The Supreme Court on August 13, 2022 in the case of Kotak Mahindra Bank Limited v. Kew Precision Parts Private Limited and Ors., observed that Section 7(5)(b) of the Insolvency and Bankruptcy Code, 2016(“IBC”) which requires the Adjudicating Authority to notify the Financial Creditor before rejection of a claim, would be applicable to appeals as well, since appeal is the continuation of original proceedings.

Kotak Mahindra Bank (“the Bank”) is servicing loans to the Corporate Debtor since 2012. In 2014, it sanctioned a loan to the Corporate Debtor who defaulted in making the repayment and the Bank declared its account as non-performing asset. Thereafter, the Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (“SARFAESI Act”). The Corporate Debtor admitted its liability and offered a one-time settlement. After modifying the settlement amount a couple of times it made the final offer, which was accepted by the Bank. As the Corporate Debtor defaulted, the Bank filed a petition under Section 7 of the IBC. NCLT admitted the petition; initiated the Corporate Insolvency Resolution Process (“CIRP”); imposed a moratorium; and appointed an Interim Resolution Professional. Holding the petition to be time barred, NCLAT did not allow the appeal.

Referring to Section 25 of the Contract Act, 1872, the Apex Court was of the view that a written promise to pay the barred debt is a valid contract and such a promise may form the basis of a suit independent of the original debt. It also noted that under Section 18 of the Limitation Act, 1963 if an acknowledgment of liability is made in writing and signed by the party against whom such right is claimed and the same is made within the initial limitation period, it has the effect of creating a fresh start of limitation. The Apex Court opined that the NCLAT did not notice the terms of settlement and did not consider whether Section 25(3) of the Contract Act, 1872, is applicable. It merely noted that since there was no acknowledgement of the debt within the period of limitation, appeal could not be allowed.

The Apex Court assailing the order of the NCLAT allowed the appeal and held that NCLAT erred in closing the CIRP proceedings without giving the Bank an opportunity to rectify the defects in the application under Section 7 by filing additional pleadings and/or documents. Placing reliance on Dena Bank v. C. Shivakumar Reddy and Another, it emphasized that such additional documents can be filed at any time until the application for CIRP is finally dismissed. Finally, the Bench remanded the matter back to NCLAT for fresh consideration.