Refund of Security Deposit Not to be Treated as Acknowledgement of Debt; Section 9 IBC Application Barred by Limitation: NCLAT
- REEDLAW
- 4 hours ago
- 3 min read
REEDLAW Legal News Network reports: The National Company Law Appellate Tribunal (NCLAT), New Delhi, has clarified that the refund of a security deposit cannot be considered an acknowledgement of operational debt for the purpose of extending limitation under Section 19 of the Limitation Act. Consequently, a Section 9 application under the Insolvency and Bankruptcy Code (IBC) filed beyond three years from the date of default was held to be barred by limitation.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a Company Appeal, held that the refund of a security deposit does not amount to an acknowledgement of operational debt for extending the limitation under Section 19 of the Limitation Act. As a result, the Section 9 IBC application, which was filed after the expiry of three years from the date of default, was declared barred by limitation, reaffirming the strict applicability of limitation provisions in insolvency proceedings.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, dismissed an appeal filed by an operational creditor challenging the order of the NCLT, Allahabad Bench, which had rejected a Section 9 application as time-barred. The appellant had claimed an outstanding operational debt of ₹3,65,75,820/- arising from work orders executed under a contract for the National Institute of Occupational Health, Ahmedabad. The date of default was stated as 15 January 2016, and the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, was filed on 20 February 2020.
The appellant contended that the adjudicating authority erred in dismissing the application as barred by limitation, arguing that the last payment made by the corporate debtor on 16 October 2017 entitled it to a fresh limitation period under Section 19 of the Limitation Act, 1963. It was submitted that the benefit of the extended period of three years from the last payment date should apply, making the application within the limitation.
The NCLAT rejected these submissions, observing that the Section 9 application contained no pleadings regarding the extension of limitation under Section 19. Further, the payment referred to by the appellant was identified as the refund of the security deposit and not towards the operational debt claimed. The tribunal held that the essential conditions for invoking Section 19 of the Limitation Act were not satisfied as there was no acknowledgement in writing by the corporate debtor of any payment toward the claimed debt. Relying on the Supreme Court judgment in Shanti Conductors (P) Limited v. Assam State Electricity Board and Others, REEDLAW 2019 SC 12003 and previous NCLAT decisions, the tribunal affirmed that the refund of the security deposit could not be treated as an acknowledgement of debt. Consequently, the application was held to be beyond the prescribed limitation period, and the appeal was dismissed.
Mr. Sohaib Alam, Mr. Rajesh Ranjan and Mr. Anuj Sharma, Advocates, represented the appellants.
Mr. Shivank Pratap Singh, Ms. Priya Singh, Mr. Samyak Jain, and Mr. Sanandika Pratap Singh, Advocates, appeared for the Respondent.
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