National Company Law Appellate Tribunal
Edelweiss Assets Reconshâ·Uction ... vs Nishiland Park Limited on 28 July, 2022
1
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH,
NEW DELHI
Company Appeal (AT) (Insolvency) No. 528 of 2021
IN THE MATTER OF:
Edelweiss Assets Reconstruction Company Limited.
Edelweiss House,
Off CST Road, Kalina,
Mumbai - 40098 ... Appellant
Versus
Nishiland Park Limited
Gala Woodworks Compound,
Opp. BD Chawl No. 114,
Worli, Mumbai - 400 018 ... Respondent
Present:
For Appellant: Mr. Ramji Srinivasan, Sr. Adv. With Mr. Aditya
Vashisth, Mr. Akshay Kapoor and Rajshree, Advocates
For Respondent: Mr. Shanay Shah, Advocate
JUDGEMENT
Per: Justice Rakesh Kumar Jain.
This appeal is directed against the order dated 08.04.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court No. I) in C.P. (IB) No. 897/MB/2019 by which an application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short 'Code') read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (in short 'Rules') by the Appellant has been dismissed on the ground of limitation.
2. In brief, Tourism Finance Corporation of India (TFCI) sanctioned a term loan of Rs. 5,00,00,000/-, repayable in 20 quarterly instalments of Rs.
Company Appeal (AT) (Insolvency) No. 528 of 2021 2 25,00,000/- each on 24.09.1996 to Nishiland Park Limited (Corporate Debtor). However, a sum of Rs. 4,75,00,000/- was disbursed and the Corporate Debtor executed a deed of hypothecation and other security documents in favour of TFCI. TFCI initiated proceedings under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (in short 'SARFAESI Act') against the Corporate Debtor by serving demand notice on 14.01.2003. However, TFCI assigned its debt of the Corporate Debtor on 27.09.2013 by executing an Assignment Agreement in favour of the present Appellant. The Corporate Debtor and Mr. Paresh Shah (as Mortgagor) were confirming parties to the Assignment Agreement. The Appellant had issued a demand notice under the SARFAESI Act on 13.12.2014 to the Corporate Debtor and its guarantor to pay the amount due and took possession of the Breach Candy Flat mortgaged by the Corporate Debtor, in terms of Rule 8(1) of the SARFAESI Rules. It is alleged that the Corporate Debtor had acknowledged the debt of Rs. 112,30,00,000/- vide letter dated 05.12.2016 and while filing the application under Section 7 of the Code, the Appellant has shown in Part IV of Form-I that the amount of Rs. 522,46,05,338/- was due on the date of default.
3. On the other hand, the case set up by the Corporate Debtor is that the default had occurred on 23.06.1998 (mentioned in the Petition as 1998). Whereas the application was filed under Section 7 of the Code on 04.03.2019, therefore, it is beyond the period of limitation as the application was required to be filed within a period of three years from the date of default, in view of the residuary Article 137 of the Limitation Act, 1961 and Company Appeal (AT) (Insolvency) No. 528 of 2021 3 catena of judgments of the Hon'ble Apex Court that the limitation is 3 years from the date of default.
4. It is also alleged that the Assignment Agreement dated 27.09.2013, deed of mortgage dated 24.03.2014 or letter of acknowledgement dated 05.12.2016 and books of accounts/balance sheet as on 31.03.2014 came into existence after a period of 3 years of accrual of cause of action on 23.06.1998 and therefore, Section 18 of the Limitation Act will not come to the aid of the Appellant as it is provided that the acknowledgement shall be before the expiration of period of limitation prescribed for the suit or application in respect of any property or right.
5. The case of the Appellant is that the Corporate Debtor is a party to the Assignment Agreement dated 27.09.2013 in which the liability of Rs. 154,54,30,204 has been confirmed by the Corporate Debtor. The Corporate Debtor had filed an application for modification of charge, in terms of Section132 read with Section 135 of the Companies Act, 1956 on 19.11.2013, in favour of the Appellant, with the Registrar of Companies and the Corporate Debtor had also executed a Deed of Mortgage in favour of the Appellant on 24.03.2014.
