Pranav B Prem

The National Company Law Tribunal, New Delhi, has admitted Central Bank of India’s insolvency petition against JS Designer Limited after holding that the company’s written one-time settlement (OTS) proposals constituted a fresh and enforceable promise to pay a time-barred debt under Section 25(3) of the Indian Contract Act. The Bench of Justice Jyotsna Sharma (Judicial Member) and Anu Jagmohan Singh (Technical Member) ruled that although the corporate debtor had remained in default since 2017, its later OTS offers in March and May 2024 revived the limitation period and brought the petition within time.

Also Read: Insolvency Process Can Be Withdrawn After Admission but Before CoC Formation, NCLT Chennai Reaffirms

JS Designer availed working capital credit facilities under a consortium arrangement led by Punjab National Bank, along with Oriental Bank of Commerce and Central Bank of India. The company executed a Working Capital Consortium Agreement and a Joint Deed of Hypothecation on 17 January 2012, creating a pari passu first charge over its current assets. Default occurred on 30 December 2017 and the loan account was classified as a non-performing asset (NPA) on 30 March 2018. The lenders commenced DRT proceedings in 2019, which culminated in a final order dated 2 April 2025 directing repayment.

The present CIRP application under Section 7 of the Insolvency and Bankruptcy Code was filed on 13 May 2024. Even after excluding the COVID-19 suspension period, the limitation for initiating CIRP expired on 6 February 2024. To overcome the bar of limitation, the bank relied on the debtor’s two written OTS proposals dated 2 March 2024 and 1 May 2024 addressed to the lead bank. The Tribunal accepted the argument that these written proposals contained an unequivocal admission of liability and a promise to discharge a time-barred debt, thereby constituting a fresh statutory contract under Section 25(3) of the Contract Act.

Also Read: NCLT Kochi: Insolvency Cannot Be Initiated Against Corporate Guarantor Under Section 7 Without Prior Invocation of Guarantee

Referring to the principles laid down by the Supreme Court in Innoventive Industries Ltd. v. ICICI Bank, the Bench reiterated that once the Adjudicating Authority is satisfied that default has occurred, it has no discretion to refuse admission of a Section 7 application. The Tribunal held that Central Bank of India had furnished sufficient documentary material, including financing documents, hypothecation deeds, consortium agreements, OTS letters, and the DRT order, establishing both the existence of financial debt and default. The Tribunal further recorded that despite service through publication and multiple opportunities, JS Designer neither appeared nor filed any reply.

Also Read: NCLT Ahmedabad Rules, Bank's Adjustments From Share and Dividend Accounts During CIRP Are Void, Refundable With Interest

The NCLT also observed that the debtor’s OTS letters were “a promise made in writing to pay the debt which was time-barred”, and therefore “shall be deemed a contract” under Section 25(3), giving the petitioner a fresh limitation period. It clarified that the bank’s reliance on the OTS proposals and the DRT order satisfactorily answered the issue of limitation.  In conclusion, the Tribunal admitted the CIRP application, imposed moratorium under Section 14 of the IBC, and appointed Sanjay Aggarwal as the Interim Resolution Professional to manage the affairs of the corporate debtor and conduct the CIRP process.

Appearance

For Financial Creditor: B.K. Mishra, Ambuj Maurya, Tushar Mishra, Advocates

For Corporate Debtor: None

Cause Title: Central Bank of India vs. JS Designer Limited

Case No: CP (IBC) No. 510/ND/2024

Coram: Justice Jyotsna Sharma (Judicial Member), Anu Jagmohan Singh (Technical Member)