Frivolous Section 19(2) Applications - Scope of information & extent of co-operation

 Frivolous Section 19(2) Applications - Scope of information & extent of co-operation 

In most of the CIRP cases Section 19(2) applications are being filed, demanding a wide range of information & records, sometime as late as (a) after the resolution for liquidation has been approved by the CoC (b) after issuing a series of IM’s (Information Memorandums). This raises the credibility/sanctity of section 19(2) application filed by the IRP/RP. With the passage of time this section 19(2) application has become a tool of harassment in the hands of  RP, being precursor to the prosecution under section 70 of the Code.

2.  It will be interesting to find, whether  application filed under section 19(2) is frivolous or not in light of the provisions of Regulations 3A (CIRP Regulations) read with Section 18, which broadly provide for the parameters of information & extent of co-operation required from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor. Further Hon’ble Appellate Authority in the matter of Mr. Venugopal Dhoot & Anr. Vs. Mr. Pravin R. Navandar RP & Ors.  [(2021) ibclaw.in 298 NCLAT, Company Appeal (AT) (Insolvency) No. 173 of 2021], questioned the requirement of the information demanded by the RP in section 19(2) application. 

3. Let’s notice the provisions of the Code (IBC, 2016) & Regulation (CIRP Regulations)  on this aspect., 

3.1. Insolvency and Bankruptcy Code, 2016.

# Section 19. Personnel to extend co-operation to interim resolution professional. - 

(1) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor.

(2) Where any personnel of the corporate debtor, its promoter or any other person required to assist or cooperate with the interim resolution professional does not assist or cooperate, the interim resolution professional may make an application to the Adjudicating Authority for necessary directions.

(3) The Adjudicating Authority, on receiving an application under sub-section (2), shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to cooperate with him in collection of information and management of the corporate debtor.

# Section 18. Duties of interim resolution professional. -

The interim resolution professional shall perform the following duties, namely: -

(a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to -

• (i) business operations for the previous two years;

• (ii) financial and operational payments for the previous two years;

• (iii) list of assets and liabilities as on the initiation date; and

• (iv) such other matters as may be specified;

(b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15;

(c) constitute a committee of creditors;

(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;

(e) file information collected with the information utility, if necessary; and

(f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including -

• (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;

• (ii) assets that may or may not be in possession of the corporate debtor;

• (iii) tangible assets, whether movable or immovable;

• (iv) intangible assets including intellectual property;

• (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;

• (vi) assets subject to the determination of ownership by a court or authority;

(g) to perform such other duties as may be specified by the Board.

Explanation. – For the purposes of this 1[section], the term “assets” shall not include the following, namely: -

(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;

(b) assets of any Indian or foreign subsidiary of the corporate debtor; and

(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.

3.2. Implications of non compliance of provisions of section 19. 

# Section 70. Punishment for misconduct in course of corporate insolvency resolution process. -

(1) On or after the insolvency commencement date, where an officer of the corporate debtor;

• (a) does not disclose to the resolution professional all the details of property of the corporate debtor, and details of transactions thereof, or any such other information as the resolution professional may require; or

• (b) does not deliver to the resolution professional all or part of the property of the corporate debtor in his control or custody and which he is required to deliver; or 

• (c) does not deliver to the resolution professional all books and papers in his control or custody belonging to the corporate debtor and which he is required to deliver; or

• (d) fails to inform their resolution professional the information in his knowledge that a debt has been falsely proved by any person during the corporate insolvency resolution process; or

• (e) prevents the production of any book or paper affecting or relating to the property or affairs of the corporate debtor; or 

• (f) accounts for any part of the property of the corporate debtor by fictitious losses or expenses, or if he has so attempted at any meeting of the creditors of the corporate debtor within the twelve months immediately preceding the insolvency commencement date, 

he shall be punishable with imprisonment for a term which shall not be less than three years, but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both:

Provided that nothing in this section shall render a person liable to any punishment under this section if he proves that he had no intent to do so in relation to the state of affairs of the corporate debtor.

