Acknowledgments contained in the balance sheet extends the limitation period expounds NCLAT, Read Judgement

02 Dec 2023

The NCLAT, New Delhi Bench ruled that as per Section 18 of the Limitation Act, 1963 any acknowledgement marks the commencement of a fresh period of limitation for the creditor for making an enforceable claim seeking repayment of the debts due from the debtor. Thus, the three-year period for recovering debts under Limitation Act can be extended if the debtor acknowledges the debt within that period.

In the present case, the acknowledgments contained in the balance sheet extends the limitation period and hence it was opined that Section 7 application is well within the extended limitation period.

The Bench opined that merely because the notes to the account and the director’s report narrate the different stages of subsequent litigation with respect to the said unsecured loan, it cannot be said that these notes in any manner diminish the relevance and import of the debt which finds mention in the balance sheets for the purposes of Section 18 of the Limitation Act.

Brief Facts:

The present appeal has been filed against the order vide which the NCLT admitted the application under Section 7 of the IBC filed by Kotak Mahindra Bank Ltd-present Respondent No.1 and initiated Corporate Insolvency Resolution Process of the Corporate Debtor – M/s Gwalior Polypipes Ltd.

Brief Background:

SBI was the original lender to the Corporate Debtor. An Agreement of Hypothecation of Goods and Assets in favour of the Financial Creditor was executed by the Corporate Debtor.

The Corporate Debtor was declared NPA and thereafter, Assignment Agreement came to be executed by and between SBI and Kotak Mahindra Bank Ltd. and the Respondent No.1 (Financial Creditor).

The DRT passed an order directing the Corporate Debtor to pay and subsequently a demand notice by Kotak Bank was issued. Kotak Bank took symbolic possession of the mortgaged properties under Section 13(4) of the SARFAESI Act.

Thereafter, a Section 7 Application was filed and the same was admitted.

Hence, the present appeal.

Contentions of the Appellant:

It was contended that none of the securities were transferred from SBI to Kotak. It was argued that the Section 7 Application was filed after 18 years as the default arose on 09.07.2010 and hence, was barred by limitation.

Contentions of the Respondent:

It was argued that though the financial facility was extended by SBI originally, SBI had assigned the debts along with the underlying securities in favour of Kotak.

Further, it was argued that since the debt has been acknowledged in the balance sheet as outstanding dues till 2018, the application was within limitation period of 3 years.

Observations of the Tribunal:

It was observed that as per Section 18 of the Limitation Act, 1963 any acknowledgement marks the commencement of a fresh period of limitation for the creditor for making an enforceable claim seeking repayment of the debts due from the debtor. Thus, the three-year period for recovering debts under Limitation Act can be extended if the debtor acknowledges the debt within that period.

In the present case, the acknowledgments contained in the balance sheet extends the limitation period and hence it was opined that Section 7 application is well within the extended limitation period.

It was however clarified that OTS Proposal from the Corporate Debtor to Kotak cannot be relied upon for extension of time limit.

The decision of the Tribunal:

Based on the aforementioned reasons, the Bench accordingly dismissed the appeal.

Case Title: Mr. Sanil Prakash Sahu v. Kotak Mahindra Bank Limited

Case No.: Company Appeal (AT)(Insolvency) No. 1281 of 2023

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

Advocates for Appellant: Advs. Mr. Krishnendu Datta, Sr. Advocate with Mr. Rajat Sinha and Mr. Sanjeev Choudhary

Advocate for Respondent: Adv. Mr. Amit Mahaliyan