6. The case of the Appellant is that the Corporate Debtor had acknowledged the liability in writing on 05.12.2016 which is also reflected in the balance sheet of 2013-14 of the Corporate Debtor. It is the case of the Appellant that after the execution of Assignment Agreement, the Corporate Debtor made the payments of Rs. 75,00,000/- on 12.06.2015 and Rs. 50,00,000/- on 24.06.2015 to the Appellant. The Adjudicating Authority dismissed the application on the ground that the date of default mentioned Company Appeal (AT) (Insolvency) No. 528 of 2021 4 in the Petition is of the year 1998 and the application under Section 7 of the Code was filed on 04.03.2019, after 21 years, it is observed that:
"iv. Since the Assignment Agreement dated 27.09.2013 is much beyond 3 years after the date of default, the contention that Section 25(3) of the Contract Act would be an exception to the provisions of Section 18 of the Limitation Act, would not have any relevance as far as triggering off date of default is concerned. This Argument may be appropriate in a recovery proceeding. This proceeding not being a recovery proceeding, this argument cannot be accepted.
v. The date of default mentioned in the Petition relates to pre- assignment era and the said default cannot be related to post assignment proceedings.
vii. Even assuming that Section 18 of the Limitation Act is applicable, the letter of acknowledgement dated 05.12.2016 is beyond three years from 27.09.2013, the date of Assignment Agreement. The sine qua non for application of Section 18 of Limitation Act is that the acknowledgement of liability in writing must be before the expiration of the prescribed period (of limitation) for a suit or application. Thus, viewed from any perspective Section 18 of the Limitation Act would have no application. In that view of the matter the Petitioner's contention that Section 25(3) of the Contract Act would apply as an exception to Section 18 of the Limitation Act would not come to the aid of the Petitioner as indicated supra."
7. Assailing the aforesaid findings of the Adjudicating Authority, Counsel for the Appellant has submitted that there is an error on the part of the Adjudicating Authority in not appreciating Section 25(3) of the Indian Contract Act which has though mentioned in the impugned order but true import has not been discussed anywhere in the findings recorded for the purpose of dismissal of the application. It is also submitted that while discussing the effect of Section 18 of the Limitation Act, the fact about the part payments made from time to time, extending the period of limitation has also not been noticed. It is submitted that the Adjudicating Authority has unnecessarily been swayed with the fact that the date of default is in Company Appeal (AT) (Insolvency) No. 528 of 2021 5 the year 1998, in the Application filed under Section 7 of the Code, without looking into fact that the period of limitation started afresh with the execution of the Assignment Agreement dated 27.09.2013. In this regard, he has referred to certain terms and conditions of the Assignment Agreement which are reproduced as under for a quick reference:
"(f) The right of the Assignor to recover under the Financing Documents have not been barred by limitation;
(g) As per its Assignor's books, the outstanding in respect of the Assigned Loan is Rs. 154,54,30,204/- [Principal amount Rs.
3,25,82,265/- and interest including liquidated damages) Rs. 151,28,47,939/-] as on 31.05.2013 alongwith further interest and charges thereon and any interest accrued thereon, penal interest, redemption premium, fees, costs, charges, expenses and any other dues and over-dues that are outstanding and payable by the Borrower till its full realization.
(h) the Assigned Loan constitute a valid and lawful obligation of the Borrower and all such OTS granted by the Assignor earlier stand cancelled.
(i) It hereby undertakes and confirms that it shall not contest the Assigned Loan or the assignment of the Assigned Loan to the Assignee.
(j) It shall pay the Amounts Due in respect of the Assigned Loan to the Assignee as and from the effective date in terms of the financing documents, the Borrower is not entitled to any right of set off, counter claim, deduction, recoupment, recovery, recourse, revision or rebate in respect of any amount under the Financing Documents or Applicable law.
(k) The Borrower hereby confirms that the entire Assigned Loan shall be a lawful claim by the Assignee on the Borrower from the date of this Deed and all payments in future in respect of the Assigned Loan shall be made to the Assignee."
8. Counsel for the Appellant has argued that the Adjudicating Authority has failed to appreciate that though initially the default occurred in respect of the financial assistance in the year 1998 but the debt was subsequently revived by the Corporate Debtor in favour of the Appellant by becoming a confirming party and signatory to the Assignment Agreement with an express promise to pay, creating a fresh contractual liability to pay the Company Appeal (AT) (Insolvency) No. 528 of 2021 6 entire debt from the effected date i.e. the date of the Assignment Agreement. The Appellant has placed reliance upon Section 25(3) of the Indian Contract Act, 1872 which is reproduced as under:-
"25(3). It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract."
9. Referring to the above provision, it is submitted that the unconditional acknowledgement to repay the debt by the Corporate Debtor to the Appellant is an express promise to pay. In this regard, he has relied upon the following decisions in the case of A. V Murthy Vs. BS Nagabasavanna [(2002) 2 SCC 642], Dinesh Choksi Vs. Rahul Vasudeo Bhatt [(2012) SCC Online Bom 1585], Madishetti Shekhar Vs. Pulivala Komureli (AIR 2008 AP 131), R. Suresh Chandra & Co. Vs. Vadnere Chemical Works & Ors. (AIR 1991 BOM 44), SBI Vs. Kanahiya Lal [(2016) 157 DRJ 403], Sri Kapaleeswara Temple, Mylapore Vs. T. Tirunavukarasu (AIR 1975 Mad 164), ARM Nizmathuallah Vs. Vaduganathan [2007 (5) CTC 488] and Adivelu Vs. Narayanachari (2004 SCC Online 555).
