Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has upheld the initiation of Corporate Insolvency Resolution Process (CIRP) against Privilege Power and Infrastructure Pvt. Ltd. (PPIL), dismissing an appeal filed by its shareholder Sarang Kumar Wadhawan. The Bench comprising Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member), and Arun Baroka (Technical Member) held that the CIRP application filed by Unity Small Finance Bank Ltd., the successor to the Punjab and Maharashtra Co-operative Bank (PMC Bank), was well within the period of limitation, since the discovery of fraud had occurred subsequently and thus triggered the application of Section 17 of the Limitation Act, 1963.

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Background of the Case

The case stemmed from an overdraft facility of ₹11.81 crore granted in 2007 by PMC Bank to Privilege Power and Infrastructure Pvt. Ltd., a group company of the Housing Development and Infrastructure Ltd. (HDIL) conglomerate. The account was later classified as Non-Performing Asset (NPA) on August 31, 2012. Following the Reserve Bank of India’s intervention in 2019 due to the PMC Bank fraud scandal, a re-audit and recasting of the bank’s accounts was ordered. The audit, completed on December 27, 2019, revealed major irregularities in the loans granted to HDIL group entities, including PPIL. Based on the findings, Unity Small Finance Bank, as PMC Bank’s successor, filed a Section 7 application under the Insolvency and Bankruptcy Code, 2016, before the NCLT, Mumbai, in 2020 to initiate CIRP against PPIL. The NCLT, by its order dated February 16, 2023, admitted the petition and commenced the insolvency process. Aggrieved by this decision, Sarang Wadhawan, shareholder of PPIL and one of the accused in the PMC Bank fraud, filed an appeal before the NCLAT contending that the application was barred by limitation, as the alleged default dated back to 2012.

Appellant’s Contentions

Wadhawan argued that the financial creditor’s claim was time-barred since the default had occurred more than three years before the filing of the petition. He also alleged that the overdraft facility was part of a fraudulent scheme orchestrated by PMC Bank’s former management in collusion with HDIL group companies, including PPIL. He further contended that certain loan and security documents executed between 2017–2018 were fabricated to revive a time-barred debt, and thus, the NCLT erred in admitting the insolvency petition based on those records.

Findings of the Tribunal

Rejecting these arguments, the NCLAT observed that the limitation period in the case did not begin from the original date of default in 2012, as the fraud was discovered much later, during the re-audit in 2019. The Bench noted: “We are inclined to agree with the arguments of the Financial Creditor that in view of Section 17 of the Limitation Act, 1963, the period of limitation ought not to run till the discovery of the date of default when the Administrator appointed an auditor to conduct re-audit and recasting of PMC Bank’s books of accounts which concluded on 27.12.2019.” The Tribunal emphasized that the fraud discovery date triggered the limitation period, and therefore, the Section 7 petition filed within one year thereafter was well within time. It further remarked: “The petition was filed within the one year of finding of fraud and therefore, not barred under Section 17 of the Limitation Act, 1963.”

Continuity of the Debtor–Creditor Relationship

Addressing the appellant’s claim that the overdraft facility granted in 2007 was distinct from the facilities recorded in 2017–2018, the NCLAT held that the documents and records clearly indicated continuity of the financial relationship between the corporate debtor and PMC Bank. The Bench observed: “The aforesaid documents indicate that the Corporate Debtor had acknowledged the subsisting relationship between the Corporate Debtor and PMC Bank of that being a debtor and creditor, and continued to maintain an overdraft account with PMC Bank under which it had continued to avail facility from PMC Bank.” Concluding that the overdraft facility was a continuing one, the Tribunal stated: “We cannot agree with the arguments of the Appellant that the OD facility of 2007 is different than 2017–2018 OD facility.”

The NCLAT ultimately held that the CIRP application was filed within limitation, as the fraud was discovered in December 2019 and the petition followed within a reasonable period. Accordingly, the appeal filed by Sarang Kumar Wadhawan was dismissed, and the NCLT’s order initiating insolvency proceedings against Privilege Power and Infrastructure Pvt. Ltd. was upheld.

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Wadhawan, who is also the promoter of HDIL and a key accused in the ₹6,000 crore PMC Bank fraud, has faced prolonged judicial scrutiny over the alleged diversion of funds through HDIL group entities. He was arrested in 2019 and spent over four years in judicial custody before being released on bail in 2024.

Appearance

For Appellant: Senior Advocate Menaka Guruswamy with advocates Disha Shah, Bhumika Yadav, Rohan Talwar and Avinash Mathew.

For Respondents: Advocate Gourav Mitra, Ranuka Iyer and Arpit Paul (for Bank) ; Advocate Dhananjaya Sud for Interim Resolution Professional

Cause Title: Sarang Kumar Wadhawan V. Unity Small Finance Bank Ltd. &Anr.

Case No: Company Appeal (AT) (Insolvency) No. 260 of 2023

Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member),Arun Baroka (Technical Member)