NCLAT upholds validity of insolvency claim: 'Acknowledgment of Payment' in reply to demand notice validates timely filing of claims, Read Judgment

In a recent judgment, the NCLAT addressed the issue of whether an Operational Creditor’s claim was time-barred under the Limitation Act, highlighting the importance of payment acknowledgment in determining the limitation period for filing claims.

The judgment revolves around the interpretation of Section 19 of the Limitation Act, which allows the limitation period to be extended if certain conditions are met after a payment is made. The case involved a dispute over whether the claims of an Operational Creditor were time-barred, with the Corporate Debtor arguing that the claim was overdue according to the Limitation Act.

The Appellant argued that the Adjudicating Authority wrongly held the Section 9 application was not time-barred. The claim, based on invoices from January to August 2018, was due within 3 days. The Appellant contends that the last payment on 26.08.2019 cannot extend the limitation period, as there was no running account and the payment didn’t meet the conditions of Section 19 of the Limitation Act. The claim is subject to Article 137 of the Limitation Act, where the last payment is irrelevant. The Appellant relies on the Supreme Court’s judgment in Shanti Conductors Pvt. Ltd. and four Tribunal decisions.

Contentions of the Respondent:

The Respondent contended that the limitation period began on 26.08.2019, when the last payment was made by the Corporate Debtor. The Respondent argued that this payment, along with the acknowledgment in the Corporate Debtor's reply to the demand notice dated 28.09.2022, satisfies both conditions under Section 19 of the Limitation Act. The bank transfer, made on the Corporate Debtor's instructions, is also considered an acknowledgment of debt. Additionally, the Respondent asserted that the Section 9 application, filed on 29.11.2023, is within the valid time frame, considering the Supreme Court's suo motu order, which extended the limitation period until 13.08.2024.

The Tribunal observed that invoices were raised by the Operational Creditor from January to August 2018, with payments made over time, and the last payment was received on 26.08.2019. The main issue was whether the Operational Creditor was entitled to the benefit of Section 19 of the Limitation Act to extend the limitation period from the date of the last payment. The Adjudicating Authority had noted that the petition was time-barred under Article 137 of the Limitation Act, as the invoices were issued between January and August 2018, and the petition was filed in January 2024, well after the limitation period expired in July 2023.

The NCLAT referred to the judgment in In Style Fashion where the NCLAT held that the limitation period starts afresh from the date of the last payment, and cited the Supreme Court’s decision in M.A. No. 21 of 2022, which clarified the exclusion of the period from 15.03.2020 to 28.02.2022 from the limitation calculation. This exclusion led to the extended expiration date of 10.08.2024 for filing claims.

The Tribunal then reviewed the requirements of Section 19 of the Limitation Act, which provides that a fresh limitation period begins when a payment is made, provided two conditions are met: (i) the payment is made within the prescribed limitation period, and (ii) the payment is acknowledged in writing. The Court noted that "the factum of last payment on 26.08.2019 is admitted" by the Corporate Debtor. The Court further discussed the case law, such as Shanti Conductors and Sant Lal Mahton, emphasizing the need for a written acknowledgment of payment.

The Tribunal concluded that the first condition was satisfied as the last payment was made within the three-year period, and the second condition was met as the acknowledgment of payment was reflected in the Corporate Debtor's reply to the demand notice. The Court emphasized that the acknowledgment was valid under Section 19, despite being made after the payment. Therefore, the Operational Creditor was entitled to the extension of the limitation period under Section 19 of the Limitation Act.

The Tribunal dismissed the appeal, holding that the claims of the Operational Creditor were not time-barred due to the acknowledgment of payment and the last payment made within the limitation period. The Court found no error in the Adjudicating Authority's decision rejecting the Corporate Debtor's objection regarding limitation. With the last payment made on 26.08.2019, the application under Section 9 was within the prescribed time frame, and thus, the appeal was dismissed for lack of merit.