NCLAT upheld the admission of the Section 7 application despite the dispute over the quantum of debt, as the acknowledgement of debt validates the limitation extension.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) was hearing an appeal filed by a Suspended Director of the Corporate Debtor and observed that the admission of the Section 7 application was valid because the acknowledgement of debt in the letter dated July 19, 2018, extended the limitation period under Section 18 of the Limitation Act, thereby making the application timely despite the Appellant's dispute over the debt quantum.
On August 5, 2024, the National Company Law Appellate Tribunal (NCLAT) issued an order concerning an appeal filed by the Suspended Director of the Corporate Debtor against the admission of a Section 7 application. The appeal challenges an earlier order dated January 12, 2024, which had admitted the Section 7 application for insolvency resolution. The matter was taken up for hearing on April 8, 2024, where the Appellant indicated readiness to submit a settlement proposal to the Bank. However, by the next hearing on May 7, 2024, the Bank's counsel reported that no viable proposal had been submitted and that any prior proposals were rejected. Consequently, the interim protection previously granted was vacated, and the Appellant was directed to address the merits of the appeal if no settlement was reached by the next date.
In its review, the Appellant's counsel raised two primary arguments. First, it was contended that the Financial Creditor's application was barred by limitation, asserting that the application was not filed within three years from the date of default (September 30, 2016). The Adjudicating Authority addressed this argument by noting that the Corporate Debtor had acknowledged its liability in a letter dated July 19, 2018, which fell within the limitation period as per Section 18 of the Limitation Act, 1963. The acknowledgment of debt extended the limitation period, making the petition, filed on December 15, 2021, and re-filed on April 13, 2022, timely even when accounting for the Covid-19 period.
The Appellant further contested the reliance on the July 19, 2018, letter, arguing it did not admit the full debt claimed in the Section 7 application, but only Rs. 20 Crores. Despite this, the letter confirmed the Corporate Debtor's acknowledgment of credit facilities and its default, validating the extension of the limitation period under Section 18 of the Limitation Act.
The NCLAT concluded that there was no error in the admission of the Section 7 application, given that the debt exceeded Rs. 1 Crore and the letter provided sufficient grounds for extending the limitation period. The Tribunal held that disputes over the quantum of debt were matters for the Resolution Professional to resolve post-admission. Consequently, the appeal was dismissed, upholding the decision to admit the insolvency application.
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