10. It is further submitted that insofar as the extension of period of limitation in view of Section 18 of the Limitation Act is concerned it has to be seen from the events subsequent to the Assignment Agreement dated 27.09.2013 (Effective Date). The first partial repayment of Rs. 75,00,000/- was made by the Corporate Debtor on 12.06.2015, falling within the period of limitation counted from 27.09.2013 and having the effect of extending the period of limitation for further 3 year therefrom. Another partial repayment Company Appeal (AT) (Insolvency) No. 528 of 2021 7 of Rs. 50,00,000/- was made extending the limitation period again for three years i.e. up to 24.06.2018 and the Corporate Debtor finally vide letter dated 05.12.2016, conceded the debt within the limitation period running upto 2018 extended the period of limitation from 05.12.2016 till 05.12.2019 whereas the application under Section 7 of the Code was filed on 04.03.2019 i.e. within the period of limitation.
11. Counsel for the Appellant has also submitted that law in regard to the extension of limitation period, in terms of Section 18 and 19 of the Limitation Act, 1961, applicable on initiation of Insolvency proceedings is no longer res integra and has referred to the following decisions in the case of Asset Reconstruction Company (India) Limited Vs. Bishal Jaiswal and Anr. (Civil Appeal No. 323 of 2021), Laxmi Pat Surana Vs. Union Bank of India& Anr. (Civil Appeal No. 2374 of 2020), Yogesh Kumar Jashwantlal Thakar Vs. Indian Overseas Bank and Ors. (2020) SCC Online NCLAT 636 and Dena Bank Vs. C. Shiva Kumar Reddy and Anr. (Civil Appeal No. 1650 of 2020.
12. On the other hand, Counsel for the Respondent has submitted that there is no error in the order impugned herein as it is the case of the Appellant itself that the default had occurred in the year 1998 and the period of three years has since been expired and the limitation cannot be revived by the Assignment Agreement. It is also submitted that even though the debt has been assigned to the Appellant by the Assignment Agreement dated 27.09.2013, the application under Section 7 of the Code came to be filed on 04.03.2019 after a period of 6 years whereas the limitation, in terms of Article 137 of the Limitation Act, 1961 is three years from the date of default. It is submitted that even Section 18 of the Limitation Act, 1961 is of Company Appeal (AT) (Insolvency) No. 528 of 2021 8 no help to the Appellant as it has been rightly held by the Adjudicating Authority that the letter of acknowledgement dated 05.12.2016 was beyond the period of three years from 27.09.2013. It is, therefore, argued that looking from any angle, the application filed under Section 7 of the Code by the Appellant is barred by limitation as has rightly been held by the Adjudicating Authority.
13. We have heard Counsel for the parties and perused the record with their able assistance.
14. There are two issues in this appeal. The first issue is as to what is the import of Section 25(3) of the Indian Contract Act, 1872 and the second issue is as to whether the period of limitation has been extended in view of Section 18 of the Limitation Act, 1961 with the time-to-time partial payment and admission of debt by the Corporate Debtor?
15. It is an admitted fact that the period of three years had expired from the alleged date of default occurred in the year 1998 but there is no denial to the fact also that the Assignment Agreement was executed on 27.09.2013 between TFCI and the Appellant, assigning their entire debt of the Corporate Debtor and in the said agreement the Corporate Debtor and one Mr. Paresh Shah (as mortgagor) were confirming parties to the Assignment Agreement. As a matter fact, with the execution of the Assignment Agreement dated 27.09.2013, a fresh agreement for the payment of dues came into being and a period of three years began from the said date.
16. The Hon'ble Supreme Court in the case of A. V Murthy (Supra) held that:
Company Appeal (AT) (Insolvency) No. 528 of 2021 9 "5. ...........It is also pertinent to note that under sub-section (3) of Section 25 of the Indian Contract Act, 1872, a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits, is a valid contract. Moreover, in the instant, the appellant has submitted before us that the respondent, in his balance sheet prepared for every year subsequent to the loan advanced by the appellant, had shown the amount as deposits from friends. A copy of the balance sheet as on 31st March 1997 is also produced before us. If the amount borrowed by the respondent is shown in the balance sheet, it may amount to acknowledgement and the creditor might have a fresh period of limitation from the date on which the acknowledgement was made. However, we do not express any final opinion on all these aspects, as these are matters to be agitated before the Magistrate by way of defence of the respondent."
