Case Number: Civil Appeal No. 2176 OF 2020

Judges Name: Hon’ble Judges Indira Banerjee J, J.K. Maheshwari J.

Order dated: 05.08.2022

Facts of the Case:  

1. The appeal is preferred by Kotak Mahindra Bank Limited (“Appellant”) against M/s. Kew Precision Parts Private Limited & Others (“Respondents”). The Appellant extended credit facilities to M/s. Kew Precision Parts Private Limited (“Corporate Debtor/Respondent”) but the Corporate Debtor defaulted in repayment and account was declared as Non-Performing Asset on 30.09.2015 by the Appellant. The Appellant also issued notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“Act”). 
2. The Corporate Debtor and the Appellant entered into a one-time settlement agreement on 20.12.2018 wherein the Corporate Debtor had to clear the dues within 31.12.2018. As the Corporate Debtor failed to make any payments, the Appellant initiated proceedings under Section 7 of the Insolvency & Bankruptcy Code, 2016 (“Code”). The Hon’ble National Company Law Tribunal (“NCLT”) admitted the Corporate Debtor into Corporate Insolvency Resolution Process (“CIRP”) and declared moratorium. The suspended directors of the Corporate Debtor moved an appeal before the Hon’ble National Company Law Appellate Tribunal (“NCLAT”). The Hon’ble NCLAT noted that the one-time settlement was entered after the debt expired and therefore, Section 18 of the Limitation Act would not be applicable, and allowed the appeal. Aggrieved by the order of the Hon’ble NCLAT, the Appellant has approached the Hon’ble Supreme Court.

Hon’ble Supreme Court observed/held as follows:

• The The Appellant contended that the execution of the one-time settlement agreement has renewed the debt and the same is not barred by limitation and there was a default under the settlement agreement, hence the proceedings were initiated under the Code. 
• The Respondent contended that there were many deficiencies in the banking services provided by the Appellant and the account was declared as non performing asset on. 30.09.2015. Thus, the one-time settlement agreement cannot be termed an acknowledgement of debt under Section 18 of the Limitation Act.
• Several landmark decisions of the Hon’ble Supreme Court such as Swiss Ribbons Private Limited v. Union of India, Dena Bank (Now Bank of Baroda) v. C. Shivakumar Reddy and Another, and Asset Reconstruction Company (India) Limited v. Bishal Jaiswal and Anr, were discussed to highlight that process under Section 7 of the Code. 
• Section 25 of the Contract Act, 1872 was also discussed by the Court, by which one time settlement agreement is valid and enforceable. It was noted that the jurisprudence under Section 25 of the Contract Act, 1872 was not discussed by the Hon’ble NCLAT.
• The Hon’ble NCLAT failed to provide a reasonable opportunity for the Appellant to explain if there was sufficient cause for the delay and it was held that the one time settlement agreement is valid and enforceable. 
• The Hon’ble Supreme Court allowed the appeal and set aside the order of the NCLAT to the extent that the CIRP proceedings have been closed.