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Rajendra Narottamdas Sheth & Anr Vs Chandra Prakash Jain & Anr: Power Of Attorney Having Authorisation Of Financial Creditor Can File Application U/S 7 IBC

Rheaa Nair ,
  09 November 2021       Share Bookmark

Court :

Brief :

Citation :

Coram
J. L. Nageswara Rao
J. B. R. Gavai
J. B. V. Nagarathna

Parties
Appellant-Rajendra Narottamdas Sheth and Anr
Respondent- Chandra Prakash Jain

Subject

The Appellants filed an appeal which was rejected by the National Company Law Appellate Tribunal (NCLAT) against application filed by the power of attorney holder of the Creditor under Section 7 of the Bankruptcy Code.

Overview

  • The Respondent or the Financial Creditor provided a series of loans to the appellant or the Corporate Debtor. The Corporate Debtor was unable to settle the dues of the Financial Creditor in time. The Bank had given Mr. Praveen Kumar Guptaauthorisation with respect to all the business and affairs of the Bank, including commencement of legal proceedings.
  • The Corporate Debtor was declared to be a nonperforming asset (NPA).The Financial Creditor issued notice for recovery of all dues payable by the Corporate Debtor. Pursuant to this, the Creditor filed an application before the Ahmedabad bench of the Debt Recovery Tribunal under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for recovery of the dues.
  • The bank filed an application under Section 7 of the Bankruptcy Code, 2016, which stated the amount due and sought an initiation into the corporate insolvency resolution process. The Corporate Debtor contended this stating that the application was time-barred and that it was legally untenable.
  • The contention of the Corporate Debtor which states that the application filed by the power of attorney holder on behalf of the Financial Creditor was not maintainable was rejected by the Adjudicating Authority
  • The NCLAT evaluated the power of attorney given by the bank and saw there was no merit in the argument of the Corporate Debtor about the maintainability of the application filed.

Relevant Provisions

Section 7 of Bankruptcy Code 2016-Initiation of corporate insolvency resolution process by financial creditor.

Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993-Where a bank or a financial institution has to recover any debt from any person, it may make an application to the Tribunal.

Section 18 of the Limitation Act 1963-Before expiration of period of limitation, if any acknowledgement is made in writing, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

Issues

  • Whether the application filed by the power of attorney holder, under Section 7 of the Bankruptcy Code, is maintainable?
  • Whether the application was filed after the expiry of the period of limitation?

Analysis

  • The appellant relied on the NCLAT Judgment in Palogix Infrastructure Private Limited v. ICICI Bank Limited, where it was “held that an ‘authorised person’, distinct from a ‘power of attorney holder’, can file an application under Section 7 and that a ‘power of attorney holder’ is not competent to file an application on behalf of a financial creditor”.
  • The respondent also relied on the same judgement arguing that a person authorised through a power of attorney can file an application under Section 7 of the Code.
  • The NCLAT was of the opinion that the general authorisation given by means of a power of attorney would not stop the officer from acting as an authorised representative of the creditor. Further if the appointed officer was authorised to sanction loans, the application cannot be rejected, if no separate specific authorisation letter had been issued.
  • Here the debtor cannot plea that the officer has the right to sanction loans, but does not have the power to recover such a loan, or cannot resort to a resolution process despite payment defaults.
  • The court approved the stand taken by the NCLAT that the power of attorney does not impair the authority to file an application under Section 7. Thus, the application was filed by an authorised person.
  • The appellant had also raised the issue that the application was not filed in the stipulated time period. The NCLAT was of the opinion that the application was filed within the period of limitation. The Supreme Court also found that there was enough material to justify the extension of the period of limitation under Section 18 of the Limitation Act.

Conclusion

  • The main question here related how much authority a power of attorney provides. The Power of Attorney is a document giving authority to a person to act on behalf of another. In this case, the court held that since general authorisation was provided, the appointed officer had the power to initiate resolution process for non-payment of loans. Thus, a power of attorney holder for a financial creditor can file an application on behalf of the bank.
  • As per Section 3 of the Limitation Act, any application filed after the prescribed time should be dismissed. But here there was evidence of documents constituting acknowledgement of debt due to which the adjudicating authority allowed for an extension of the application.
  • The NCLAT and the Supreme Court were in consensus about the authority under the power of attorney and the period of limitation, hence the appeal was dismissed.

Click here to download the original copy of the judgement

Questions

  • What does Section 7 of Bankruptcy code specify?
  • Can the Power of Attorney Holder file an application under Section 7?
 
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