Acknowledgement of Debt Extends Limitation for IBC Proceedings: NCLAT Upholds CIRP Admission Despite Appellant’s Possession Claims
- REEDLAW
- Apr 23
- 3 min read
NCLAT held that the acknowledgement of debt by the corporate debtor extended the limitation period for initiating IBC proceedings, thereby upholding the admission of CIRP despite the appellant’s claims of lawful possession of the corporate debtor’s assets.
On 22.04.2025, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), while reviewing an appeal and a connected interlocutory application, held that repeated and unequivocal acknowledgments of debt by the corporate debtor—through One-Time Settlement (OTS) arrangements and subsequent correspondence—constitute valid acknowledgments under Section 18 of the Limitation Act, thereby extending the limitation period for filing a Section 7 application under the Insolvency and Bankruptcy Code (IBC). The Tribunal further held that an appellant in illegal possession of the corporate debtor’s assets cannot challenge the application on the ground of limitation, particularly when the corporate debtor itself has not disputed the claim.
Background:
The instant appeal before the National Company Law Appellate Tribunal (NCLAT) arose out of an order of admission passed by the Kolkata Bench of the National Company Law Tribunal (NCLT) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). The application had been initiated by the Central Bank of India, a financial creditor, against Shima Edibles Pvt. Ltd., the corporate debtor, whose loan account was declared a Non-Performing Asset (NPA) as early as 27.09.2011. An earlier One-Time Settlement (OTS) for ₹12.5 Crores had been entered into in 2014. The appellant, claiming to be in possession of the corporate debtor’s cold storage assets under a 2014 agreement, challenged the initiation of the Corporate Insolvency Resolution Process (CIRP), primarily on the ground of limitation and validity of possession.
Analysis:
The core issue raised by the appellant revolved around the limitation period for initiating the Section 7 application. The appellant contended that since the account became NPA in 2011, the application filed in November 2019 was time-barred. However, NCLAT noted that the corporate debtor had repeatedly acknowledged the debt through a series of documents and proceedings—most notably the OTS of 2014, payments made by the appellant till 2015, orders passed by the DRT in 2016 and 2017, and a letter dated 16.05.2019 wherein the corporate debtor requested restoration of possession to enable payment of the OTS amount. These acknowledgments, in the opinion of the Tribunal, extended the period of limitation in accordance with Section 18 of the Limitation Act, 1963.
NCLAT also emphasised that the corporate debtor had not raised any objection on limitation before the Adjudicating Authority, and hence, the appellant, who was not the borrower but merely an occupier, could not validly raise this plea. Furthermore, the Tribunal observed that the appellant had failed to fulfil their own obligations under the 2014 arrangement, having stopped all payments after 30.06.2015 while continuing to possess and benefit from the cold storage facility. This continued occupation, in the absence of full payment, was deemed illegal.
It was further observed that the DRT had already acknowledged the appellant's payment of ₹6.72 Crores and their possession of the cold storage, yet the failure to complete the settlement and the acknowledgment of debt by the corporate debtor, even as late as 2019, made it abundantly clear that the financial creditor’s application was not barred by limitation.
Conclusion:
NCLAT dismissed the appeal, upholding the NCLT’s admission of the Section 7 application. The interim stay was lifted, and the Resolution Professional was permitted to proceed with CIRP, with exclusion of the stay period from the CIRP timeline. The appellant was directed to hand over possession of the assets within 30 days, failing which the Resolution Professional could seek the aid of the district administration and police for recovery. The Tribunal also left it open for the RP to pursue appropriate recovery proceedings for illegal occupation and unjust enrichment against the appellant.
This decision reaffirms the legal position that repeated and documented acknowledgements of debt can effectively extend limitation under the IBC, and that third parties claiming rights over assets must establish clear legal entitlement, particularly when they have failed to fulfil corresponding obligations.
Mr. Krishnendu Datta, Sr. Advocate with Mr. Kumar Anurag Singh, Mr. Zain A. Khan and Mr. Akhil Nene, Advocates, represented the Appellant.
Ms. Zeba Khan, Advocate, appeared for the Respondent No. 1.
Mr. Kushal Bansal, Advocate, appeared for the Resolution Professional.
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