Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by a power of attorney holder
In the recent matter of Rajendra Narottamdas Sheth & Anr. vs. Chandra Prakash Jain & Anr. decided by the Hon’ble Supreme Court (Civil Appeal No.4222 of 2020), two essential issues arose for consideration, namely, (i) What is the maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by a power of attorney holder; and (ii) whether an application filed beyond three years from the date of default is barred by limitation?
The first issue arises from the fact that Union Bank of India (the financial creditor) had issued power of attorney as an authority document. The PoA was executed by the general managers in 2011 pursuant to the resolution passed by the board of directors of the Bank in 2008. The Bank through the PoA appointed the person to conduct and manage and to assist in all the business and affairs of the Bank. Additionally the person was also authorised to commence, prosecute, endorse, defend, answer and/or oppose any suit or other legal proceedings and to make sign, execute, present and file all applications, plaints, petitions etc. The Corporate Debtor while relying on Palogix Infrastructure Private Limited v. ICICI Bank Limited, [2017 SCC Online NCLAT 266] argued that the application under Section 7 of the Code was not maintainable as it was filed by a power of attorney holder. Interestingly Counsel appearing for the Financial Creditor, also relied upon the same judgment and argued that a person authorised by way of a power of attorney can file an application under Section 7 of the Code.
The Supreme Court while referring to the judgment in Palogix Infrastructure observed that if a general authorisation is made by a creditor/corporate applicant in favour of its officer to do needful in legal proceedings, mere use of the words ‘Power of Attorney’ while delegating such power, will not take away the authority of such officer. The Court, while approving the view taken by NCLAT in Palogix Infrastructure, further indicated that if the officer was authorised to sanction loans and had done so, such officer having power to recover the loan amount, can also initiate corporate insolvency resolution process.
The second issue arises from the fact that the date of default of payment by the corporate debtor was 30.09.2014 i.e. the date on which the account of the Corporate Debtor was declared as non-performing asset (NPA) and the application under section 7 of IBC was filed on 25.04.2019. The Financial Creditor, along with the application had only filed a copy of the debit balance confirmation letter dated 07.04.2016. The Financial Creditor, however, had made no plea with respect to extension of the limitation period and application of Section 18 of the Limitation Act. In such circumstances of there being no specific plea, the application was liable to be dismissed.
However, the Corporate Debtor had, in its reply before the Adjudicating Authority, placed on record a letter dated 17.11.2018, which detailed the amount repaid till 30.09.2018 and acknowledged the amount outstanding as on 30.09.2018. On the basis of the said letter and the record as presented in the reply by the Corporate Debtor showing that the Corporate Debtor had executed various documents amounting to acknowledgement of the debt even in the financial year 2019-20, the Court was of the opinion that Section 18 of the Limitation Act was applicable and therefore, the application under section 7 was well within the limitation period.