(2) If an insolvency professional deliberately contravenes the provisions of this Part the shall be punishable with imprisonment for a term which may extend to six months, or with fine which shall not less than one lakh rupees, but may extend to five lakhs rupees, or with both.

3.3. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

# 3A. Assistance and cooperation by the personnel of the corporate debtor.

(1) The interim resolution professional or resolution professional, as the case may be, shall take custody and control as specified under this regulation from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case may be, of the following:-

1. the records of information relating to the assets, finances and operations of the corporate debtor referred in clause (a) of section 18 and such other information required under regulation 36;

2. the assets recorded in the balance sheet of the corporate debtor or in any other records referred in clause (f) of section 18.

(2) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall provide to the interim resolution professional or resolution professional, as the case may be, a list of assets and records while handing over their custody and control, and the interim resolution professional or resolution professional may, after taking such custody and control, if deemed necessary, identify person(s) in whose possession these assets and records will be held.

(3) Where any asset or record has not been handed over or the list has not been provided under sub-regulation (2), the interim resolution professional or resolution professional, as the case may be, shall himself prepare a list of assets and records while taking custody and control of assets and records, and the interim resolution professional or resolution professional may, after taking such custody and control, if deemed necessary, identify person(s) in whose possession these assets and records will be held.

(4) Each list of assets and records under sub-regulation (2) and (3) shall be signed by the parties present and by at least two individuals who have witnessed the act of taking control and custody of such assets and records.

(5) The interim resolution professional or resolution professional, as the case may be, shall requisition from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case maybe, the information relating to the assets, finances and operations of the corporate debtor referred in clause (a) of section 18 and such information required under regulation 36 which were required to be maintained by the corporate debtor but have not yet been handed over.

(6) The interim resolution professional or resolution professional, as the case may be, shall requisition from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case maybe, the assets which are recorded in the balance sheet or in any other records referred in clause (f) of section 18 and whose custody has not been handed over.

(7) An application made under sub-section (2) of section 19 in respect of failure to provide any asset or record as requisitioned under the Code and this regulation, shall show presence of such asset or record in the notice of requisition and absence of such asset or record in the list of assets and records taken in control and custody under sub-regulation (2) and (3)

3.4. Case Law;

NCLAT (2021.07.05) in Mr. Venugopal Dhoot & Anr. Vs. Mr. Pravin R. Navandar RP & Ors.  [(2021) ibclaw.in 298 NCLAT, Company Appeal(AT)(Insolvency) No. 173 of 2021], held that; 

• This Appellate Tribunal was repeatedly asking the parties the requirement of various documents and sources from where the documents can be obtained. Based on these observations on 10.06.2021 both the parties agreed the suggestions for a list of requisite documents and from where the documents can be obtained by the RP.

• The sum and substance of both the submissions of Appellant and Respondents reveals that the Financial Statement of the CD is available with RP. What he is seeking is the details of the assets of the subsidiaries which is governed by the explanation to Section 18 of the Code and the same is stated as below:…..

• The most important thing is the tally data of the CD which has to be obtained from Resolution Professional of VIL i.e. its holdings Company of CD. The bank accounts details for the last five years can be obtained by the Respondent No.1 from the Bank which are under his control at the moment and details of the Directors can be obtained from the MCA website.

• On a specific query by the Bench, why RP for more than one year could not get the books reconstructed with the assistance of expert IT Professional from outside to ascertain avoidable transactions of the Code, if he suspects something based on inputs available with him.

• What we find basically that a culture has come were Accounts people wants to do the job of Auditor, Auditor wants to do the job of Vigilance and Vigilance wants to do the job of CBI.

• The RP being a competent professional and bankers within his charge, he should have reconstructed a book showing cash flow for the specified period as per the Code and by this time could have detected that whether any preliminary finding is for avoidance transactions and then the other party could have proved either way by this time.

• The RP can take the assistance of concerned Registrar of Company / MCA website and could have obtained financial statements /annual return and his apprehension could have been proved either way.

• Hence, we are unable to confirm that Appellants are fully responsible for non- availability of the documents with whatever data what has been provided to us. Hence, we are unable to sustain the Adjudicating Authority order at this juncture which has been passed in haste.

