KOTAK MAHINDRA BANK LIMITED versus KEW PRECISION PARTS PRIVATE LIMITED & ORS. on 5 August 2022

SUPREME COURT REPORTS

[2022] 19 S.C.R.

AKOTAK MAHINDRA BANK LIMITED

v.

KEW PRECISION PARTS PRIVATE LIMITED & ORS.

(Civil Appeal No. 2176 of 2020)

B

AUGUST 05, 2022

[INDIRA BANERJEE AND J. K MAHESHWARI, JJ.]

Insolvency and Bankruptcy Code, 2016 – ss. 7, 8, 9, 14, 238A– The Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act 2002 – s. 13 (2) – LimitationCAct 1963 – Schedule – Art.137 and ss. 5, 18 – Appellant sanctionedloan/credit facilities to Respondent and necessary documents wereexecuted between them on 29.11.2012 – Between 23.11.2012 and31.12.2013, loan amounts were disbursed – Respondent mortgagedits assets in favour of the Appellant by memorandum datedD13.12.2013 – Respondent defaulted in repaying the dues, hencedeclared NPA by the Appellant on 30.09.2015 – On 19.11.2017,Appellant issued statutory notice u/s. 13(2) of the Securitisationand Reconstruction of Financial Assets and Enforcement of SecurityInterest Act 2002 – Respondent admitted its liability to the Appellantand offered a one-time settlement at two instances – On 20.12.2018Esettlement was signed and executed – Respondent defaulted inrepayment of settled amount – On 2.01.2019, Appellant filed anapplication u/s. 7 of the IBC for initiating Corporate InsolvencyResolution Process (CIRP) before NCLT – Admitting the application,NCLT imposed a moratorium in terms of s. 14 of the Insolvency andFBankruptcy Code (IBC) – The suspended Directors of theRespondent filed an appeal before NCLAT contending that thepetition filed by the Appellant was patently barred by limitation –NCLAT allowing the appeal held that the time when debt of non-payment of due took place and that of the date of filing applicationu/ s. 7 is beyond limitation – Aggrieved, the appellant filed appealGu/s. 62 of IBC, 2016 — Held: NCLAT did not consider the questionof applicability of Section 5 of the Limitation Act for condonationof delay, to proceedings under Section 7 of the IBC – If no limitationperiod is provided anywhere else in the Schedule to the LimitationAct, Article 137 of the Schedule of the Act would be attracted whichHprovides that the period of limitation prescribed for such an KOTAK MAHINDRA BANK LIMITED v. KEW PRECISIONPARTS PRIVATE LIMITED & ORS.

application is three years from the date of accrual of the right toapply – CIRP proceedings were closed without giving the Appellantthe opportunity to explain if there was sufficient cause for the delayin approaching the NCLT – An appeal being the continuation oforiginal proceedings, the provision of Section 7(5)(b) of the IBC ofnotifying the Financial Creditor before rejection of a claim, wouldbe attracted and the Appellant might have got the opportunity torectify the defects in its application under Section 7 by filingadditional pleadings and/or documents – Hence, the impugnedjudgment and order of the NCLAT is set aside to the extent that theCIRP proceedings have been closed.

Allowing the appeal, the Court

HELD:

1.1 It is the case of the Appellant Financial Creditor thaton 12th December 2018 the Corporate Debtor made an offer ofone- time settlement at Rs.15 Crores. This offer was not accepted.On 19th December 2018, the Corporate Debtor revised its offerto Rs.20 Crores for one time settlement. This offer was also notaccepted. On 20th December 2018, the Corporate Debtor againrevised its offer for one time settlement. This time the CorporateDebtor offered to settle the outstanding dues of the FinancialCreditor upon payment of Rs. 24,55,00,000/- to be paid within31st December 2018. This offer was accepted, and terms ofsettlement were signed. [Para 27][226-D-F]

1.2 From Section 25 of the Indian Contract Act, it is clearthat any agreement to pay a time barred debt, would beenforceable in law, within three years from the due date ofpayment, in terms of such agreement. It appears that Section25(3) of the Indian Contract Act was not brought to the notice ofthe NCLAT. The NCLAT also did not consider the aforesaidSection. [Para 29][228-B]

1.3 Section 25(3) applies only where the debt is one whichwould be enforceable against the Defendants, but for the law oflimitation. Where a debt is not binding on the Defendant for otherreasons, and consequentially not enforceable against him, thereis no question of applicability of Section 25(3). [Para 32][228-F-G]

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A1.4 There is a distinction between acknowledgment underSection 18 of the Limitation Act, 1963 and a promise within themeaning of Section 25 of the Contract Act. Both promise andacknowledgment in writing, signed by a party or its agentauthorised in that behalf, have the effect of creating a fresh startingof limitation. The difference is that an acknowledgment underBSection 18 of the Limitation Act has to be made within the periodof limitation and need not be accompanied by any promise to pay.If an acknowledgment shows existence of jural relationship, itmay extend limitation even though there may be a denial to pay.On the other hand, Section 25(3) is only attracted when there isCan express promise to pay a debt that is time barred or any partthereof. Promise to pay can be inferred on scrutinising thedocument. Only the promise should be clear and unconditional.[Para 33][228-G-H; 229-A-B]

1.5 The scheme of the IBC is to ensure that when a defaultDtakes place, in the sense that a debt becomes due and is notpaid, the Corporate Insolvency Resolution Process begins.Where any corporate debtor commits default, a financial creditor,an operational creditor or the corporate debtor itself may initiateCorporate Insolvency Resolution Process in respect of suchcorporate debtor in the manner as provided in Chapter II of theEIBC. 35. [Para 34][229-C]

1.6 The provisions of the IBC are designed to ensure thatthe business and/or commercial activities of the Corporate Debtorare continued by a Resolution Professional, post imposition of amoratorium, which would give the Corporate Debtor someFreprieve from coercive litigation, which could drain the CorporateDebtor of its financial resources. This is to enable the CorporateDebtor to improve its financial health and at the same time repaythe dues of its creditors [Para 35][229-D-E]

1.7 IBC has overriding effect over other laws. Section 238Gof the IBC provides that the provisions of the IBC shall haveeffect, notwithstanding anything inconsistent therewith containedin any other law, for the time being in force, or any otherinstrument, having effect by virtue of any such law. [Para 44][232-G-H; 233-A]H

1.8 The IBC is a beneficial legislation for equal treatmentof all creditors of the Corporate Debtor, as also the protection ofthe livelihoods of its employees/workers, by revival of theCorporate Debtor through the entrepreneurial skills of personsother than those in its management, who failed to clear the duesof the Corporate Debtor to its creditors. It only segregates theinterests of the Corporate Debtor from those of its promoters/persons in management. [Para 46][233-B-C]

1.9 There is no specific period of limitation prescribed inthe Limitation Act, 1963, for an application under the IBC, beforethe Adjudicating Authority (NCLT). An application for which noperiod of limitation is provided anywhere else in the Schedule tothe Limitation Act, is governed by Article 137 of the Schedule tothe said Act. Under Article 137 of the Schedule to the LimitationAct, the period of limitation prescribed for such an application isthree years from the date of accrual of the right to apply. [Para55][236-B-C]

