NCLAT Rules, Refund Of Security Amount Can't Be Considered As Acknowledgment Of Debt U/S 19 Of Limitation Act
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), has held that the refund of a security amount provided by an operational creditor for execution of a work contract cannot be treated as an acknowledgment of debt under Section 19 of the Limitation Act, 1963. The ruling came in an appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) by Protech Impex Pvt. Ltd., challenging an order passed by the National Company Law Tribunal (NCLT), Allahabad Bench, Prayagraj, which had dismissed the operational creditor’s Section 9 application as barred by limitation.
The operational creditor had executed several work orders issued by Uttar Pradesh Rajkiya Nirman Nigam Ltd. (UPRNNL) for carrying out construction projects between 2012 and 2016. The work completion certificate was issued on 15 January 2016, and the operational creditor claimed an outstanding amount of ₹3.65 crore, for which a demand notice was issued on 23 December 2019. A Section 9 application was subsequently filed on 20 February 2020 seeking initiation of the Corporate Insolvency Resolution Process (CIRP). The NCLT, however, dismissed the application, holding that it was filed beyond the prescribed three-year limitation period from the date of default, i.e., 15 January 2016.
Before the Appellate Tribunal, the appellant argued that the adjudicating authority had erred in treating the application as time-barred. It was contended that a payment of ₹10 lakh was made by the corporate debtor on 16 October 2017, which, according to the appellant, amounted to an acknowledgment of debt under Section 19 of the Limitation Act, thereby giving rise to a fresh period of limitation of three years from that date. The appellant further submitted that it was not seeking to change the date of default but merely to extend the limitation period by virtue of this payment.
The respondent, UPRNNL, refuted these submissions and argued that the payment referred to by the appellant did not pertain to the operational debt claimed in the Section 9 application but was merely a refund of the security amount deposited by the contractor. It was pointed out that no pleading for extension of limitation under Section 19 had been made in the Section 9 application and that the payment relied upon by the appellant did not constitute acknowledgment of the operational debt in question.
The Tribunal examined the provisions of Section 19 of the Limitation Act, 1963, which provides that when a payment is made towards a debt within the prescribed limitation period and acknowledged in writing by the debtor, a fresh period of limitation is computed from the date of such payment. Referring to the Supreme Court’s decision in Shanti Conductors Pvt. Ltd. v. Assam State Electricity Board & Ors. [(2020) 2 SCC 677], the NCLAT reiterated that two essential conditions must be satisfied to claim the benefit of Section 19: (i) payment must be made within the limitation period, and (ii) acknowledgment of such payment must appear in writing or be signed by the debtor.
The Bench observed that the Section 9 application contained no pleading asserting that limitation was extended under Section 19 or that any payment had been made toward the operational debt. It further noted that the payment shown in the corporate debtor’s ledger as made on 16 October 2017 was a refund of the security deposit furnished by the operational creditor and not a part-payment of the debt claimed. The Tribunal held that there was no acknowledgment in writing by the corporate debtor admitting any liability towards the operational debt, and therefore, the essential requirements under Section 19 were not fulfilled. It stated: “It is not the case of the appellant that any payment was received out of the bills raised for the work done. Refund of the security amount extended by the operational creditor for carrying out the work cannot be treated as an acknowledgment of debt.”
The NCLAT further observed that the operational creditor’s own pleadings contradicted the claim for acknowledgment since, in the Section 9 application, it had specifically stated that no payment had been received from the corporate debtor till date. The Bench noted that in the absence of any acknowledgment or payment towards the operational debt, the date of default remained 15 January 2016, and therefore, the application filed on 20 February 2020 was clearly barred by limitation.
Distinguishing the facts of the case from the precedent in Super Floorings Pvt. Ltd. v. Napin Impex Ltd., where the corporate debtor had made and acknowledged part payments in writing, the Tribunal held that no such acknowledgment existed here. In conclusion, the NCLAT upheld the NCLT’s finding that the application under Section 9 was time-barred and that the refund of security money could not revive the period of limitation under Section 19 of the Limitation Act. Accordingly, the appeal was dismissed.
Appearance
For Appellants: Mr. Sohaib Alam, Mr. Rajesh Ranjan & Mr. Anuj Sharma, Advocates.
For Respondent: Mr. Shivank Pratap Singh, Ms. Priya Singh, Mr. Samyak Jain and Mr. Sanandika Pratap Singh, Advocates.
Cause Title: Protech Impex Pvt. Ltd. & Anr. Versus Uttar Pradesh Rajkiya Nirman Nigam Ltd.
Case No: Company Appeal (AT) (Insolvency) No. 1054 of 2023
Coram: Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member)