[ Link Synopsis ]

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Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.

Extension of Limitation for filing insolvency application - DRT decree or Recovery Certificate

Extension of Limitation for filing insolvency application 

It is a well-established legal principle that a decree or Recovery Certificate (RC) issued by the Debt Recovery Tribunal (DRT) triggers a fresh cause of action, thereby extending the limitation period for filing insolvency applications. The issuance of such decree or RC acts as a new event from which limitation runs afresh.

SCI (2021.08.04) in Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy and Anr. [ Civil Appeal No.1650 of 2020] held that;

• # 143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid.

⚖️ Now the Issue is;

Whether a decree passed in a mortgage suit (filed after the limitation period for enforcing personal liability has expired) extends or revives the limitation period for filing an insolvency application under Section 95 of the Insolvency and Bankruptcy Code (IBC) against the personal guarantor.

⚖️ It is interesting to notice the provisions of various status

The Limitation Act. 1963

# 3. Bar of limitation.—(1) Subject to the provisions contained in sections 4 to 24 (inclusive), every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defence.

XXXXX

Description of suit	Article	Limitation Period	Time from which period begins to run
For money lent under an agreement that it shall be payable on demand.	21	3 Years	When the loan is made.
For money deposited under an agreement that it shall be payable on demand, including money of a customer in the hands of his banker so payable.	22	3 Years	When the demand is made.
To enforce payment of money secured by a mortgage or otherwise charged upon immovable property.	62	12 Years	When the money sued for becomes due.
Any other application for which no period of limitation is provided elsewhere in this Division.	137	3 Years	When the right to apply accrues.

Section 3 of the Limitation Act mandates that courts examine the limitation aspect even if it is not raised as a defense.

The Recovery of Debts and Bankruptcy Act, 1993.

• # 2. Definitions. - 

• (g) “debt” means any liability (inclusive of interest) which is claimed as due from any person 7[or a pooled investment vehicle as defined in clause (da) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)] by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application 1[and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;

Section 2(g) of the RDB Act defines "debt" broadly to include any legally recoverable liability claimed by banks or financial institutions, secured or unsecured, including debts payable under a decree, order, arbitration award, or mortgage as of the date of the application.

Accordingly, where an application is filed under Section 19 of the RDB Act for recovery of debt, the limitation period is generally three years from the date of the default or last acknowledgment. However, if the relief sought involves enforcement of a mortgage, the applicant may invoke the longer 12-year limitation period under Article 62 of the Limitation Act.

The nature of the prayer in the Original Application (OA) determines whether it qualifies as a money suit or a mortgage suit, and the DRT must record such findings in its final orders, in compliance with the provisions of section 3 of The Limitation Act, 1963.

🧩 Key Legal Principles

1. Nature of mortgage suits

A mortgage suit typically seeks:

• Enforcement of security interest (against the mortgaged property), and/or

• Personal decree (against the borrower/guarantor personally for balance, if any).

However, if the suit was filed after the limitation for enforcing personal liability had expired, the personal claim is already time-barred under the Limitation Act, 1963.

Thus, even if a decree is passed in such a suit, it cannot revive or extend limitation for the underlying personal debt that had already become barred.

2. Effect of time-barred decree or claim under IBC

• IBC does not create new rights; it provides a remedy for existing legally enforceable debts.

• A time-barred debt is not a "legally enforceable debt", and therefore cannot be the basis of an insolvency application.

Supreme Court Precedents:

• B.K. Educational Services v. Parag Gupta (2018) 14 SCC 537
  → Limitation Act applies to IBC; time-barred debts cannot be revived.

• Laxmi Pat Surana v. Union Bank of India (2021) 8 SCC 481
  → Section 95 can be filed against a personal guarantor only if the underlying debt is not time-barred.

• Jignesh Shah v. Union of India (2019) 10 SCC 750
  → Subsequent proceedings (winding up, etc.) do not extend limitation if the original debt is barred. A decree does not revive a time-barred claim.