1.10 As per Section 18 of Limitation Act, anacknowledgement of present subsisting liability, made in writingin respect of any right claimed by the opposite party and signedby the party against whom the right is claimed, has the effect ofcommencing a fresh period of limitation from the date on whichthe acknowledgement is signed. Such acknowledgement neednot be accompanied by a promise to pay expressly or even byimplication. However, the acknowledgement must be made beforethe relevant period of limitation has expired. [Para 62][238-B-C]

1.11 An acknowledgement made in writing within the periodof limitation extends the period of limitation. In this case, therewas no acknowledgement of debt within three years from theperiod on which the account of the Corporate Debtor was declaredNPA or within three years from the date on which the loan facilitieswere recalled. [Para 66][240-B]

1.12 The Appellate Tribunal (NCLAT) found that there wasno acknowledgement of debt within the period of limitation of A

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Athree years. Holding the application of the Appellant FinancialCreditor, under Section 7 of the IBC, to be barred by limitation,the Appellate Authority (NCLAT) allowed the appeal. [Para68][240-E-F]

1.13 The Appellate Tribunal (NCLAT) also did not noticeBthe terms of settlement stated to have been executed on 20thDecember 2018, possibly because the attention of the NCLATwas not drawn to any terms of the settlement. The AppellateTribunal (NCLAT) did not, therefore, have the occasion toconsider whether Section 25(3) of the Contract Act would beattracted. The Appellate Tribunal (NCLAT), as observed above,Cproceeded on the basis that the CIRP proceedings were barredby limitation in the absence of any acknowledgement of debt withinthe period of limitation, and closed the CIRP proceedings in theNCLT, without considering the question of applicability of Section5 of the Limitation Act for condonation of delay, to proceedingsDunder Section 7 of the IBC. [Para 69][240-F-H]

1.14 The appeal is, therefore, allowed. The impugnedjudgment and order of the NCLAT is set aside to the extent thatthe CIRP proceedings have been closed. The AdjudicatingAuthority shall consider the application for CIRP afresh, inEaccordance with law, in the light of the observations made above,after giving the Appellant and the Respondent opportunity to fileadditional affidavits disclosing documents/additional affidavit inresponse. [Para 71][241-C-D]

Bombay Dyeing and Manufacturing Company Limited vs.FState of Bombay AIR 1958 SC 328 : [1958] SCR 1122;Swiss Ribbons Private Limited & Anr. v. Union of Indiaand Ors (2019) 4 SCC 17 : [2019] 3 SCR 535; PopatlalShah v. State of Madras AIR 1953 SC 274 : [1953]SCR 677; Dena Bank (Now Bank of Baroda) v. C.Shivakumar Reddy and Another (2021) 10 SCC 330;GB.K. Educational Services (P) Ltd. v. Parag Gupta &Associates (2019) 11 SCC 633 : [2018] 12 SCR 794;Sesh Nath Singh & Anr. Vs. Baidyabati SheoraphuliCooperative Bank Ltd (2021) 7 SCC 313; Gaurav KOTAK MAHINDRA BANK LIMITED v. KEW PRECISIONPARTS PRIVATE LIMITED & ORS.

Hargovindbhai Dave v. Asset Reconstruction Company(India) Ltd (2019) 10 SCC 572 : [2019] 13 SCR 224;Jignesh Shah v. Union of India (2019) 10 SCC 750 :[2019] 12 SCR 678; Balakrishna Savalram PujariWaghmare v. Shree Dhyaneshwar Maharaj SansthanAIR 1959 SC 798 : [1959] Suppl. SCR 476; BabulalVardharji Gurjar v. Veer Gurjar Aluminium Industries(P) Ltd (2020) 15 SCC 1; Khan Bahadur ShapoorFredoom Mazda v. Durga Prasad Chamaria and OthersAIR 1961 SC 1236 : [1962] SCR 140; AssetReconstruction Company (India) Limited v.BishalJaiswal and Anr AIR 2021 SC 5249; Bengal SilkMills Co. v. Ismail Golam Hossain Arif AIR 1962 Cal115; Re Pandem Tea Co AIR 1974 Cal 170; South AsiaIndustries (P) Ltd. v. General Krishna Shamsher JungBahadur Rana ILR (1972) 2 Del 712; Hegde GolayLtd. v. State Bank of India ILR 1987 Kar 2673 – referredto.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2176of 2020.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2176of 2020.

From the Judgment and Order dated 08.01.2020 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)Insolvency No. 1349 of 2019.

Rana Mukherjee, Sr. Adv. Aravindh S., Mahip Datta, Advs. forthe Appellant.

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AMohit Chaudhary, Ms. Puja Sharma, Kunal Sachdeva, BalwinderSingh Suri, Chowdhary Zulfkar Ali, Ms. Garima Sharma, Ms. MahimaAhuja, Paras Mithal, Parveen Kumar, Advs. for the Respondents.

The Judgment of the Court was delivered by INDIRA BANERJEE, J.B

This appeal filed by the Appellant Financial Creditor, KotakMahindra Bank Limited under Section 62 of the Insolvency andBankruptcy Code, 2016, hereinafter referred to as the ‘IBC’, is againstthe judgment and order dated 8[th] January, 2020 of the National CompanyLaw Appellate Tribunal, New Delhi (NCLAT) allowing Company AppealC(AT) Insolvency No. 1349 of 2019 filed by the Respondent-CorporateDebtor, against an order dated 6[th] September, 2019 passed by theAdjudicating Authority/National Company Law Tribunal (NCLT)admitting the application being Company Petition No.(IB) 672/ND/2019filed by the Appellant Financial Creditor under Section 7 of the IBC forDinitiation of the Corporate Insolvency Resolution Process (CIRP) againstthe Corporator Debtor.

2. The Corporate Debtor carries on business of manufacture oftempo and tractor components. In or about 2012-2013, the CorporateDebtor decided to expand its business and operations and entered intoEnegotiations with bankers for finance for the proposed expansion.

3. According to the Corporate Debtor, some-time in July-August2012, some employees of the Appellant Financial Creditor approachedthe Corporate Debtor, offering financial assistance at lesser rate of interestthan the then existing bankers of the Corporate Debtor, and better facilitiesFand business support.

4. The Appellant Financial Creditor has, since November 2012sanctioned loan facilities to the Corporate Debtor from time to time. Atthe meeting of the Board of Directors of the Corporate Debtor held on29[th] November 2012 and on 15[th] March 2013, resolutions were adopted,inter alia, authorizing Mr. Munish Kumar Bhunsali to execute loan andGsecurity documents on behalf of the Corporate Debtor.

5. On or about 29[th] November, 2012, necessary documents withregard to the loans/credit facilities were executed by and between theAppellant Financial Creditor and the Corporate Debtor. Between 23[rd]November, 2012 and 31[st] December, 2013, loan amounts were disbursed.