17. The Hon'ble Bombay High Court in the case of Dinesh B. Chokshi (Supra) held that:-
"8. Section 25 of the Contract Act reads thus:-
"25. Agreement without consideration void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.--An agreement made without consideration is void, unless--
(1) it is expressed in writing and registered under the law for the time being in force for registration of [documents], and is made on account of natural love and affection between parties standing in a near relation to each other; or unless ash 10 crappln-2933.07-
grp (2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless (3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract."
9. Thus, Sub-section (3) of Section 25 of the Contract Act is an exception to the general rule that an agreement made without Company Appeal (AT) (Insolvency) No. 528 of 2021 10 consideration is void. Sub-section (3) of Section 25 of the Contract Act applies to a case where there is a promise made in writing and signed by a person to be charged therewith to pay wholly or in part a debt which is barred by law of limitation. A promise covered by Sub-section (3) becomes enforceable agreement notwithstanding the fact that it is a promise to pay a debt which is already barred by limitation. Thus, Sub-section (3) of Section 25 of the Contract Act applies to a promise made in writing which is signed by a person to pay a debt which cannot be recovered by reason of expiry of period of limitation for filing a suit for recovery. Therefore, if a debtor after expiry of the period of limitation provided for recovery of debt makes a promise in writing signed by him to pay the debt wholly or in part, the said promise being governed by Sub-section (3) of Section 25 of the Contract Act becomes ash 11 crappln-2933.07-grp an agreement which is enforceable in law. By virtue of the promise governed by Sub- section (3) of Section 25 of the Contract Act, the time barred debt becomes enforceable. The Sub-section (3) of Section 25 of the Contract Act does not apply to promise to pay all categories of debts which are not enforceable in law. It applies only to a debt which is not recoverable in law only on the ground of bar created by the law of limitation. Thus, the promise under Sub-section (3) of Section 25 of the Contract Act will not validate a debt which is not enforceable on a ground other than the ground of bar of limitation. For example, if there is a promise to pay an amount advanced for immoral purposes which is hit by Section 23 of the Contract Act, it will not attract Sub-section (3) of Section 25 of the Contract Act and the said provision will be attracted only when a promise is made in writing and signed by the promisor to pay a debt which is barred by limitation."
18. The Hon'ble Andhra Pradesh High Court in the case of Madishetti Shekhar (Supra) held that:
"19. A plain reading of Section 25(3) of the Contract Act, 1872 shows that an agreement containing a promise with regard to a time barred debt falls within the exception provided under Section 25 of the Contract Act and makes it a valid transaction which can be enforced by law.
22. Hence, the finding of fact recorded by the Courts below that Ex. A1 agreement is an acknowledgement of the liability of the 1st defendant in respect of the debt availed by him in the year 1997 does not suffer from any infirmity. Consequently, the suit cannot be held to be barred by limitation. Though no specific issue was framed, the trial court as well as lower Appellate Court for different reasons held that the suit was not barred by limitation. The said conclusion being in accordance with the settled principles of law warrants no interference by this Court."
Company Appeal (AT) (Insolvency) No. 528 of 2021 11
19. The Hon'ble Bombay High Court in the case of R. Suresh Chandra & Co. (Supra) held that:
10. .......I understand that after the expiry of the period of limitation nothing short of a clear promise can provide a fresh period of limitation. But such a promise can also be inferred by necessary implication. The Supreme Court in (Hiralal v.
Badkulal)2, A.I.R. 1953 S.C. 225 quoted with approval a Privy Council decision in (Maniram v. Seth Rupchand)3, 33 Ind. Appeals 165 (P.C.)(C.), that an unconditional acknowledgement was sufficient to furnish a cause of action for it implied a promise to pay. A decision of the Allahabad High Court to the contrary (A.I.R. 1935 All. 129), was held as not laying down good law. There is nothing ambiguous about Ex. D. It says that as on 13- 11-1974 defendant 1 is indebted to plaintiff to the extent of Rs. 3,40,652.26 ps. The balance sheet is signed by defendant 3 who is a partner of the firm. Her competence to bind the firm is not disputed. Being thus, clear, it amounts to a promise within the meaning of section 25(3) of the Contract Act. If so, the suit is plainly within time.
20. The Hon'ble Delhi High Court in the case of State Bank of India (Supra) held that:
16. A bare perusal of the aforesaid provision would indicate that the period of limitation is extended in the event of an acknowledgement of liability made before the expiration of the period of limitation for any suit. It was argued by the respondent/defendant that since the aforesaid two letters were obtained/written after the period of limitation expired for preferring the suit, and therefore those letters could not have been treated as validating letters.
17. The aforesaid contention of the defendants/respondents was sought to be repelled on the premise that the aforesaid two letters were not merely acknowledgments of the liability to pay but were in the nature of a promise to pay a debt notwithstanding the recovery of the same being barred by limitation. A reference was made to the provisions of Section 25(3) of the Indian Contract Act.
