Pranav B Prem

The National Company Law Tribunal (NCLT), Indore Bench, has ruled that a One-Time Settlement (OTS) proposal submitted after the expiry of the limitation period cannot revive or extend limitation under Section 18 of the Limitation Act, 1963. The Bench comprising Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta observed that an acknowledgment of debt made beyond the prescribed limitation period cannot give rise to a fresh limitation period, and consequently, such a claim would be time-barred.“If a party makes an acknowledgment in terms of Section 18 beyond the period of limitation, then such a case would not be covered by Section 18, and the debt would be time-barred,” the Tribunal held.

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Background

The case arose out of a personal insolvency application filed by the Small Industries Development Bank of India (SIDBI) under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), against Krishnakant Bagree, who had executed a personal guarantee for the credit facilities sanctioned to Bagree Alloys Limited. SIDBI had extended credit facilities of ₹4.40 crore to the corporate debtor. The account was classified as a Non-Performing Asset (NPA) on June 8, 2013, after continued defaults in repayment. The personal guarantee was formally invoked on August 25, 2015, and a demand notice under the SARFAESI Act was also issued to the guarantor.

SIDBI later issued a demand notice under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, on August 20, 2022, followed by the present Section 95 application in August 2023. To overcome the issue of limitation, SIDBI relied on a One-Time Settlement (OTS) proposal dated June 16, 2023, submitted by the corporate debtor, which allegedly acknowledged the debt.

Contentions

The applicant (SIDBI) argued that the OTS proposal constituted an acknowledgment of debt and, therefore, extended the limitation period in terms of Section 18 of the Limitation Act. It was contended that the claim of ₹13.55 crore remained outstanding and that the acknowledgment revived SIDBI’s right to pursue recovery and insolvency proceedings against the personal guarantor.

Conversely, the respondent (Krishnakant Bagree), represented by Advocate G. Adhin, contended that the application was hopelessly barred by limitation, having been filed eight years after the invocation of the guarantee. It was further submitted that the OTS proposal was obtained coercively and was neither accepted nor acted upon by the creditor. The respondent pointed out that SIDBI’s earlier Section 7 IBC application against the corporate debtor had already been dismissed as time-barred on June 4, 2025, and therefore, the present proceedings were not maintainable. It was also argued that since the corporate guarantee was invoked on August 25, 2015, the limitation period of three years under Article 137 of the Limitation Act expired in August 2018, and no valid acknowledgment was made within that period to revive the claim.

Tribunal’s Observations

The NCLT examined the provisions of Article 137 of the Limitation Act and reaffirmed that the limitation for filing an insolvency application under the IBC begins from the date of default and is restricted to three years. Referring to the Supreme Court’s decision in B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates (2019) 11 SCC 633, the Bench reiterated that Article 137 governs limitation in insolvency matters. It noted that in the present case, the guarantee was invoked in 2015, and therefore, the three-year limitation period expired in 2018. The application filed in 2023 was clearly beyond that period.

SIDBI’s reliance on the OTS proposal was rejected. The Bench observed that an acknowledgment of debt must be made within the subsisting limitation period to extend the limitation under Section 18, and any acknowledgment made after expiry has no legal effect. Citing the Supreme Court’s rulings in Jignesh Shah v. Union of India (2019) 10 SCC 750 and Dena Bank v. C. Shivakumar Reddy (2021) 10 SCC 330, the Tribunal clarified that while a settlement proposal made within limitation could constitute valid acknowledgment, one made after limitation has expired cannot revive a dead claim. The Bench also relied on the Madras High Court’s decision in Sri Kapaleswarar Temple v. T. Tirunavukarasu (AIR 1975 Madras 164) and the Supreme Court’s ruling in Sampuran Singh v. Niranjan Kaur (1999) 2 SCC 679, both of which held that acknowledgment must be made before the expiry of limitation to give a fresh lease of life to a debt. “Section 18 categorically clarifies that it only extends the period of limitation provided the acknowledgment is made within the already subsisting period of limitation. If a party makes an acknowledgment beyond the period of limitation, such a case would not be covered by Section 18, and the debt would be time-barred,” the Tribunal emphasized.

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Decision

Holding that the OTS proposal dated June 16, 2023, was made almost seven years after the expiry of the limitation period, the NCLT concluded that the debt was hopelessly time-barred and that the OTS could not extend or revive limitation. The Bench observed: “The said proposal was made approximately seven years after the date of invocation of guarantee, i.e., 25.08.2015. Thus, it falls beyond the prescribed statutory period of limitation. The loan in question is hopelessly time-barred, and the contention of the applicant on this ground is untenable.” Accordingly, the Tribunal dismissed the application filed by SIDBI as barred by limitation.

Appearance

For Applicant: Ms. Bharti Nawlani, Adv.

For PG: Mr. G. Adhin, Adv

Cause Title: Small Industries Development Bank of India through RP Megha Jain v. Krishnakant Bagree (Personal Guarantor of M/s Bagree Alloys Ltd.)

Case No: CP(IB) N0. 62/MP/IND/2023

Coram: Judicial Member Brajendra Mani Tripathi, Technical Member Man Mohan Gupta