Interplay of IB Code with Law on Limitation – The Consistent “Inconsistency” – Part III

Recapitulation

The present column post will conclude the 3-part series on the law of limitation and its interplay with the Insolvency and Bankruptcy Code, 2016 (IB Code).

 

In the first part of the column, we had discussed the initial issues in the interplay of IB Code with the law on limitation and how they were resolved by the insertion of Section 238-A to the IB Code and the Supreme Court rulings in B.K. Educational Services[1] and Vashdeo R. Bhojwani v. Abhyudaya Cooperative Bank Ltd.[2] We also discussed the recent ruling of the Supreme Court in Sesh Nath Singh v. Baidyabati Sheoraphuli Cooperative Bank Ltd.[3] which provided some respite as far as Section 14 of the Limitation Act is concerned and how a creditor can use that provision to seek extension of limitation period.

 

In the second part of the column, we discussed the applicability of Section 18 of the Limitation Act to the applications seeking initiation of resolution process under the IB Code. The missed opportunities of Babulal Vardharji[4] now stand settled conclusively by the rulings in Laxmi Pat[5]. Similarly, the limitation issues concerning the acknowledgment of debt for the purposes of Section 18 of the Limitation Act by virtue of entries in balance sheets of a company was settled by the Supreme Court in Asset Reconstruction Co.[6] ruling.

 

In this third part, we will discuss the issue of the effect of Section 19 of the Limitation Act, 1963 which stipulates the “effect of payment on account of debt or of interest on legacy” on an application seeking initiation of resolution process under the IB Code.

 

Brief on Section 19 of the Limitation Act, 1963

 

  1. Effect of payment on account of debt or of interest on legacy.—Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made:

Provided that, save in the case of payment of interest made before the 1st day of January, 1928, an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment.

 

To attract the application of Section 19, two conditions are essential (i) the payment must be made within the prescribed period of limitation; and (ii) it must be acknowledged by some form of writing, either in the handwriting of the payee himself or signed by him.

 

Applicability of Section 19 of the Limitation Act, 1963 to IB Code

The National Company Law Appellate Tribunal (NCLAT) has been confronted on several occasions where partial payment of the debt or payment of interest has been made by the debtor on account of the debt.

 

For instance in Neha Himatsingka v. Himatsingka Resorts (P) Ltd.[7] the argument that the debt in question was time barred was rejected. The NCLAT noted that as per the record the corporate debtor had paid interest even after the year 2016-2017 and also issued cheques in the year 2018; therefore, the argument that the claim is time barred was rejected.

 

Similarly in T. Johnson[8], the creditor relied upon (1) the revival letter dated 20-2-2016; (2) balance confirmation letter dated 22-2-2016 by the corporate debtor; and (3) the factum of last payment having been made on 14-11-2017 to establish that its claim is not time barred.

 

The NCLAT noting that apart from the above, there is an admission on the part of the corporate debtor on the basis of the written submissions of the appellant before the National Company Law Tribunal (NCLT) and the fact that the appellant debtor is merely disputing the correctness of the quantum of balance claimed by the financial creditor rejected the argument that the claim is time barred.[9]

 

As we have seen in the previous columns, in the rulings of Laxmi Pat[10], Sesh Nath[11] and Asset Reconstruction Co.[12] the Supreme Court has settled that the phrase “the provisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable” in Section 238-A of the IB Code means that all the relevant provisions of the Limitation Act can be invoked while filing an application under the IB Code. The same in those cases meant that Sections 5, 14 and 18 of the Limitation Act were invoked to extend limitation period.

 

Now the recent ruling of the NCLAT ruling in Rajendra Narottamdas Sheth v. Chandra Prakash Jain,[13] provides us with a more useful reference point to understand the interplay between Section 19 of the Limitation Act, 1963 with the IB Code.

 

In Rajendra Narottamdas[14], the account of the debtor was declared as a non-performing asset (NPA) on 30-9-2014 and the financial creditor filed an application seeking initiation of corporate insolvency resolution process (CIRP) against the debtor on 25-4-2019.[15] The debtor claimed that the application is time barred as it was beyond the three-year limitation period that commenced on the date of the NPA.[16] The financial creditor argued that the limitation period got extended on account of Section 18 of the Limitation Act by relying on the documents showing acknowledgments of debt by the corporate debtor in writing. The creditor also placed reliance on the statements of accounts showing various instalments paid on account of debt and interest, even after the declaration of NPA to invoke the application of Section 19 of the Limitation Act.[17]

 

The NCLAT referred to the following undisputed facts where: (a) the corporate debtor had issued balance confirmation letter dated 7-4-2016 and acknowledged the debt; (b) the account statements showed regular credit entries after 7-4-2016 till May 2018; and (c) the corporate debtor issued a letter dated 17-11-2018 giving details of amounts repaid till 30-9-2018 and acknowledging amount outstanding in respective accounts as on that date.

 

On the basis of these facts, the NCLAT held that the benefit of Sections 18 and 19 were attracted and the application by the creditor was not time barred.[18]

 

Conclusion

 

If the reasoning in Sesh Nath[19], Laxmi Pat[20] and Asset Reconstruction Co.[21] is to be accepted that the “provisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable”[22], then clearly Section 19 of the Limitation Act can be used to extend limitation period. To that effect, the ruling of the NCLAT in Rajendra Narottamdas[23] shows the way ahead for the application of Section 19 of the Limitation Act to the IB Code.


± Akaant Kumar Mittal is an advocate at the Constitutional Courts, and National Company Law Tribunal, Delhi and Chandigarh. He is also a visiting lecturer at the NUJS, Kolkata and the author of the commentary Insolvency and Bankruptcy Code – Law and Practice.

The author gratefully acknowledges the research and assistance of Sh. Abhishek Jain, 3rd Year, B.A.LLB. (Hons.), Student at National University of Juridical Sciences, Kolkata, in writing this article.

 

[1] B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528.

[2] (2019) 9 SCC 158 : (2019) 4 SCC (Civ) 308.

[3] 2021 SCC OnLine SC 244.

[4]Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 : 2020 SCC OnLine SC 647.

[5] Laxmi Pat Surana v. Union Bank of India, 2021 SCC OnLine SC 267.

[6] Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, 2021 SCC OnLine SC 321.

[7] 2018 SCC OnLine NCLAT 784.

[8] T. Johnson v. Phoenix ARC (P) Ltd., 2019 SCC OnLine NCLAT 244.

[9] Id., para 6.

[10] 2021 SCC OnLine SC 267.

[11] 2021 SCC OnLine SC 244.

[12] 2021 SCC OnLine SC 321.

[13] 2020 SCC OnLine NCLAT 827.

[14] Id.

[15] Id, para 3.

[16] Id, para 4.

[17] Id, para 8.

[18] Id, paras 24-27.

[19] 2021 SCC OnLine SC 244.

[20] 2021 SCC OnLine SC 267.

[21] 2021 SCC OnLine SC 321.

[22] Laxmi Pat Surana, 2021 SCC OnLine SC 267, para 41.

[23] 2020 SCC OnLine NCLAT 827.

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