4th May 2K20
Economic Times
Ø Peak power demand still down one-fourth at 134.7 GW
Ø BoB extends Rs 2,300 cr to MSMEs as emergency credit
Ø Net redemptions under credit risk funds down by 81.5%
Ø Tata Motors, Ashok Leyland pitch for scrappage policy
Ø Need immediate assistance from govt: Hotel industry
Ø IT dept cautions people against phishing e-mails promising refund
Ø RCEP nations offer India package to return to negotiating table
Business Standard
Ø Covid-19 impact: FinMin internally projects FY21 GDP growth at 2-3%
Ø Biz activities significantly hit; recovery may take over a year: CII survey
Ø 99% depositors of CKP Co-operative Bank to get back money, says RBI
Ø $5.7 bn Jio-FB deal to become test case for regulatory, security concerns
Ø Reliance to produce new gas from D6 by June end; to cost $2.2 per unit
Ø Both debtors & creditors will be wary of using IBC in short term: M S Sahoo
Business Line
Ø CII for greater industrial activities in districts with high economic performance
Ø Centre’s net direct tax collection up 36% in April
Ø Coal India shifts focus to preparing mines for production when demand picks up
Ø NLC India begins coal production for the first time
Ø Timeline extended for responses on safeguard duties on solar cells
Mint
Ø 'Only small section of online sellers may start selling non-essentials'
Ø Trump says US to have coronavirus vaccine by end of year
Ø Forty days that prompted Indian companies to write-off a quarter
Ø Remittances from West Asia may skid on falling oil prices
Ø Auto industry may cut R&D spending, exit unprofitable segments due to covid-19
Financial Express
Ø GST audit guidelines need to be reviewed to include video conferencing: Experts
Ø IT hardware company expect to resume partial production this week, 100% next month
Ø Ficci seeks infrastructure status for lockdown-hit steel sector
Deccan Chronicle
Ø The new norm will be different post lockdown: Niti Aayog
Ø India assures world of partnership on medicine
Ø RBI reviews measures to ease financial stress
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👉 The Indian government has recently decided to temporarily suspend filing of fresh insolvency proceedings under the Insolvency and Bankruptcy Code. This policy change comes at a time when the IMF has warned that Covid-19 epidemic would push emerging markets like India into challenging external funding conditions, rising rollover risks, and increased debt restructuring.
Debt restructuring would be particularly necessary in the aftermath of Covid-19 crisis. During the pandemic, going concern sales may not be possible or desirable. Buyers may not be available in the market. Or, there could be an oversupply of similar assets in the market due to industry-wide factors, pushing down the price for such assets. Therefore, instead of a going concern sale to a new buyer, claimants of an insolvent business may be better off “selling” the business to some or all of the existing claimants themselves. Such a “hypothetical sale” is commonly referred to as debt restructuring.
Indian law presently provides three routes to debt restructuring. First, the RBI’s June 7 Circular, which provides an out-of-court restructuring option. Second, the IBC, that could be used for restructuring under the aegis of the National Company Law Tribunal. Third, a scheme of arrangement under the Companies Act, 2013, could also be used for debt restructuring through the NCLT. The third route is sparingly used in practice. And now with the IBC due to be suspended, the only option practically left is the RBI Circular.
Restructuring isn’t particularly easy under this option. The Circular applies only to RBI-regulated lenders and requires them to enter into an inter-creditor agreement (ICA). Non-RBI regulated entities (such as mutual funds) are not bound to sign the ICA and may not co-operate. Such lenders may therefore hold up the entire restructuring process.
👉 Does entry in balance sheet of a company amount to acknowledgement for the purposes of Section 18 of Limitation Act, 1963 (“Limitation Act”)? The answer to the question, which seems so apparent in view of a catena of cases, both domestic and foreign, seems to have been turned on its head by a decision of National Company Law Appellate Tribunal (“NCLAT”) in its recent decision rendered in the case of V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) (“Padmakumar Decision”).[1]
The majority decision, which was rendered by a 4:1 majority of an unprecedented five-member bench of NCLAT, ruled that entry in balance sheet/ annual return, which is required to be prepared to comply with statutory requirements, cannot be treated to be an acknowledgement under Section 18 of the Limitation Act. Notably, the majority decision had reiterated the decision of the two-member bench of NCLAT in the earlier case of Sh. G Eswara Rao v. Stressed Assets Stabilisation Fund,[2] incidentally also written by Justice S J Mukhopadhaya, who had penned the majority judgment in the Padmakumar decision.
The purpose of this article is to examine whether an entry in balance sheet, which otherwise could qualify as acknowledgement for the purpose of the Limitation Act, could be disregarded as the same was done under statutory compulsion.
REVIEW OF JUDICIAL POSITION - INDIA
Our research suggests that, whilst there is a catena of cases[3],starting from the Rajah of Vizianagaram v. Official Liquidator, Vizianagaram Mining Company Limited,[4] which support the treatment of entry in balance sheet as an acknowledgement, there are certain decisions which question the approach.
For instance, in one of the earliest cases, Kashinath Shankarappa v. The New Akot Cotton Ginning and Pressing Co. Ltd.,[5] which even predated Rajah of Vizianagaram (supra), the Nagpur High Court had observed as follows:
“18. …. The mere signing of a balance sheet by a director does not operate to save limitation because the director in drawing up a balance sheet does not do so with the intention of acknowledging liability but under a duty where he is bound to set out, among other things, the claims made on the company...”
(emphasis supplied)
Interestingly, there is no decision of the Supreme Court of India which has conclusively settled the issue. For instance, whilst the Supreme Court had the opportunity to decide the issue in the case of Kashinath Shankarappa v. The New Akot Cotton Ginning and Pressing Co. Ltd.,[6] the Court refused to pass any such observation noting that the balance sheet in question was not duly passed. The closest that the Supreme Court had come in acknowledging that balance sheet entry may qualify as acknowledgement was in the case of Mahabir Cold Storage v. CIT, Patna[7], where, without any analysis of any sort, the Court noted that entries in the books of accounts of the appellant would amount to an acknowledgement of the liability for the purpose of Section 18. Also notable is decision in A V Murthy v. B S Nagabasavanna.[8], where Court noted that, without expressing any final opinion on the aspect, balance sheet may amount to acknowledgement.
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