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6. The following loan and security documents were executedbetween the Appellant Financial Creditor and the Corporate Debtor on29[th] November 2012:- A

(i) “Master Fund Based Facility Agreement

(ii) Deed of Hypothecation

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(iii) Deed of guarantee by Muhish Kumar Bhunsali

(iv) Demand Promissory Note

(v) Take Delivery Letter for the Demand Promissory Note.

(vi) Supplementary cum Modification Agreement C

(vii) End Use Undertaking”

7. On 27[th] May 2013, further loan and security documents wereexecuted between the Appellant Financial Creditor and the CorporateDebtor, namely:-

(i) “Memorandum of deposit of title deeds D

(ii) End Use Undertaking

(iii) Undertaking (Mortgage) by Mr. Munish KumarBhunsali

(iv) Power of Attorney (Mortgage) by Kew Precision PartsEPvt. Ltd.

(v) Declaration (Mortagage) by Mr. Munish KumarBhunsali”

8. By a Memorandum of Deposit dated 13[th] December 2013executed by the Corporate Debtor through Mr. Munish Kumar Bhunsali,the Corporate Debtor mortgaged its assets in favour of the AppellantFinancial Creditor.

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9. By a letter of sanction dated 7[th ]February 2014, the AppellantFinancial Creditor sanctioned credit/loan facilities aggregating RupeesRs.2036.00 Lakhs to the Corporate Debtor as per the particulars givenbelow:- G

“i.Cash credit : Rs.1000.00 lakhs

ii.WCDL (Sub Limit of CC : Rs.680.00 Lakhs

iii.Invoice Finance discounting : Rs.680.00 Lakhs (submitof CC)

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iv.Term Loan – I : Rs.240 Lakhs

v.Term Loan – II : Rs.334.00 Lakhs

vi.Term Loan – III : Rs.426.00 Lakhs

iv.Conditional WCDL : Rs.200.00 Lakhs

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Total Exposure : Rs. 2036 Lakhs”

10. According to the Appellant Financial Creditor, the CorporateDebtor defaulted in making repayment of its dues to the Financial Creditor.The Appellant Financial Creditor, therefore, declared the Account of theCorporate Debtor as “non-performing asset” (NPA) on 30[th] SeptemberC2015. On 9[th] October, 2015, the loan was recalled by the AppellantFinancial Creditor.

11. On 19[th ]November 2017, the Appellant Financial Creditor issuedstatutory notice under Section 13(2) of the Securitisation andReconstruction of Financial Assets and Enforcement of Security InterestDAct 2002, hereinafter referred to as the SARFAESI Act.

12. On 12[th] December 2018, the Corporate Debtor admitted itsliability to the Appellant Financial Creditor and offered a one timesettlement for a sum of Rs.15,00,00,000/- (Rupees fifteen crores only)to be paid within 31[st] December, 2018. On 19[th] December 2018, theECorporate Debtor again admitted its liability to the Appellant FinancialCreditor and offered a one time settlement for a sum of Rs.20,00,00,000/- (Rupees twenty crores only) to be paid within 31[st] December, 2018.On 20[th] December, 2018, the Corporate Debtor revised its offer for onetime settlement. The Corporate Debtor offered to settle the outstandingFdues at a lumpsum amount of Rs.24,55,00,000/- (Rupees twenty fourcrores and fifty five lakhs only). The offer was accepted by the AppellantFinancial Creditor.

13. On the same day, i.e., 20[th] December, 2018, terms of settlementwere signed and executed by the Corporate Debtor and the AppellantGFinancial Creditor in terms whereof a sum of Rs.24,55,00,000/- (Rupeestwenty four crores and fifty five lacs only) was to be paid on or before31[st] December, 2018.

14. The Corporate Debtor alleges that there were deficiencies inthe banking services rendered by the Appellant Financier. Be that as itHmay, the Corporate Debtor availed credit facilities from the Appellant

Financial Creditor, defaulted in repayment thereof and acknowledgedliability to the Appellant Financial Creditor by making offers of one timesettlement. When an application is filed by a Financial Creditor underSection 7 of the IBC for initiation of CIRP, all that the AdjudicatingAuthority is required to see is, whether there is a financial debt owed bythe Corporate Debtor to the Financial Creditor and whether the amountof the debt exceeded Rs.1,00,000/- (Rupees one lac only) on the date offiling of the company petition, the said amount being the threshold limitfor initiation of CIRP at the material time. The Adjudicating Authorityalso has to examine if the application is barred by limitation.

15. Pre-existing disputes, if any, between the Corporate Debtorand the Financial Creditor are of no consequence to an application of aFinancial Creditor, under Section 7 of the IBC for initiation of CIRP,unlike an application of an Operational Creditor for initiation of CIRPunder Section 9 of the IBC which may have to be dismissed if there is apre-existing dispute.

16. The proceedings initiated by the Appellant Financial Creditorunder the SARFAESI Act are not material to the issue in this appeal, ofwhether the application of the Appellant Financial Creditor before theNCLT was barred by limitation. Suffice it to mention that in computingthe period of limitation for initiation of CIRP proceedings, the time spentin pursuing remedy under the SARFAESI Act or any other recoverylaw cannot be excluded. It is also well settled that initiation of proceedingsunder SARFEASI or any other recovery law does not affect the right ofa Financial Creditor to initiate CIRP unless its debt is repaid.

17. The Corporate Debtor defaulted in payment ofRs.24,55,00,000/- to the appellant Financial Creditor as agreed. In thesecircumstances, the appellant Financial Creditor filed the said applicationbeing Company Petition No. (IB) 672/MD/2019 in the NCLT.

18. The said application was admitted by an order dated 6[th]September, 2019 of the Adjudicating Authority (NCLT). The AdjudicatingAuthority found that the account of the Corporate Debtor with theAppellant Financial Creditor had been declared NPA on 30[th] September

2015. The Appellant Financial Creditor was, however, relying on theproposal for one time settlement given by the Corporate Debtor on 12[th]December, 2018 to contend that the existence of financial debt had beenadmitted by the Corporate Debtor.

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19. From the order dated 6[th] September, 2019 of the AdjudicatingAuthority, it appears that the Financial Creditor had been relying on Article62 of the Limitation Act, 1963, under which suits relating to immoveableproperty to enforce payment of money secured by a mortgage, orotherwise charged upon immoveable property, is 12 years from the timewhen the money sued for, becomes due.

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20. The Adjudicating Authority found :-

“Given the facts and circumstances that the Corporate Debtorvide its letter dated 12.12.2018 approached the FinancialCreditor for one time settlement of an amount of Rs.15 Crore,Cthereby admitting its default, there is a finding that there is acontinuous cause of action.

