NCLAT Rules, Date Of Default Pleaded U/S 7 Of IBC Cannot Be Changed Automatically On Basis Of Arbitral Award Passed After Filing Application
Pranav B Prem
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has clarified that the date of default as mentioned in Part IV of a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC), cannot be automatically altered or extended on the basis of an arbitral award that is passed subsequent to the filing of the application. The three-member bench comprising Justice Ashok Bhushan (Chairperson), Mr. Arun Baroka and Mr. Barun Mitra (Technical Members), set aside the order of the Adjudicating Authority (NCLT Mumbai Bench-III), which had admitted the Section 7 application on the premise that the arbitral award constituted a fresh cause of action for limitation.
The appeal was filed by the suspended Director of Excel Arcade Pvt. Ltd. (the Corporate Debtor), challenging the NCLT's order dated 27.02.2025 admitting a Section 7 application filed by Unity Small Finance Bank Ltd. (Respondent No.1/Financial Creditor). The background of the case revealed that Excel Arcade had obtained a credit facility from Punjab & Maharashtra Cooperative Bank, which subsequently merged with Unity Small Finance Bank. Following default in loan repayments, the account was classified as a Non-Performing Asset (NPA) on 12.02.2019. Notices demanding repayment were issued on 07.10.2019, 24.06.2020, and 28.01.2021, followed by arbitration proceedings which culminated in an award dated 28.04.2022 in favour of the Financial Creditor for ₹106 crore along with interest.
Subsequently, the Financial Creditor filed a Section 7 application before the NCLT on 10.11.2023, wherein the date of default was stated as 12.11.2018 in Part IV of Form-1. The application also referred to the arbitral award in a narrative manner under paras (g) and (h), but without pleading it as a new or revised date of default. Despite this, the Adjudicating Authority relied upon the arbitral award to hold that it gave rise to a fresh cause of action and extended the limitation accordingly, admitting the petition and initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.
The Appellant contended that the Section 7 application was clearly barred by limitation. It was pointed out that the default date of 12.11.2018 remained unamended and taking into account the exclusion granted by the Supreme Court in Suo Moto Writ Petition (C) No. 03 of 2020, the limitation expired on 28.10.2023. As the petition was filed on 08.11.2023, it was beyond the prescribed three-year period. The Appellant stressed that the limitation cannot be extended merely by referring to an arbitral award unless the same is pleaded as the basis of default through a formal amendment.
The Tribunal noted that the Financial Creditor had failed to seek any amendment in the date of default despite relying on the arbitral award to justify a fresh cause of action. It observed that even though the arbitral award was annexed and mentioned in the factual narrative, it was not indicated as the new default date in the relevant column of Part IV. It held that a mere reference to the award, without a formal amendment, cannot allow the Financial Creditor to reset the clock of limitation.
The NCLAT further scrutinized how the Adjudicating Authority treated the date of default. It was found that the NCLT had acknowledged the default date as 12.11.2018, yet proceeded to extend the limitation by treating the arbitral award dated 28.04.2022 as creating a new cause of action. The Tribunal found this approach to be contrary to the legal position laid down by the Supreme Court in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal [(2021) 6 SCC 366], where the Apex Court had categorically held that unless an acknowledgment or a fresh cause of action is specifically pleaded in the application, it cannot be used to extend limitation. In that judgment, the Supreme Court allowed the applicant to amend its pleadings to incorporate such acknowledgment but did not permit the change based on oral submissions alone.
The NCLAT also noted that while Dena Bank v. C. Shivakumar Reddy [2021 SCC Online SC 543] permits the initiation of a fresh CIRP within three years from the date of a decree, judgment, or arbitral award, such extension is contingent on the creditor pleading the award as a new default. In the present case, this was not done. The Tribunal made a clear distinction between the present case and Vidyasagar Prasad v. UCO Bank [Civil Appeal No. 1031 of 2022], where the Supreme Court accepted a balance sheet as acknowledgment of debt even though it wasn’t pleaded in the Form-1 application. The Tribunal held that a balance sheet, being a public document and acknowledgment by the debtor itself, stood on a different footing from an arbitral award obtained unilaterally by the creditor.
It further clarified that once the Section 7 application is filed, the date of default mentioned in Part IV becomes binding and any change to it must follow due process. The Tribunal found merit in the Appellant’s argument that ‘continuing default’ is not a recognized concept under the IBC and that each default must be considered independently for limitation purposes.
In light of these findings, the NCLAT concluded that the Adjudicating Authority erred in extending the limitation period without a formal amendment being sought by the Financial Creditor. Accordingly, it set aside the impugned order and allowed the appeal. However, the Tribunal granted liberty to the Financial Creditor to amend its pleadings to reflect the arbitral award as the new basis of default within a period of four weeks, after which the Adjudicating Authority may reconsider the matter afresh based on the amended application, if any.
Appearance
For Appellant: Mr. Abhijeet Sinha, Sr. Advocate with Ms. Neha Nagpal, Ms. Malak Bhatt, Ms. Disha Shah and Mr. Kailash Ram, Advocates.
For Respondent: Ms. Varsha Banerjee, Mr. Aishwarya Nabh, Advocates for R-1.
Cause Title: Deepak Mahadev Shirke V. Unity Small Finance Bank Limited & Anr.
Case No: Company Appeal (AT) (Insolvency) No. 490 of 2025
Coram: Justice Ashok Bhushan [Chairperson] , Mr. Arun Baroka [Member (Technical)], Mr. Barun Mitra [Member (Technical)]
[Read/Download order]