21. From a bare reading of the aforesaid two letters (Ex.PW2/2 and Ex.PW2/3), it would appear that the respondents have clearly admitted their liability of the outstanding dues towards the Bank, only for the purposes of restituting the Bank. The contents of the aforesaid two letters are nothing short of an acknowledgment of Company Appeal (AT) (Insolvency) No. 528 of 2021 12 the dues as also an implied promise to pay. The promise to pay as required under Section 25(3) of the Indian Contract Act need not be express and can be implied or inferred as well. Any acknowledgment of liability is necessarily an admission of the fact that the maker owes money to the creditor. The only corollary of such an acknowledgment is that the same is payable and that the person making the acknowledgement would pay such amount or else there would be no requirement of making any such acknowledgment.
29. Aforesaid letters (Ex.PW-2/2 & Ex.PW-2/3) indicate the categorical endorsement of the liability to make the payments, and thus, it could be treated as an implied promise to pay. The circumstances under which such an acknowledgement was made, viz. after the reminders by the Bank for repayment of the loan amount, further lends support to the hypothesis that the aforesaid letters are in the nature of a promise to pay. Prior to the aforesaid acknowledgements, there was a confirmation of the balance amount by the respondent/defendant. Any written acknowledgment after the confirmation of the balance amount can safely be treated as a promise to pay and not mere acknowledgement."
21. The Hon'ble Madras High court in the case of Sri Kapaleeswara Temple (Supra) held that:
5. The question as to how far a contractual obligation created under Section 25(3) of the Indian Contract Act is enforceable in a Court of law has come up for consideration in several ways. In Kishen Lal v. Gohli, AIR 1938 Lah 757 it was held that when a promise falls under Sub-section (3) of Section 25. it constitutes a valid agreement for the purpose of suing, whether there is a fresh consideration for the promise or not and it is immaterial whether the debts covered thereby are within limitation or not." Niaz Ahmad Khan v. Parshotam Chandra, ILR 53 All 374 = (AIR 1931 All 154) holds that where a mortgage was executed in lieu of an amount due on an earlier bond, a suit on which bond had abated, the mortgage does not fall to the ground owing to the absence of consideration. In Varadaraja Appa Rau v. Suryaprakasa Rau, (1899) 9 Mad LJ 330 a Bench of this Court held:
"In order to satisfy the requirements of Section 25, Clause (3). Contract Act, a document need not show any intention of creating a fresh obligation in consideration of the barred debt: nor need the debt be known to be barred at the date of the document."
Company Appeal (AT) (Insolvency) No. 528 of 2021 13 Kasturchand Jiwaji v. Manekchand Devchand, AIR 1943 Bom 447 also lays down :
"The conditions necessary to constitute a promise within Section 25(3) are that it should be made in writing: be signed by the person to be charged therewith; and be a promise to pav wholly or in part a debt, of which the creditor might have enforced payment but for the law for the limitation of suits. The clause does not require that in the writing itself the consideration should be described as past debt, when in fact it was such past debt and was known to the debtor as such."
David Sutherland. Clark v. Rose Grimshaw. 73 Ind Cas 652 = (AIR 1923 Lah 481) holds a written promise to pay a barred debt is not a bond within the meaning of the Stamp Act and is not required by any of the provisions of the Act to be stamped, and conseauently the suit was within limitation from the date of the letters, although the debt had become barred before the letters were written. A Bench decision of this Court in Mrs. C. Simon v. M. G. Arogiasami Pillai, 25 Ind Cas 361 = (AIR 1915 Mad 242) in my opinion, provides a complete answer for the matter in question in this revision petition. The Bench held as follows :
"A barred debt is a valid consideration for a promise to pay under Section 25 of the Indian Contract Act even if the promiser did not know it to be barred on the date of the promise."
Repelling the contention of the defendant therein that part of the claim was barred by limitation on the date the letter was executed and consequently the letter cannot be treated as evidence of an agreement under Section 25 of the Contract Act to pay a barred debt, the Bench observed as follows:
"Assuming that the debt or a portion thereof was barred, the letter contains an unconditional promise to pay whatever balance might be found to be due to the plaintiff. This is a valid agreement under Section 25 of the Contract Act."
6. It is thus clear that there are a catena of decisions and plethora of authority for holding that though a debt might have become time-barred on the date a debtor entered into a fresh obligation with the creditor to Day the liability, the said obligation, if it satisfies the conditions laid down in Section 25(3) of the Indian Contract Act, will amount to a fresh contract in the eye of law and can certainly be made the basis of an action for recovering the amount promised and acknowledged therein by the debtor. While Section 18 of the Limitation Act (Section 19 of the old Act) deals with an acknowledgment made by a debtor within the period of limitation, the contractual obligation which a Company Appeal (AT) (Insolvency) No. 528 of 2021 14 debtor enters into under the terms of Section 25(3) has no reference whatsoever to the acknowledged debt being within time or not. In that sense, the provision contained in Section 25(3) is far wider in scope than the acknowledgment contemplated in Section 18 of the Limitation Act. The contract entered into under Section 25(3) is an independent and enforceable contract and has no reference to the debt acknowledged under the contract being a live one in the sense that it had not become barred under the law of limitation.
