The limitation(Article 137) for application u/s 7 will start from the date of accrual of right i.e. from the date of confirmation or acknowledgment of the debt & to be read along with Sec. 18 of the Limitation Act, 1963- K.R.V. Uday Charan Rao Vs. Bank of India & Anr.-NCLAT

Case Reference

Case Name : K.R.V. Uday Charan Rao Vs. Bank of India & Anr.
Company Appeal : Company Appeal (AT) (Insolvency) No. 731 of 2019
Appellant : K.R.V. Uday Charan Rao
Respondent : Bank of India & Anr.
Order Date : 13-Nov-19
Court/Bench : NCLAT New Delhi

Brief about the decision:

Appellant/ Shareholder submitted that the application u/s 7 was barred by limitation. It was submitted that the loan was availed by the Corporate Debtor on 20.08.2010 from the Financial Creditor. Subsequently, notice issued under Section 13(2) of the SARFAESI Act, 2002, but no action was taken against the Corporate Debtor. Further, on 17.03.2015, the Corporate Debtor acknowledged the debt for the purpose of accepting the liability under Section 18 of the Limitation Act, 1963. Counsel for the Respondents also placed reliance on Section 18 of the Limitation Act to suggest that the Application is not barred by limitation as the limitation starts from the date of acknowledgement.

NCLAT held that For counting the period of limitation in filing the application u/s 7, Part II of Third Division of Schedule of Limitation Act, 1963 i.e. Article 137 is applicable. It is clear that the limitation will start from the date of accrual of right. The accrual of right is also to be noticed from the date of confirmation or acknowledgment of the debt and to be read along with Section 18 of the Limitation Act, 1963 and held that the application u/s 7 is not barred by limitation and the Adjudicating Authority has rightly admitted the application u/s 7.

Full text of the judgment

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.
‘M/s. Bank of India’- (‘Financial Creditor’) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short) for initiation of the ‘Corporate Insolvency Resolution Process’ against ‘M/s. Sainath Estates Private Limited’- (‘Corporate Debtor’). The Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad, by impugned order dated 8th July, 2019 admitted the application.

2. Learned counsel appearing on behalf of the Appellant/ Shareholder submitted that the application under Section 7 was barred by limitation.

3. It was submitted that the loan was availed by the ‘Corporate Debtor’ on 20th August, 2010 from the ‘Financial Creditor’. Subsequently, notice issued under Section 13(2) of the SARFAESI Act, 2002, but no action was taken against the ‘Corporate Debtor’.

4. It was submitted that on invocation of provisions of the ‘I&B Code’, the ‘Corporate Debtor’ had no option but to provide confirmation of debt on 5th March, 2018. It was submitted that the said Agreement executed by the ‘Corporate Debtor’ was in violation of Section 25 of the Indian Contract Act.

5. Reliance has been placed on the decision of the Hon’ble Supreme Court in “Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. & Anr. − Civil Appeal No. 4952 of 2019” to suggest that the application is barred by limitation.

6. Learned counsel for the Respondents submitted that the application under Section 7 is not barred by limitation for the following reasons:

(i) The ‘Corporate Debtor’ have acknowledged the debt vide letters dated 17th March, 2015, 20th March, 2015 and 5th March, 2018.

(ii) The ‘Corporate Debtor’ has made offer of One-Time Settlement through various letters dated 17th January, 2017, 8th February, 2017 and 23rd March, 2017 to the Hyderabad Asset Recovery Branch with respect to the account maintained with Mid- Corporate Branch. The said letter reflects another acknowledgment of debt by the ‘Corporate Debtor’.
(iii) On 27th March, 2017, the Bank approved the compromise offer on the terms and conditions mentioned therein. Acting on the same ‘Corporate Debtor’ made payment of Rs.1,00,00,000/- and further sought time to make balance payment vide letters dated 4th July, 2017 and 10th July, 2017. It is submitted that making part payment to the Bank also amounts to acknowledgment of liability by the ‘Corporate Debtor’
(iv) The Respondent Bank has received following part payments against the outstanding debts in the following (for table, see pdf)
The above clearly establishes that the ‘Corporate Debtor’ has acknowledged the existence of debt.
(v) The ‘Corporate Debtor’ has acknowledged its debt in the financial statements for the Financial Year 2016-2017 and 2017-2018 filed with the Registrar of Companies.
(vi) After issuance of notice dated 4th December, 2013, the Bank has duly taken action under Section 13 (4) of the SARFAESI Act, 2002 through lead banker Syndicate Bank, who vide notice dated 5th September, 2014 has taken symbolic possession of the properties. It is pertinent to mention that the Borrower has filed WP No. 46730/2016 before the High Court of Telangana and I.A. No. 1/2016 (WPMP No. 57551/2016) wherein it has sought stay against the said notices. The Hon’ble High Court has passed a conditional order and as a consequence of which the Borrower had deposited Rs. 3 Crore which was shared by all the secured lenders. Therefore, this part payment again shows that the acknowledgment of liability and extension of contract.

7. Counsel for the Respondents also placed reliance on Section 18 of the Limitation Act to suggest that the Application is not barred by limitation as
the limitation starts from the date of acknowledgement, which reads as follows:

18. Effect of acknowledgment in writing.— (1) Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.

Explanation.—For the purposes of this section,—

(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;

(b) the word “signed” means signed either personally or by an agent duly authorised in this behalf; and

(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.”

8. For counting the period of limitation in filing the application under Section 7, we find that Part II of Third Division of Schedule of Limitation Act, 1963 i.e. Article 137 is applicable, which reads as follows:

Part II-OTHER APPLICATION
Description of application : 137. Any other application for which no period of limitation is provided elsewhere in this division. 

Period of Limitation: Three years 

Time from which period begins to run: When the right to apply accrues

9. From the aforesaid provisions, it is clear that the limitation will start from the date of accrual of right. The accrual of right is also to be noticed from the date of confirmation or acknowledgment of the debt and to be read along with Section 18 of the Limitation Act, 1963.

10. It was in this background, as far back as on 17th March, 2015, the ‘Corporate Debtor’ acknowledged the debt for the purpose of accepting the liability under Section 18 of the Limitation Act, 1963, as extracted below: (see pdf file attached with this article).

11. In view of the aforesaid facts and provisions of law, we hold that the application under Section 7 is not barred by limitation and the Adjudicating
Authority has rightly admitted the application under Section 7.

We find no merit in this appeal. It is accordingly dismissed. No costs.

[Justice S.J. Mukhopadhaya]
Chairperson
[ Justice A.I.S. Cheema ]
Member (Judicial)
[ Kanthi Narahari ]
Member (Technical)
NEW DELHI
13th November, 2019
/AR/

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