As per the averments of the petition no payment has beenmade by the Corporate Debtor after the default occurred inJune, 2015 and as on dated 27.11.2018, an amount ofRs.46,63,35,337.31 is due and outstanding. The presentDpetition being filed in January 2019 is within limitation, beingwithin three years from the date of the cause of action. Furthereven though an attempt was made on the part of the Corporatedebtor to project certain inconsistencies in relation to claimamounts, however it is seen that the amount in default in excessEof Rs.1,00,000/- being the minimum threshold limit fixed underIBC, 2016.”

21. The Adjudicating Authority admitted the petition and imposeda moratorium in terms of Section 14 of the IBC and also confirmed theappointment of Mr. Ashwani Kumar Gupta, as the Interim ResolutionFProfessional (IRP).

22. The suspended Directors of the Corporate Debtor filed theappeal being Company Appeal (AT) Insolvency No. 1349 of 2019 in theNCLAT contending that the petition filed by the Appellant FinancialCreditor under Section 7 of the IBC was patently barred by limitation.

G23. The NCLAT held :-

“33. The 1[st] Respondent or Bank’s plea is that there wascontinuous and recurring cause of action from both sides i.e.the borrower and the ‘Corporate Debtor’ and the Bank also,that if any decree is passed by any civil court is pending or inexistence of execution, it would amount to a ‘continuous cause H

of action’. In fact the 1[st] Respondent / Bank projects the pleathat the ‘continuous cause of action’ means the ‘cause ofaction’ which arise from repetition of acts or omission of thesame kind is that for which the action was brought.

34. A perusal of the application in form I part II filed by the1st Respondent / Bank to initiate ‘Corporate InsolvencyResolution Process’ under ‘I&B’ shows that the amountclaimed to be default as on 17.11.2015 was Rs.18,65,05,035.86 and that the default took place in June, 2015.However, as on 27.11.2018 the outstanding balance wasmentioned as Rs. 46,63,35,337.31.

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38. It must be borne in mind and Article 62 of the LimitationAct, 1963 relates to enforcing the payment of money procuredby mortgaged or otherwise charged upon the immoveableproperty. A suit to enforce a mortgage is governed by Article62 and has to be filed within 12 years from the date when themoney became due unless the limitation period prescribed wasextended under any other provision of the Limitation Act.Article 137 of the Limitation Act constitutes the residuaryarticle as regards the application. To put it succinctly, Article113 pertains to the ‘Suits’, the Article 137 relates to‘Applications’. The language of Article 137 clearly postulatesthat the applicability of the said article will be restricted tothe applications not mentioned in the 3rd division of theschedule to the Limitation Act, 1963.

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41. In so far as Section 18 of the Limitation Act 1963pertaining to the effect of acknowledgement in writing underLimitation Act is concerned, it is to be taken note of that anacknowledgement of liability must be in writing and also tobe signed by a party against whom the property or right isclaimed and that too, the same must be within the Limitationperiod. It cannot be gainsaid that an acknowledgement givenafter the expiry of the usual period is not sufficient to keepthe ‘debt’ alive. If a claim is barred, the fact that there was anacknowledgement of liability will not resuscitate a barred claimbecause of the reason that in any Law, there can only be anacknowledgement of an existing / subsisting liability.

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42. In law, the onus is always on the Creditor to establish thatan acknowledgement was made within time. Further, theacknowledgement does not create any new right and it onlyextends the limitation period as per decision P.Sreedevi Vs.P.Appu AIR 1991 Ker page – 76.

43. It may not be out of place for this Tribunal to makepertinent mention that when a party claiming benefit ofSection 14 of the Limitation Act, 1963 failed to secure reliefin earlier proceeding not because of any defect in jurisdictionor some other cause of like nature, he cannot derive thebenefit u/s 14 of the Limitation Act as per decision Z.KhanVs. Board of Revenue, 1984 ALL LJ. However, in the decision‘Ajob Enterprises’ V. Jayant Vegoiles & Chemicals AIR 1991,Bombay at page 35 it is held that the time taken to prosecutesuit against the Company for recovery of debt, suchproceedings cannot be excluded in calculating the limitationperiod because the matter in issue in suit and winding upproceedings is not the same.

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45. In the present case, the 1st Respondent / Bank/FinancialCreditor was given the liberty in SA 250/2016 (filed by the‘Corporate Debtor’ by the Debt Recovery Tribunal, Lucknowand another) Appellants on 10/04/2017 to recover the duesfrom the Appellants by proceeding afresh under the provisionsof SARFAESI Act, 2002 and the Rules made thereunder. Laterthe 1st Respondent/Bank filed OA 576 before the DebtRecovery Tribunal, Delhi against the ‘Corporate Debtor’ andothers and obtained decree on 2.05.2019. Therefore, it is notopen to the 1st Respondent/Bank to turn around and seekexclusion of time as per Section 14 of the Limitation Act.Undoubtedly, the 1st Respondent / Bank had invoked the rightForum viz. Debt Recovery Tribunal, Delhi for recovery of itsdues and ‘Corporate Debtor’ etc.

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47. In regard to the plea of the 1st Respondent/Bank that on26.03.2016, a complaint was made by the ‘Corporate Debtor’against the Bank for not rejecting their debts and in the saidletter there was an admission of debt liability, it is to be pointed out that the same cannot come to the rescue of the Bankbecause of the fact that the debt of non-payment of dues bythe ‘Corporate Debtor’ took place in June, 2015 and Section7 application was filed by the 1st Respondent / Bank beforethe Adjudicating Authority on 30.01.2019 which is beyondthe period of limitation as enshrined in Article 137 of theLimitation Act. Also that in the decision Kalpana Trading Co.Vs. Executive Officer Town Panchayat AIR 1999 Mad37, it isobserved that just sending a letter to the higher authorities tosettle the issues does not amount to an ‘Acknowledgement’.”

24. The operative part of the judgment and order is set outhereinbelow :

“54. In the result, the ‘Corporate Debtor’ ‘M/s Kew PrecisionParts Pvt. Ltd.’ is released from the rigour of the ‘CorporateInsolvency Resolution Process’. All actions taken by the‘Interim Resolution Professional’ / ‘Resolution Professional’and ‘Committee of Creditors’, if any, are declared illegal andset aside. The ‘Resolution Professional’ is directed to handover the records and assets of the ‘Corporate Debtor’ to thepromoter/Directors of the ‘Corporate Debtor’ forthwith.

55. The matter is remitted to Adjudicating Authority (‘NationalCompany Law Tribunal’) New Delhi Bench to determine the‘Fee and Cost’ of ‘Corporate Insolvency ResolutionProfessional’ as incurred by him, which is to be borne andpaid by 1st Respondent / Bank(‘Financial Creditor’). Beforeparting with the case, it is made crystal clear that the dismissalof the application filed by the 1st Respondent / Bank beforethe Adjudicating Authority will not preclude it from pursuing/ seeking appropriate remedy before the Competent Forumfor redressal of its grievances, if it so desires/advised.

The Appeal is allowed with aforestated observations anddirections. No Costs. Connected IA No. 3842/19 and IA No.3843/19 are closed. However, the Appellants are directed tofile certified copy of the impugned order of the AdjudicatingAuthority (‘NCLT’), New Delhi within one week from today.”