22. The Hon'ble Madras High Court in the case of ARM Nizmathuallah (Supra) held that:
"6.Now, the question is whether the debt is legally enforceable one or not. In the complaint the date of the accused borrowing the amount or the date of the Promissory Note is not mentioned. But, it is stated in the complaint that on 02.12.1998, the accused had given an acknowledgment letter to the complainant by accepting his liability and promising him to repay the same along with the interest. So, on that basis, from 02.12.1998, the period of limitation of three years expires on 01.12.2001. Even according to the complaint, the debt is barred by limitation.
7.Section 25 and section 25(3) of the Contract Act reads as follows: "25.Agreement without consideration, void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law. - An agreement made without consideration is void, unless-
(1)......
(2)......
(3)it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which of creditor might have enforced payment but for the law for the limitation of suits.
In any of these cases, such an agreement 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 the promisor is freely given is not void merely because the consideration is inadequacy of the consideration may be taken Company Appeal (AT) (Insolvency) No. 528 of 2021 15 into account by the Court in determining the question whether the consent of the promisor was freely given.
Illustrations:
(a).......
(b).......
(c).......
(d).......
(e)A owes Rs.1,000/- but the debt is barred by the Limitation Act.
A signs a written promise to pay B Rs.500/- on account of the debt. This is a contract."
8.In view of section 25(3) of the Act, when a debt has become barred by limitation, a written promise to pay, furnishes a fresh cause of action. Section 25(3) of the Act in substance does is not to revive a dead right, for the right is never dead at any time, but to resuscitate the remedy to enforce payment by suit, and if the payment could be enforced by a suit, it means that it still has the character of legally enforceable debt as contemplated by the explanation under section 138 of the Act. In view of the illustration (e), the cheque becomes a promise made in writing, to pay under section 25(3) of the Act."
23. The Hon'ble High Court of Karanatatka in the case of Adivelu (Supra) held that:
5. Acknowledgment of liability is nothing but an admission of the truth of one's own liability. It is well settled that an unqualified, unequivocal and unconditional acknowledgment of a debt is a clear admission of the liability to pay it. Such an admission may be in any form and may be 'express' or 'implied', as held by the Supreme Court in the case of SHAPOOR FREEDOM MAZDA v.
DURGA PRASAD CHAMARIA AND ORS., . But, whatever may be the form, regard must be had to the meaning of the writer by judging the acknowledgment as a whole and also such surrounding circumstances as the Court can take into consideration in construing the acknowledgment rather than to the literal meaning of the words used in it. And while doing so, such acknowledgment requires to be construed liberally, as held in the case of Shapoor Freedom Mazda (Supra).
Company Appeal (AT) (Insolvency) No. 528 of 2021 16
6. An acknowledgment under Section 18 of the limitation Act and a promise under Section 25(3) of the Contract Act are required to be in writing and signed by the debtor or his authorised agent and both have the effect of giving fresh start of limitation. But, there is a distinction between the two. While an acknowledgment under Section 18 of the Limitation Act must necessarily be made before the expiry of the period of Limitation, a promise under Clause 3 of Section 25 of the Contract Act is made after the expiry of the period of limitation. Where a promise falls under Section 25(3) of the Contract Act, it constitutes a valid agreement for the purpose of suing, whether or not there is a fresh consideration for the promise and the debt covered thereby is within the limitation.
7. Further, whenever an acknowledgment is coupled with an agreement to pay interest, it is not regarded as a mere acknowledgment but an agreement importing a promise to pay within the meaning of Section 25(3) of the Act. Similarly, where an acknowledgment contains a clear promise to pay, such as fixing a date for payment and so on, such an acknowledgment amounts to a 'promise' to pay. So also, where the debtor by a letter proposes to pay a time barred debt in monthly installments and pays some of the installments, the acceptance of the installment amounts to acceptance of the proposal by the creditor and the proposal is converted into a 'promise'.
24. The Appellant could have filed an application under Section 7 up to 27.09.2016, taking 27.09.2013 as the effective date. However, the application under Section 7 was filed on 04.03.2019. The question is thus as to whether the Appellant has lost the opportunity to prefer the application under Section 7 of the Code?
