NCLAT New Delhi Holds, Written Acknowledgment Of Debt Extends Limitation Period For Insolvency Application
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), has reaffirmed that under Section 18 of the Limitation Act, a written acknowledgment of debt extends the limitation period for filing an application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The bench dismissed an appeal challenging the initiation of Corporate Insolvency Resolution Process (CIRP) against the corporate debtor and upheld the order passed by the National Company Law Tribunal (NCLT), New Delhi.
Background
The matter arose when M/s Bajrang Fire Protection, an operational creditor, filed an application under Section 9 of the IBC seeking initiation of CIRP against M/s GRJ Distributors & Developers Pvt. Ltd. (corporate debtor). The operational creditor had supplied and installed a Ventilation, Fire Alarm, and Fire Fighting System for the corporate debtor’s residential project “Avalon Rangoli” located at Dharuhera, Rewari. Despite completing the work, the corporate debtor failed to make full payment, prompting the creditor to serve a demand notice under Section 8. The corporate debtor neither replied nor cleared the outstanding dues. Subsequently, the NCLT admitted the application and initiated CIRP, limiting it to the said project.
The corporate debtor, through its director Ajay Singal, appealed before the NCLAT, primarily on the ground that the application was barred by limitation. It was contended that the last invoice was raised on 7 November 2017 and the last payment was made on 26 July 2017, while the application under Section 9 was filed only on 22 February 2024—beyond the prescribed three-year limitation period.
Contentions and Findings
In response, the operational creditor contended that the limitation period stood extended due to written acknowledgments of debt made by the corporate debtor through various letters dated 16 April 2018, 3 January 2019, and 22 December 2021. In each of these letters, the corporate debtor admitted the outstanding amounts and cited financial constraints and market slowdowns as reasons for the delay in payment. The creditor argued that these acknowledgments, made within the prescribed period, effectively reset the limitation under Section 18 of the Limitation Act.
The NCLAT accepted this contention, noting that acknowledgment of debt in writing is a well-established ground to extend the limitation period. The Tribunal pointed out that although the issue of limitation had not been raised before the NCLT, it could still be considered at the appellate stage, as it concerns the jurisdiction of the adjudicating authority.
The Tribunal further clarified that the operational creditor was justified in submitting the acknowledgment letters at the appellate stage, given that the limitation issue was raised for the first time in appeal. The genuineness of the letters was not disputed by the appellant. The NCLAT emphasized: “The issuance of these letters are not disputed before us… The last of the written acknowledgment in the form of letter is dated 22.12.2021. The application under Section 9 has been filed by the Operational Creditor on 22.02.2024, which is within three years of the last acknowledgment of debt. It is trite law that acknowledgment of debt in writing extends the limitation period per Section 18 of the Limitation Act.”
Verdict
Holding that the application under Section 9 was filed within the limitation period, the NCLAT dismissed the appeal. It upheld the NCLT’s decision admitting the corporate debtor into CIRP. The Tribunal also dismissed a connected appeal filed by flat buyers who had alleged that the insolvency proceedings were initiated in collusion to evade consumer forum orders. However, to safeguard the interests of these homebuyers, the Tribunal directed the Resolution Professional to consider their claims during the CIRP in accordance with law.
Appearance
For Appellant: Mr. Sandeep Bhuraria, Ms. Vaishnavi Prakash, Ms. Surbhi Bhuraria, Advocates.
For Respondent: Mr. Lokesh Bhola, Mr. Abhishek Singh Chauhan, Advocates for Applicant in IAs No. 4624 and 8487 of 2024. Mr. Atul Bhatia, Mr. Ranjan Chakraborti, Advocates for RP. Mr. Sameer Abhyankar, Mr. Ripul Swati, Mr. Krishna Rastogi, Advocates for R-2.
Cause Title: Ajay Singal v. Mr. Ranjan Chakraborti & Anr.
Case No: Company Appeal (AT) (Insolvency) No. 1285 and 1472 of 2024
Coram: Justice Yogesh Khanna [Member (Judicial)], Mr. Ajai Das Mehrotra [Member (Technical)]
[Read/Download order]