25. In this appeal, it is contended that cheques given by theCorporate Debtor to the Financial Creditor bounced up to February 2017.Paragraph 2(vii) of the petition of appeal filed by the Corporate Debtoris extracted hereinbelow :- ABC

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“vii) That cheques given towards repayment of loan werepresented for encashment and the said cheque bounced dueto reason “funds insufficient” up to February, 2017 againstwhich complaint u/s. 138 of the Negotiable Instruments Act,is pending before Court.”

B26. If, as contended by the Appellant Financial Creditor, anycheque had been issued in February, 2017, the application of the AppellantFinancial Creditor under Section 7 for initiation of CIRP filed on 2[nd]January, 2019 would clearly be within limitation. However, there are nodetails of the payment disclosed by the Appellant Financial Creditor eitherin the proceedings before the NCLT or NCLAT or before this court.CHowever, if no payment had been made, after the account of theCorporate Debtor had been declared NPA in September, 2015,acknowledgment made on 12[th] December, 2018 or later, after expiry ofover three years from the date on which the default occurred, would notsave limitation.D

27. It is the case of the Appellant Financial Creditor that on 12[th]December 2018 the Corporate Debtor made an offer of one timesettlement at Rs.15 Crores. This offer was not accepted. On 19[th]December 2018, the Corporate Debtor revised its offer to Rs.20 Croresfor one time settlement. This offer was also not accepted. On 20[th]EDecember 2018, the Corporate Debtor again revised its offer for onetime settlement. This time the Corporate Debtor offered to settle theoutstanding dues of the Financial Creditor upon payment of Rs.24,55,00,000/- to be paid within 31[st] December 2018. This offer wasaccepted, and terms of settlement were signed.F28. Section 25 of the Indian Contract Act provides as follows :- “25. Agreement without consideration, void, unless it is inwriting and registered or is a promise to compensate forsomething done or is a promise to pay a debt barred bylimitation law.—An agreement made without consideration isGvoid, unless—An agreement made without consideration isvoid, unless—”

(1) It is expressed in writing and registered under the law forthe time being in force for the registration of documents, andis made on account of natural love and affection betweenHparties standing in a near relation to each other; or unless

(2) It is a promise to compensate, wholly or in part, a personwho has already voluntarily done something for the promisor,or something which the promisor was legally compellable todo; or unless.

(3) It is a promise, made in writing and signed by the personto be charged therewith, or by his agent generally or speciallyauthorized in that behalf, to pay wholly or in part a debt ofwhich the creditor might have enforced payment but for thelaw for the limitation of suits. In any of these cases, such anagreement is a contract.

Explanation 1.—Nothing in this section shall affect the validity,as between the donor and donee, of any gift actually made.Explanation 2.—An Agreement to which the consent of thepromisor is freely given is not void merely because theconsideration is inadequate; but the inadequacy of theconsideration may be taken into account by the Court indetermining the question whether the consent of the promisorwas freely given.

Illustrations

(a) A promises, for no consideration, to give to B Rs. 1,000.This is a void agreement.

(b) A, for natural love and affection, promises to give hisson, B, Rs. 1,000. A puts his promise to B into writingand registers it. This is a contract.

(c) A finds B’s purse and gives it to him. B promises to giveA Rs. 50. This is a contract.

(d) A supports B’s infant son. B promises to pay A’s expensesin so doing. This is a contract.

(e) A owes B Rs. 1,000, but the debt is barred by theLimitation Act. A signs a written promise to pay B Rs.500 on account of the debt. This is a contract.

(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A’sconsent to the agreement was freely given. Theagreement is a contract notwithstanding the inadequacyof the consideration.

(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. Adenies that his consent to the agreement was freely A

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Agiven.” The inadequacy of the consideration is a factwhich the Court should take into account in consideringwhether or not A’s consent was freely given.

29. From the above, it is clear that any agreement to pay a timebarred debt, would be enforceable in law, within three years from theBdue date of payment, in terms of such agreement. It appears that Section25(3) of the Indian Contract Act was not brought to the notice of theNCLAT. The NCLAT also did not consider the aforesaid Section.

30. In this appeal, it is contended that the last offer of 20[th]December, 2018 was followed by an agreement. Whether there wassuch agreement or not would have to be considered by the AdjudicatingCAuthority. To invoke Section 25(3), the following conditions must besatisfied:-

(i) It must refer to a debt, which the creditor, but for the periodof limitation, might have enforced;

(ii) There must be a distinct promise to pay such debt, fully orDin part;

(iii) The promise must be in writing, and signed by the debtor orhis duly appointed agent.

31. Under Section 25(3), a debtor can enter into an agreement inwriting, to pay the whole or part of a debt, which the creditor might haveEenforced, but for the limitation of a suit in law. A written promise to paythe barred debt is a valid contract. Such a promise constitutes novationand can form the basis of a suit independent of the original debt, for it iswell settled that the debt is not extinguished, the remedy gets barred bypassage of time as held by this Court in Bombay Dyeing andFManufacturing Company Limited vs. State of Bombay[1].

32. Section 25(3) applies only where the debt is one which wouldbe enforceable against the defendants, but for the law of limitation. Wherea debt is not binding on the defendant for other reasons, andconsequentially not enforceable against him, there is no question ofGapplicability of Section 25(3).

33. There is a distinction between acknowledgment under Section18 of the Limitation Act, 1963 and a promise within the meaning ofSection 25 of the Contract Act. Both promise and acknowledgment inwriting, signed by a party or its agent authorised in that behalf, have the H1 AIR 1958 SC 328

effect of creating a fresh starting of limitation. The difference is that anacknowledgment under Section 18 of the Limitation Act has to be madewithin the period of limitation and need not be accompanied by anypromise to pay. If an acknowledgment shows existence of juralrelationship, it may extend limitation even though there may be a denialto pay. On the other hand, Section 25(3) is only attracted when there isan express promise to pay a debt that is time barred or any part thereof.Promise to pay can be inferred on scrutinising the document. Only thepromise should be clear and unconditional.

34. The scheme of the IBC is to ensure that when a default takesplace, in the sense that a debt becomes due and is not paid, the CorporateInsolvency Resolution Process begins. Where any corporate debtorcommits default, a financial creditor, an operational creditor or thecorporate debtor itself may initiate Corporate Insolvency ResolutionProcess in respect of such corporate debtor in the manner as providedin Chapter II of the IBC.

35. The provisions of the IBC are designed to ensure that thebusiness and/or commercial activities of the Corporate Debtor arecontinued by a Resolution Professional, post imposition of a moratorium,which would give the Corporate Debtor some reprieve from coercivelitigation, which could drain the Corporate Debtor of its financial resources.This is to enable the Corporate Debtor to improve its financial healthand at the same time repay the dues of its creditors.