25. There is no dispute about the fact that the debt has been acknowledged by the Corporate Debtor in its balance sheet for the year 2013-14. The first partial repayment of Rs. 75,00,000/- was made by the Corporate Debtor on 12.06.2015. The finding recorded by the Adjudicating Authority does not talk of this partial payment which acknowledges the debt and extends the period of limitation from the said date i.e. 12.06.2015 for another period of three years.
Company Appeal (AT) (Insolvency) No. 528 of 2021 17
26. The Hon'ble Supreme Court in the case of Asset Reconstruction Company (India) Limited (Supra) held that:
8. The aforesaid question is no longer res integra as two recent judgments of this Court have applied the provisions of Section 14 and Section 18 of the Limitation Act to the IBC. Thus, in Sesh Nath Singh v.Baidyabati Sheoraphuli Co-operative Bank Ltd., Civil Appeal No. 9198 of 2019 (decided on 22.03.2021), after setting out the issues that arose in that case in paragraph 57, and after referring to Section 238A of IBC, held:
"66. Similarly under Section 18 of the Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and 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 acknowledgement is signed. However, the acknowledgement must be made before the period of limitation expires.
67. As observed above, Section 238A of the IBC makes the provisions of the Limitation Act, as far as may be, applicable to proceedings before the NCLT and the NCLAT. The IBC does not exclude the application of Section 6 or 14 or 18 or any other provision of the Limitation Act to proceedings under the IBC in the NCLT/NCLAT. All the provisions of the Limitation Act are applicable to proceedings in the NCLT/NCLAT, to the extent feasible.
68. We see no reason why Section 14 or 18 of the Limitation Act, 1963 should not apply to proceeding under Section 7 or Section 9 of the IBC. Of course, Section 18 of the Limitation Act is not attracted in this case, since the impugned order of the NCLAT does not proceed on the basis of any acknowledgement."
9. Nearer home, in Laxmi Pat Surana v. Union Bank of India, Civil Appeal No. 2734 of 2020, a judgment delivered on 26.03.2021, this Court, after referring to various judgments of this Court, including the judgment in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 ["Babulal"], then held:
"35. The purport of such observation has been dealt with in the case of Babulal Vardharji Gurjar (II) [Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1]. Suffice it to observe that this Court had not ruled out the application of Section 18 of the Limitation Act to the proceedings under the Code, if the fact situation of the case so warrants.
Company Appeal (AT) (Insolvency) No. 528 of 2021 18 Considering that the purport of Section 238A of the Code, as enacted, is clarificatory in nature and being a procedural law had been given retrospective effect; which included application of the provisions of the Limitation Act on case-to-case basis. Indeed, the purport of amendment in the Code was not to reopen or revive the time barred debts under the Limitation Act. At the same time, accrual of fresh period of limitation in terms of Section 18 of the Limitation Act is on its own under that Act. It will not be a case of giving new lease to time barred debts under the existing law (Limitation Act) as such.
36. Notably, the provisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable. For, Section 238A predicates that the provisions of Limitation Act shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the NCLAT, the DRT or the Debt Recovery Appellate Tribunal, as the case may be. After enactment of Section 238A of the Code on 06.06.2018, validity whereof has been upheld by this Court, it is not open to contend that the limitation for filing application under Section 7 of the Code would be limited to Article 137 of the Limitation Act and extension of prescribed period in certain cases could be only under Section 5 of the Limitation Act. There is no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the Code. Section 18 of the Limitation Act reads thus:
"18. Effect of acknowledgement in writing.-(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement 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 acknowledgement was so signed. (2) Where the writing containing the acknowledgement 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 acknowledgement 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;
Company Appeal (AT) (Insolvency) No. 528 of 2021 19
(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."
37. Ordinarily, upon declaration of the loan account/debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 of the Code. However, Section 7 comes into play when the corporate debtor commits "default". Section 7, consciously uses the expression "default" - not the date of notifying the loan account of the corporate person as NPA. Further, the expression "default" has been defined in Section 3(12) to mean non- payment of "debt" when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. In cases where the corporate person had offered guarantee in respect of loan transaction, the right of the financial creditor to initiate action against such entity being a corporate debtor (corporate guarantor), would get triggered the moment the principal borrower commits default due to non-payment of debt. Thus, when the principal borrower and/or the (corporate) guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of three years therefrom including the fresh period of limitation due to (successive) acknowledgements, it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act. Section 18 of the Limitation Act gets attracted the moment acknowledgement in writing signed by the party against whom such right to initiate resolution process under Section 7 of the Code enures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgement, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgement of the debt, from time to time, for institution of the proceedings under Section 7 of the Code. Further, the acknowledgement must be of a liability in respect of which the financial creditor can initiate action under Section 7 of the Code."
