. Dinkar Singh and Mr. Rohit Singh, Advocates for R-1.

Mr. Gaurav H. Sethi, Mr. Bijay Murmuria (IRP), Mr. Rahul Panwar and Mr. Rahul Kapoor, Advocates for IRP/R-6.

Mr. Vipin Jai, Mr. Vipul Jai and Mr. Monish Surendran, Advocates for Intervenors in I.A. No. 1058/2025.

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