3. Decree and Limitation

If a valid decree (suit initiated within limitation) exists, limitation for execution is 12 years (Article 136, Limitation Act).

Where the mortgage suit was filed after the limitation period for the underlying personal debt has expired, even if decree is granted, it cannot validate or extend the limitation for proceedings under section 95 of  IBC. The decree, in pursuance of mortgage suit, would be ineffective to create a fresh cause of action for Section 95 IBC.

🧠 Therefore

If the mortgage suit was filed after limitation expired for personal enforcement, the personal liability was already extinguished. A subsequent decree in mortgage suit cannot revive the time-barred personal debt. Hence, filing an insolvency application under Section 95 IBC against the personal guarantor based on that decree would also be barred by limitation.

📜 Supporting Case Laws

Case	Citation	Principle
B.K. Educational Services v. Parag Gupta	(2018) 14 SCC 537	Limitation Act applies to IBC; time-barred debts not recoverable under IBC
Jignesh Shah v. Union of India	(2019) 10 SCC 750	A subsequent decree or suit cannot revive limitation once expired
Laxmi Pat Surana v. Union Bank of India	(2021) 8 SCC 481	Section 95 IBC maintainable only if underlying debt enforceable
Gaurav Hargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd.	(2019) 10 SCC 572	Default date determines limitation under IBC
Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank	(2021) 7 SCC 313	Acknowledgment under Section 18 must occur before limitation expires to extend period

✅ Conclusion

A decree in a mortgage suit filed after the expiry of limitation for personal liability will not extend or revive limitation for filing an insolvency application under Section 95 of the IBC against a personal guarantor.

Such a decree cannot create a fresh enforceable right or restart limitation, since the underlying debt had already become time-barred.

Extension of Limitation and Insolvency Applications

Now the question, whether decree or recovery certificate issued based on mortgage suit will extend limitation for filing application for insolvency of Corporate Debtor, Corporate Guarantor & Personal Guarantor under the provisions of the Code (IBC, 2016) has been amply clarified by the Hon’ble Supreme Court in the matter of Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy and Anr. (supra) as follows.

• # 143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor . . . . . . . .

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Case law; On the question whether DRT can entertain a mortgage suit.

HC Delhi (1995.09.27) in  State Bank Of India vs Samneel Engineering Company And Ors.[1995(35)DRJ485] held that;

• A mortgage may be viewed in two aspects. In the first place it is a promise by the debtor to repay the loan and as such it is a contract which creates a personal obligation. Secondly, it is also a conveyance, since it passes to the creditor a real right in the property pledged to him. However, the right created in the land is only an accessory right, intended merely to secure the due payment of the debt."

• The quaint essence of the definition is the existence of any liability founded on an allegation as due from any person; the creditor being a bank or a financial institute or a consortium of the two. The liability may be in cash or otherwise. It may be secured or unsecured. A decree or order of any civil court or otherwise may intervene or not; the only rider being that the liability must be legally recoverable. The definition would cover all the cases where the liability is secured by a mortgage, charge, hypothecation or in any other manner known to law. An effort at carving out a mortgage away and out of the definition of debt is futile.

• Section 58(a) of the Transfer of Property Act defines a mortgage as a transfer of an interest in specified immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan and an existing or future debt or performance of an acknowledgement which may give rise to a liability.

• Be that as it may, so far as the question of jurisdictional competence of the Tribunal to try a claim for recovery of debt based on a mortgage is concerned, I am clearly of the opinion that a mortgage debt is included within the meaning of the debt as defined under section 2(g) of the Act. A claim for recovery of such a debt lies within the jurisdictional competence of the Tribunal.

• Moreover, if there be any conflict between the provisions of the Transfer of Property Act and the Civil Procedure Code on the one hand and provisions of the Act No. 51 of 1993 on the other, then by virtue of Section 34 of the Act the provisions contained in the Act shall have an overriding effect on any other law or instrument for the time being in force.

• For all the foregoing reasons I am of the opinion that a suit for recovery of a debt based on mortgage of any nature whatsoever lies within the jurisdictional competence of the Tribunal.

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Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.