27. The Hon'ble Supreme Court in the case of Laxmi Pant Surana (Supra) held that:
35. The purport of such observation has been dealt with in the case of Babulal Vardharji Gurjar (II) (supra). Suffice it to observe that this Court had not ruled out the application of Section 18 of Company Appeal (AT) (Insolvency) No. 528 of 2021 20 the Limitation Act to the proceedings under the Code, if the fact situation of the case so warrants. Considering that the purport of Section 238A of the Code, as enacted, is clarificatory in nature and being a procedural law had been given retrospective effect;
which included application of the provisions of the Limitation Act on casetocase basis. Indeed, the purport of amendment in the Code was not to reopen or revive the time barred debts under the Limitation Act. At the same time, accrual of fresh period of limitation in terms of Section 18 of the Limitation Act is on its own under that Act. It will not be a case of giving new lease to time barred debts under the existing law (Limitation Act) as such.
36. Notably, the provisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable. For, Section 238A predicates that the provisions of Limitation Act shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the NCLAT, the DRT or the Debt Recovery Appellate Tribunal, as the case may be. After enactment of Section 238A of the Code on 06.06.2018, validity whereof has been upheld by this Court, it is not open to contend that the limitation for filing application under Section 7 of the Code would be limited to Article 137 of the Limitation Act and extension of prescribed period in certain cases could be only under Section 5 of the Limitation Act. There is no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the Code.
28. The Hon'ble NCLAT in the case of Yogeshkumar Jashwantlal Tahkkar, Suspended Director (Supra) held that:
38. At this stage, this Tribunal, had perused the various confirmation letters as stated supra which are legally valid and binding documents between the inter se parties and the same cannot be repudiated on one pretext or other. Therefore, this Tribunal comes to an inevitable, inescapable and irresistible conclusion that the date of default i.e 01.01.2016 gets extended by the debit confirmation letters secured by the 1st Respondent/Bank from the Corporate Debtor (for making a new period run from the date of debit confirmation letters) towards the outstanding debt in 'Loan Account'. Indeed, the application under Section 7 of the I&B Code, 2016 was filed by the 1st Respondent/Bank on 01.04.2019 before the 'Adjudicating Authority' within the period of Limitation. Furthermore, in view of the fact, that ingredients of Section 18 of the Limitation Act, 1963 are quite applicable both for 'Suit' and 'Application' and the debit confirmation letters in the instant case were duly acknowledged in accordance with Law laid down on the subject, the instant Appeal deserves to be dismissed and accordingly the Company Appeal (AT) (Insolvency) No. 528 of 2021 21 same is dismissed, since there being no legal infirmities found in the impugned order passed by Adjudicating Authority in admitting CP No. (IB) Company Appeal (AT) (Insolvency) No. 236 of 2020 34 257/7/NCLT/AHM/2019 and declaring moratorium etc. Resultantly, all connected Interlocutory Applications are closed. There shall be no order as to costs.
29. It is needless to mention that the partial repayment of Rs. 75,00,000/- was made between 27.09.2013 to 27.09.2016 and because of said payment on 12.06.2015 the period of limitation had once again extended upto 12.06.2018. The Adjudicating Authority has further lost sight of the fact that another partial repayment of Rs. 50,00,000/- was made by the Corporate Debtor on 24.06.2018 which means that now the limitation would stand extended for a period of three years up to 24.06.2018. During the period of limitation i.e. 24.06.2014 to 24.06.2018 the Corporate Debtor vide letter dated 05.12.2016 confirmed and acknowledged its entire debt due and payable to the Appellant and as a result thereof, the limitation was extended from the said date i.e. 05.12.2016 to 05.12.2019. The Adjudicating Authority has only referred to the letter dated 05.12.2016 in Para VII of the impugned order to hold that Section 18 of the Limitation Act, shall not be applicable because the acknowledgement was made on 05.12.2016 which was beyond the period of three years from 27.09.2013. Thus, the Adjudicating Authority has committed error in appreciating the facts available on record in coming to the conclusion which is apparently contrary to the record.
30. No other argument has been raised.
31. Thus, in view of the aforesaid facts and circumstances, we have no hesitation to hold that the Adjudicating Authority has committed a patent Company Appeal (AT) (Insolvency) No. 528 of 2021 22 error of law and fact while passing the impugned order, which deserves to be set aside.
32. In view of the above discussion, the present appeal is hereby allowed and the impugned order dated 08.04.2021 is set aside. The matter is remanded back to the Adjudicating Authority to consider and decide the application filed under Section 7 of the Code in accordance with law. The parties are directed to appear before the Adjudicating Authority on 15th September, 2022.
[Justice Rakesh Kumar Jain] Member (Judicial) [Dr. Alok Srivastava] Member (Technical) [Mr. Barun Mitra] Member (Technical) New Delhi 28th July, 2022 Sheetal Company Appeal (AT) (Insolvency) No. 528 of 2021