Acknowledged Payment Within Limitation Period Extends Limitation under Section 19 of the Limitation Act for Section 9 IBC Application
- REEDLAW
- Apr 7
- 3 min read
NCLAT held that an acknowledged payment made within the limitation period extends the limitation under Section 19 of the Limitation Act, thereby rendering the Section 9 IBC application filed by the Operational Creditor as within time.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra, while reviewing an appeal along with an interlocutory application, held that a payment made within the limitation period, when subsequently acknowledged in writing by the debtor—such as through a reply to a demand notice—fulfills the conditions under Section 19 of the Limitation Act. This acknowledgment thereby extends the limitation period for filing an application under Section 9 of the IBC, which is governed by Article 137 of the Limitation Act.
The National Company Law Appellate Tribunal (NCLAT) adjudicated upon an appeal filed by the Corporate Debtor challenging the order of the Adjudicating Authority (NCLT, Chandigarh Bench) dated 05.07.2024, wherein the preliminary objection regarding limitation under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) was rejected. The dispute arose out of supply transactions between Napin Inpex Limited (Operational Creditor) and the Corporate Debtor, which took place between 03.01.2018 and 16.08.2018. The last payment amounting to Rs. 3 Lakhs was made by the Corporate Debtor on 26.08.2019. A demand notice under Section 8 of the IBC was subsequently issued on 16.09.2022, and was responded to on 28.09.2022. The Operational Creditor filed its Section 9 application on 29.11.2023.
The Corporate Debtor contended that the application was barred by limitation, arguing that the payment dated 26.08.2019 was not accompanied by any written acknowledgment as mandated by Section 19 of the Limitation Act, 1963. In contrast, the Operational Creditor submitted that the bank transfer made on the said date, followed by the Corporate Debtor’s acknowledgment in the reply to the demand notice, satisfied both the essential conditions required under Section 19. The Adjudicating Authority, considering these submissions and applying the principles laid down by the Hon’ble Supreme Court in its suo motu order in Suo Moto Writ Petition (C) No. 3 of 2020, held that the Section 9 application was filed within the prescribed limitation period.
The Appellate Tribunal upheld this reasoning, noting that Article 137 of the Limitation Act, 1963, applied to applications filed under Section 9 of the IBC. It rejected the Appellant’s argument that Article 1 applied, thereby rendering the precedents cited by the Appellant inapplicable. In doing so, the Tribunal distinguished the reliance placed on the Ramdas Dutta v. IDBI Bank Limited and Another, REEDLAW 2023 NCLAT Del 04592 judgment, where the Tribunal had disallowed the benefit of a payment entry as it did not fulfill the criteria of acknowledgment under Section 19. Drawing from the decisions of the Hon’ble Supreme Court in Shanti Conductors (P) Limited v. Assam State Electricity Board and Others, REEDLAW 2019 SC 12003 and Sant Lal Mahton v. Kamla Prasad, the Tribunal reiterated that for the application of Section 19, the payment must be made within the limitation period and acknowledged in the handwriting or in writing signed by the debtor.
Upon examining the material on record, the Tribunal found that the last payment on 26.08.2019 was clearly reflected in the ledger as a “bank receipt” and that the Corporate Debtor’s reply to the demand notice referred to the said transaction, thereby fulfilling the conditions of Section 19. The Tribunal further noted that the other judgments cited by the Appellant, including Laxmi Trading Corporation v. Hindustan Construction Company Limited, REEDLAW 2024 NCLAT Del 02600 and Murphy Steel v. Gujarat Wedge Wire Screens Limited, REEDLAW 2024 NCLAT Del 03516, were distinguishable as they dealt with situations where either the payments were not within the limitation period or the threshold criteria under the IBC were not met.
Accordingly, the Appellate Tribunal concluded that the Section 9 application was not barred by limitation, and there was no error in the order of the Adjudicating Authority granting the benefit of Section 19 of the Limitation Act. Finding no merit in the appeal, the Tribunal dismissed it.
Mr. Anil Kaushik, Sr. Advocate with Mr. Uttam Datta, Ms. Sonakshi Singh, Mr. Kumar Bhaskar and Mr. Vishal Bansal, Advocates, represented the Appellant.
Mr. Avneesh Arputham and Mr. Ankit Sharma, Advocates, appeared for the Respondent.
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