36. Under Section 7(2) of the IBC, read with the Statutory 2016Adjudicating Authority Rules, made in exercise of powers conferred,inter alia, by clauses (c) (d) (e) and (f) of sub-section (1) of Section239 read with Sections 7, 8, 9 and 10 of the IBC, a financial creditor isrequired to apply in the prescribed Form 1 for initiation of the CorporateInsolvency Resolution Process, against a Corporate Debtor under Section7 of the IBC, accompanied with documents and records required therein,and as specified in the Insolvency and Bankruptcy Board of India(Insolvency Resolution Process for Corporate Persons) Regulations,2016, hereinafter referred to as the 2016 IB Board of India Regulations.

37. Statutory Form 1 under Rule 4(1) of the 2016 AdjudicatingAuthority Rules comprises Parts I to V, of which Part I pertains toparticulars of the Applicant, Part II pertains to particulars of the CorporateDebtor and Part III pertains to particulars of the proposed InterimResolution Professional. Parts IV and V which require particulars of AB

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AFinancial Debt with Documents, Records and Evidence of default, isextracted hereinbelow:- PART IVBCPART VDEFGH

38. Section 7(3) requires a financial creditor making an applicationunder Section 7(1) to furnish records of the default recorded with theinformation utility or such other record or evidence of default as may bespecified; the name of the resolution professional proposed to act as anInterim Resolution Professional and any other information as may bespecified by the Insolvency and Bankruptcy Board of India.

39. Section 7(4) of the IBC casts an obligation on the AdjudicatingAuthority to ascertain the existence of a default from the records of aninformation utility, or on the basis of other evidence furnished by thefinancial creditor, within fourteen days of the receipt of the applicationunder Section 7. As per the proviso to Section 7(4) of the IBC, insertedby amendment, by Act 26 of 2019, if the Adjudicating Authority has notascertained the existence of default and passed an order within thestipulated period of time of fourteen days, it shall record its reasons forthe same in writing. The application does not lapse for non-complianceof the time schedule. Nor is the Adjudicating Authority obliged to dismissthe application. On the other hand, the application cannot be dismissed,without compliance with the requisites of the Proviso to Section 7(5) ofthe IBC.

40. Section 7(5)(a) provides that when the Adjudicating Authorityis satisfied that a default has occurred, and the application under sub-section (2) of Section 7 is complete and there is no disciplinary proceedingpending against the proposed resolution professional, it may by orderadmit such application. As per Section 7(5)(b), if the AdjudicatingAuthority is satisfied that default has not occurred or the applicationunder sub-Section (2) of Section 7 is incomplete or any disciplinaryproceeding is pending against the proposed resolution professional, itmay, by order, reject such application, provided that the AdjudicatingAuthority shall, before rejecting the application under sub-section (b) ofSection 5, give notice to the applicant, to rectify the defects in hisapplication, within 7 days of receipt of such notice from the AdjudicatingAuthority.

41. The Corporate Insolvency Resolution Process commenceson the date of admission of the application under sub-section (5) of Section7 of the IBC. Section 7(7) casts an obligation on the Adjudicating Authorityto communicate an order under clause (a) of sub-section (5) of Section7 to the financial creditor and the corporate debtor and to communicatean order under clause (b) of sub-section (5) of Section 7 to the financial A

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Acreditor within seven days of admission or rejection of such application,as the case may be. Sections 8 and 9 of IBC pertain to InsolvencyResolution by an operational creditor and are not attracted in the factsand circumstances of this case. Section 10 pertains to initiation ofCorporate Insolvency Resolution Process by the Corporate Debtor itself,and is also not attracted in the facts and circumstances of the case.B

42. The IBC is not just another statute for recovery of debts. Noris it a statute which merely prescribes the modalities of liquidation of aCorporate body, unable to pay its debts. It is essentially a statute whichworks towards the revival of a Corporate body, unable to pay its debts,by appointment of a Resolution Professional.C43. In Swiss Ribbons Private Limited & Anr. v. Union of Indiaand Ors.[2], authored by Nariman, J. this Court observed:- “28. It can thus be seen that the primary focus of thelegislation is to ensure revival and continuation of theDcorporate debtor by protecting the corporate debtor from itsown management and from a corporate death by liquidation.The Code is thus a beneficial legislation which puts thecorporate debtor back on its feet, not being a mere recoverylegislation for creditors. The interests of the corporate debtorhave, therefore, been bifurcated and separated from that ofEits promoters/those who are in management. Thus, theresolution process is not adversarial to the corporate debtorbut, in fact, protective of its interests. The moratorium imposedby Section 14 is in the interest of the corporate debtor itself,thereby preserving the assets of the corporate debtor duringFthe resolution process. The timelines within which theresolution process is to take place again protects the corporatedebtor’s assets from further dilution, and also protects all itscreditors and workers by seeing that the resolution processgoes through as fast as possible so that another managementcan, through its entrepreneurial skills, resuscitate theGcorporate debtor to achieve all these ends.”

44. IBC has overriding effect over other laws. Section 238 of theIBC provides that the provisions of the IBC shall have effect,notwithstanding anything inconsistent therewith contained in any other H2 (2019) 4 SCC 17

law, for the time being in force, or any other instrument, having effect byvirtue of any such law.

45. Unlike coercive recovery litigation, the Corporate InsolvencyResolution Process under the IBC is not adversarial to the interests ofthe Corporate Debtor, as observed by this Court in Swiss Ribbons PrivateLimited v. Union of India (supra).

46. On the other hand, the IBC is a beneficial legislation for equaltreatment of all creditors of the Corporate Debtor, as also the protectionof the livelihoods of its employees/workers, by revival of the CorporateDebtor through the entrepreneurial skills of persons other than those inits management, who failed to clear the dues of the Corporate Debtor toits creditors. It only segregates the interests of the Corporate Debtorfrom those of its promoters/persons in management.

47. In construing and/or interpreting any statutory provision onemust look into the legislative intent of the statute. The intention of thestatute has to be found in the words used by the legislature itself. In caseof doubt it is always safe to look into the object and purpose of thestatute or the reason and spirit behind it. Each word, phrase or sentencehas to be construed in the light of the general purpose of the Act itself,as observed by Mukherjea J., in Popatlal Shah v. State of Madras[3] anda plethora of other judgments of this Court.

48. When a question arises as to the meaning of a certain provisionin a statute, the provision has to be read in its context. The statute has tobe read as a whole. The previous state of the law, the general scope andambit of the statute and the mischief that it was intended to remedy arerelevant factors.

49. In Dena Bank (Now Bank of Baroda) v. C. ShivakumarReddy and Another[4], this Court held:-

89. On a careful reading of the provisions of the IBC and inparticular the provisions of Section 7(2) to (5) of the IBCread with the 2016 Adjudicating Authority Rules there is nobar to the filing of documents at any time until a final ordereither admitting or dismissing the application has beenpassed.”

3 AIR 1953 SC 274

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A50. Section 238A of the IBC provides as follows:- “238A. The provisions of the Limitation Act, 1963 (36 of 1963)shall, as far as may be, apply to the proceedings or appealsbefore the Adjudicating Authority, the National Company LawAppellate Tribunal, the Debt Recovery Tribunal or the DebtBRecovery Appellate Tribunal, as the case may be.”

