Reliance Asset Reconstruction Company Ltd. Vs. M/s Hotel Poonja International Pvt. Ltd. (2021)

Facts of the Case

1. Parties Involved:
   • Appellant: Reliance Asset Reconstruction Company Ltd. (Financial Creditor).
   • Respondent: M/s Hotel Poonja International Pvt. Ltd. (Corporate Debtor).
2. Nature of Dispute:
   • The financial creditor applied Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.
   • The claim was based on alleged non-payment of financial debt owed by the corporate debtor.
3. Key Issues Raised:
   • Whether the application under Section 7 was within the limitation period as prescribed under the Limitation Act, 1963.
   • The sufficiency of evidence provided by the financial creditor to establish the existence of a default.
   • The relevance of prior disputes or legal proceedings involving the debt claim.

Final Judgment

The Supreme Court delivered the following key rulings:

1. Limitation Period:
   • The Court reaffirmed that the limitation period for applying Section 7 of the IBC is three years from the default date.
   • The limitation can be extended under Section 18 of the Limitation Act if the corporate debtor acknowledges debt within the prescribed period.
2. Proof of Default:
   • The financial creditor bears the burden of proving the existence of default.
   • The creditor must present clear, unequivocal evidence, such as financial records, agreements, or communications acknowledging the debt.
3. Prior Legal Proceedings:
   • The Court held that pending disputes or earlier recovery attempts under other legal frameworks (e.g., civil suits or arbitration) do not bar the initiation of CIRP, provided the default is established under the IBC.
   • The IBC is a distinct mechanism focused on resolving corporate insolvency, independent of other recovery laws.
4. Outcome:
   • The Supreme Court upheld the application of Section 7, provided the financial creditor met the requirements of proving the debt and default, and the claim was within the limitation period.

Significance of the Judgment

This case serves as a precedent for interpreting:

• The limitation period for insolvency applications under IBC.
• The responsibility of financial creditors to substantiate their claims.
• The primacy of IBC proceedings over other legal disputes when addressing insolvency.

The judgment emphasizes that the IBC’s objective is to ensure a time-bound resolution of insolvency cases while safeguarding the rights of both creditors and debtors.