Limitation Cannot Be Revived by RP’s Acknowledgment During Prior CIRP – NCLAT Clarifies Section 7 IBC Claims
- REEDLAW
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REEDLAW Legal News Network reports: In a critical ruling, the Appellate Tribunal clarified that the limitation under Section 7 of the IBC must be computed independently from the statutory date of default, taking into account applicable moratoriums. The Tribunal held that any acknowledgement of debt by a Resolution Professional during a prior CIRP does not constitute a legally valid acknowledgement capable of reviving limitation. Consequently, petitions filed beyond the prescribed period remain time-barred, regardless of prior CIRP proceedings or claim admissions by the RP.
The Appellate Tribunal, comprising Justice N. Seshasayee (Judicial Member) and Mr. Arun Baroka (Technical Member), considered a batch of two Company Appeals to examine the effect of prior CIRP proceedings on limitation. It held that for claims under Section 7, limitation must be independently calculated from the statutory default date, and that acknowledgements made by a Resolution Professional during earlier CIRP cannot revive a time-barred claim. The Tribunal emphasised that petitions filed after the prescribed limitation period are barred, irrespective of any earlier CIRP claim admission or procedural acknowledgement by the RP.
The appeals were filed by the Appellant, an erstwhile director of the Corporate Debtor, challenging the admission of two separate applications under Section 7 of the IBC. The Adjudicating Authority had admitted both petitions filed by the Financial Creditor, arising from two independent loan transactions, after noting that the Corporate Debtor neither denied the debt nor disputed the default. The Appellant confined the defence solely to limitation, which the Adjudicating Authority rejected.
Two separate loans had been sanctioned and disbursed to the Corporate Debtor in September 2014, each carrying independent repayment schedules. After persistent non-payment, the lender issued recall notices in November 2016 and classified both accounts as NPA on 06.12.2016. SARFAESI notices followed shortly thereafter. Meanwhile, the original lender was itself admitted into CIRP in December 2019, and its successful resolution in June 2021 led to the assignment of the Corporate Debtor’s loans to the Respondent in January 2023. During this time, a prior CIRP against the Corporate Debtor commenced in December 2021 and continued until it was set aside in July 2024.
The Appellant argued that the cause of action arose in November 2016, making the petition time-barred beyond November 2019. By computing the imitation from either the recall notice or NPA date, the Appellant contended that even after applying exclusions for moratorium periods and the COVID-19 extension orders of the Supreme Court, the petitions filed in late 2024 were still beyond the permissible period. It was further argued that any claim admission by an RP in the earlier CIRP could not revive limitation, as the RP lacked statutory authority to acknowledge debt on behalf of the Corporate Debtor, and any such acknowledgement must occur before expiry of limitation.
The Respondent countered that the limitation commenced not from the recall notice but from the expiry of 60 days after issuance of the SARFAESI notice, making 07.02.2017 the relevant date. It was submitted that the computation must exclude the moratorium periods applicable both to the Corporate Debtor and the original lender under Section 60(6) IBC. The Respondent relied heavily on the RP’s admission of its claim in May 2022 and subsequent updates in February 2024 as an acknowledgement of liability sufficient to trigger a fresh period of limitation. The Respondent also asserted that the COVID-19 extensions further protected the petitions within the limitation.
The Tribunal assessed the limitation issue independently, reiterating that limitation is a mixed question of law and fact, and that the date of default in Part IV of a Section 7 petition forms part of the cause of action but is not conclusively determinative for computing limitation. The Tribunal emphasised the statutory obligation under Section 3 of the Limitation Act to examine limitation irrespective of party admissions or omissions.
The Tribunal considered the wider statutory framework, including Section 238A IBC, the manner of computing limitation for enforcement of remedies rather than the constitution of cause of action, and the interplay between acknowledgement under Section 18 of the Limitation Act and claim admission during CIRP. The Tribunal also examined whether the RP possessed authority to bind the Corporate Debtor for purposes of acknowledgement and whether such acknowledgement, if valid, could revive limitation for fresh proceedings under Section 7.
The matter ultimately turned on whether the RP’s admission in the earlier CIRP constituted a legally cognizable acknowledgement, and whether such an acknowledgement could extend limitation for initiating a new CIRP against the Corporate Debtor. These issues formed the central axis of the Tribunal’s determination on whether the petitions filed in late 2024 were within the statutory period.
Mr. Sunil Fernandes, Sr. Advocate, with Mr. Prakul Khurana and Mr. Gourav Asati, Advocates, represented the Appellant.
Mr. Gaurav Agarwal, Sr. Advocate, with Mr. Ayush J. Rajani, Advocate, appeared for the Respondent No. 1.
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