51. It is well settled by a plethora of judgments of this Court asalso different High Courts and, in particular, the judgment of this Courtin B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates[5](2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528] NCLT/NCLAT has theCdiscretion to entertain an application/appeal after the prescribed periodof limitation. The condition precedent for exercise of such discretion isthe existence of sufficient cause for not preferring the appeal and/or theapplication within the period prescribed by limitation.

52. The condition precedent for condonation of the delay in filingDan application or appeal, is the existence of sufficient cause. Whetherthe explanation furnished for the delay would constitute “sufficient cause”or not would be dependent upon facts of each case.

53. Section 5 of the Limitation Act, 1963 does not speak of anyapplication. The section enables the court to admit an application orEappeal if the applicant or the appellant, as the case may be, satisfies thecourt that he had sufficient cause for not making the application and/orpreferring the appeal, within the time prescribed. A Court/Tribunal mayexercise its discretion to condone delay, even in the absence of a formalapplication.F54. In Sesh Nath Singh & Anr. Vs. Baidyabati SheoraphuliCooperative Bank Ltd.[6], authored by one of us (Indira Banerjee, J.),this Court held:-

“64. Similarly under Section 18 of the Limitation Act, anacknowledgment of present subsisting liability, made inwriting in respect of any right claimed by the opposite partyGand signed by the party against whom the right is claimed,has the effect of commencing of a fresh period of limitation,from the date on which the acknowledgment is signed.

5 (2019) 11 SCC 633H6 (2021) 7 SCC 313

However, the acknowledgment must be made before the periodof limitation expires.

65. As observed above, Section 238-A IBC makes theprovisions of the Limitation Act, as far as may be, applicableto proceedings before NCLT and Nclat. The IBC does notexclude the application of Sections 6 or 14 or 18 or any otherprovision of the Limitation Act to proceedings under the IBCin NCLT/Nclat. All the provisions of the Limitation Act areapplicable to proceedings in NCLT/Nclat, to the extent feasible.

66. We see no reason why Section 14 or 18 of the LimitationAct, 1963 should not apply to proceeding under Section 7 or9 IBC. Of course, Section 18 of the Limitation Act is notattracted in this case, since the impugned order [Sesh NathSingh v. Baidyabati Sheoraphuli Coop. Bank Ltd., 2019 SCCOnLine NCLAT 928] of Nclat does not proceed on the basisof any acknowledgment.

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89. Legislature has in its wisdom chosen not to make theprovisions of the Limitation Act verbatim applicable toproceedings in NCLT/NCLAT, but consciously used the words‘as far as may be’. The words ‘as far as may be’ are not meantto be otiose. Those words are to be understood in the sense inwhich they best harmonise with the subject matter of thelegislation and the object which the Legislature has in view.The Courts would not give an interpretation to those wordswhich would frustrate the purposes of making the LimitationAct applicable to proceedings in the NCLT/NCLAT ‘as far asmay be’.

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92. The use of words ‘as far as may be’, occurring in Section238A of the IBC tones down the rigour of the words ‘shall’ inthe aforesaid Section which is normally considered asmandatory. The expression ‘as far as may be’ is indicative ofthe fact that all or any of the provisions of the Limitation Actmay not apply to proceedings before the AdjudicatingAuthority (NCLT) or the Appellate authority (NCLAT) if theyare patently inconsistent with some provisions of the IBC. At AB

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236SUPREME COURT REPORTS

Athe same time, the words ‘as far as may be’ cannot be construedas a total exclusion of the requirements of the basic principlesof Section 14 of the Limitation Act, but permits a wider, moreliberal, contextual and purposive interpretation by necessarymodification, which is in harmony with the principles of thesaid Section.”B

55. There is no specific period of limitation prescribed in theLimitation Act, 1963, for an application under the IBC, before theAdjudicating Authority (NCLT). An application for which no period oflimitation is provided anywhere else in the Schedule to the LimitationAct, is governed by Article 137 of the Schedule to the said Act. UnderCArticle 137 of the Schedule to the Limitation Act, the period of limitationprescribed for such an application is three years from the date of accrualof the right to apply.

56. There can be no dispute with the proposition that the periodof limitation for making an application under Section 7 or 9 of the IBCDis three years from the date of accrual of the right to sue, that is, thedate of default. In Gaurav Hargovindbhai Dave v. AssetReconstruction Company (India) Ltd.[7]authored by Nariman, J. thisCourt held:- “6. …...The present case being “an application” which is filedEunder Section 7, would fall only within the residuary Article137.”

57. In B. K. Educational Services Private Limited (supra),this Court speaking through Nariman, J. held:-

F“42. It is thus clear that since the Limitation Act is applicableto applications filed under Sections 7 and 9 of the Code fromthe inception of the Code, Article 137 of the Limitation Actgets attracted. “The right to sue”, therefore, accrues when adefault occurs. If the default has occurred over three yearsprior to the date of filing of the application, the applicationGwould be barred under Article 137 of the Limitation Act, saveand except in those cases where, in the facts of the case,Section 5 of the Limitation Act may be applied to condone thedelay in filing such application.”

58. In Jignesh Shah v. Union of India[8] this Court speakingthrough Nariman, J. reiterated the proposition that the period of limitationfor making an application under Section 7 or 9 of the IBC was threeyears from the date of accrual of the right to sue, that is, the date ofdefault.

59. In Dena Bank (supra), this Court relied upon the dictum ofP.B. Gajendragadkar, J. in Balakrishna Savalram Pujari Waghmarev. Shree Dhyaneshwar Maharaj Sansthan[9], and held:- “31. … Section 23 refers not to a continuing right but to acontinuing wrong. It is the very essence of a continuing wrongthat it is an act which creates a continuing source of injuryand renders the doer of the act responsible and liable for thecontinuance of the said injury. If the wrongful act causes aninjury which is complete, there is no continuing wrong eventhough the damage resulting from the act may continue. If,however, a wrongful act is of such a character that the injurycaused by it itself continues, then the act constitutes acontinuing wrong. In this connection it is necessary to drawa distinction between the injury caused by the wrongful actand what may be described as the effect of the said injury. Itis only in regard to acts which can be properly characterisedas continuing wrongs that Section 23 can be invoked.…”

60. It is well settled proposition of law, as laid down in the judgmentof this Court in Babulal Vardharji Gurjar v. Veer Gurjar AluminiumIndustries (P) Ltd.[10], that limitation is essentially a mixed question oflaw and facts and when a party seeks application of any particularprovision for extension in enlargement of the period of limitation, therelevant facts are required to be pleaded and requisite evidence is requiredto be adduced.

61. The judgment in Babulal Vardharji Gurjar (supra) wasrendered in the facts and circumstances of that case where there wereno pleadings at all. As held by this Court in Dena Bank (supra), anapplication under Section 7 of the IBC in statutory form which requiresfilling in of particulars cannot be judged by the same standards as a 8 (2019) 10 SCC 750

9 AIR 1959 SC 798

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Aplaint or other pleadings in a court of law. Additional affidavits filedsubsequent to the filing of the application, by way of additional affidavitsor applications would have to be construed as pleadings, as also thedocuments enclosed with or relied upon in the application made in thestatutory format. Furthermore, pleadings can be amended at any timeduring the pendency of the proceedings.B

62. As per Section 18 of Limitation Act, an acknowledgement ofpresent subsisting liability, made in writing in respect of any right claimedby the opposite party and signed by the party against whom the right isclaimed, has the effect of commencing a fresh period of limitation fromthe date on which the acknowledgement is signed. Such acknowledgementCneed not be accompanied by a promise to pay expressly or even byimplication. However, the acknowledgement must be made before therelevant period of limitation has expired.

63. In Khan Bahadur Shapoor Fredoom Mazda v. DurgaDPrasad Chamaria and Others[11], this Court held:-

“6. It is thus clear that acknowledgment as prescribed bySection 19 merely renews debt; it does not create a new rightof action. It is a mere acknowledgment of the liability in respectof the right in question; it need not be accompanied by apromise to pay either expressly or even by implication. TheEstatement on which a plea of acknowledgment is based mustrelate to a present subsisting liability though the exact natureor the specific character of the said liability may not beindicated in words. Words used in the acknowledgment must,however, indicate the existence of jural relationship betweenFthe parties such as that of debtor and creditor, and it mustappear that the statement is made with the intention to admitsuch jural relationship. Such intention can be inferred byimplication from the nature of the admission, and need not beexpressed in words. If the statement is fairly clear then theintention to admit jural relationship may be implied from it.GThe admission in question need not be express but must bemade in circumstances and in words from which the courtcan reasonably infer that the person making the admissionintended to refer to a subsisting liability as at the date of the statement. In construing words used in the statements madein writing on which a plea of acknowledgment rests oralevidence has been expressly excluded but surroundingcircumstances can always be considered. Stated generallycourts lean in favour of a liberal construction of suchstatements though it does not mean that where no admissionis made one should be inferred, or where a statement wasmade clearly without intending to admit the existence of juralrelationship such intention could be fastened on the makerof the statement by an involved or far-fetched process ofreasoning. Broadly stated that is the effect of the relevantprovisions contained in Section 19, and there is really nosubstantial difference between the parties as to the true legalposition in this matter.”

64. It is well settled that even entries in books of accounts and/orbalance sheets of a Corporate Debtor would amount to anacknowledgment under Section 18 of the Limitation Act. In AssetReconstruction Company (India) Limited v. Bishal Jaiswal andAnr.[12](supra) authored by Nariman, J. this Court quoted with approvalthe judgments, inter alia, of Bengal Silk Mills Co. v. Ismail GolamHossain Ariff,[13] and in Re Pandem Tea Co.[14]Ltd., the judgment of theDelhi High Court in South Asia Industries (P) Ltd. v. General KrishnaShamsher Jung Bahadur Rana[15]and the judgment of Karnataka HighCourt in Hegde Golay Ltd. v. State Bank of India[16] and held that anacknowledgement of liability that is made in a balance sheet can amountto an acknowledgement of debt. In this Case, the Appellant FinancialCreditor has not relied on any books of accounts or Balance Sheets ofthe Corporate Debtor.

65. Section 18 of the Limitation Act speaks of an acknowledgmentin writing of liability, signed by the party against whom such property orright is claimed. Even if the writing containing the acknowledgment isundated, evidence might be given of the time when it was signed. Theexplanation clarifies that an acknowledgment may be sufficient even 12 AIR 2021 SC 5249

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14 AIR 1974 Cal 170

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Athough it is accompanied by refusal to pay, deliver, perform or permit toenjoy or is coupled with claim to set off, or is addressed to a personother than a person entitled to the property or right. “Signed” is to beconstrued to mean signed personally or by an authorised agent.

66. An acknowledgement made in writing within the period ofBlimitation extends the period of limitation. In this case, there was noacknowledgement of debt within three years from the period on whichthe account of the Corporate Debtor was declared NPA or within threeyears from the date on which the loan facilities were recalled.

67. The Adjudicating Authority proceeded on the basis that theCoffer of settlement made by the Corporate Debtor on 12[th] December2018 and rejection thereof by the appellate showed the Corporate Debtorhad conceded that there was a continuous cause of action. It is, however,the case of the Appellant Financial Creditor in this appeal that terms ofsettlement were executed on 20th December 2018 whereby theCorporate Debtor agreed to repay the amount of Rs.24,55,00,000/- withinD31[st] December 2018. The Adjudicating Authority, however, did not referto any settlement. Nor did it address the question of whether anyagreement for repayment of debt came into existence in December 2018and, if so, whether the agreement would attract Section 25(3) of theContract Act.E68. The Appellate Tribunal (NCLAT) found that there was noacknowledgement of debt within the period of limitation of three years.Holding the application of the Appellant Financial Creditor, under Section7 of the IBC, to be barred by limitation, the Appellate Authority (NCLAT)allowed the appeal.F

69. The Appellate Tribunal (NCLAT) also did not notice the termsof settlement stated to have been executed on 20[th] December 2018,possibly because the attention of the NCLAT was not drawn to anyterms of the settlement. The Appellate Tribunal (NCLAT) did not,therefore, have the occasion to consider whether Section 25(3) of theGContract Act would be attracted. The Appellate Tribunal (NCLAT), asobserved above, proceeded on the basis that the CIRP proceedings werebarred by limitation in the absence of any acknowledgement of debtwithin the period of limitation, and closed the CIRP proceedings in theNCLT, without considering the question of applicability of Section 5 ofthe Limitation Act for condonation of delay, to proceedings under SectionH7 of the IBC.

70. This Court is of the view that the Appellate Tribunal (NCLATerred in closing the CIRP proceedings without giving the AppellantFinancial Creditor the opportunity to explain if there was sufficient causefor the delay in approaching the NCLT. An appeal being the continuationof original proceedings, the provision of Section 7(5)(b) of the IBC, ofnotifying the Financial Creditor before rejection of a claim, would beattracted. If notified of the proposal to close the proceedings, the AppellantFinancial Creditor might have got the opportunity to rectify the defectsin its application under Section 7 by filing additional pleadings and/ordocuments. As held in Dena Bank (supra), documents can be filed atany time until the application for CIRP is finally dismissed.

71. The appeal is, therefore, allowed. The impugned judgmentand order of the NCLAT is set aside to the extent that the CIRPproceedings have been closed. The Adjudicating Authority shall considerthe application for CIRP afresh, in accordance with law, in the light ofthe observations made above, after giving the Appellant and theRespondent opportunity to file additional affidavits disclosing documents/additional affidavit in response.

Ankit Gyan and Anurag Bhaskar

Appeal allowed.

(Assisted by : Bodhi Ramteke, LCRA)

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