The NCLAT held that the promise to repay a time-barred debt was enforceable under Section 25(3) of the Indian Contract Act, resetting the limitation period.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and technical Member Arun Baroka reviewed an appeal and held that the promise made in the letter dated 20.08.2020 by the corporate debtor to repay a time-barred debt is enforceable under Section 25(3) of the Indian Contract Act, resetting the limitation period, and the Section 7 application filed by the financial creditor was not barred by time or Section 10A of the IBC.
The appeal was filed by the suspended director of the corporate debtor, challenging the NCLT’s decision to admit a Section 7 application filed by the financial creditor, Rushabh Civil Contractors Pvt. Ltd., which sought to initiate Corporate Insolvency Resolution Process (CIRP). The financial creditor disbursed Rs. 3.50 Crores to the corporate debtor on 16.12.2016, and by 31.03.2020, the outstanding amount had risen to Rs. 4,85,46,862/-. The Interim Resolution Professional (IRP) issued a demand notice on 29.11.2022, but the corporate debtor failed to respond. The financial creditor subsequently filed a Section 7 application on 20.01.2023, claiming an outstanding amount of Rs. 9,56,83,836/-. The corporate debtor contended that the application was time-barred, citing a letter dated 20.08.2020, which specified repayment by 01.12.2020, and argued that Section 10A of the Insolvency and Bankruptcy Code (IBC) applied to bar the application.
The NCLT admitted the Section 7 application, finding that the loan was repayable on demand and that the default occurred on 07.12.2022, well outside the period covered by Section 10A. The letter dated 20.08.2020 was considered an acknowledgement of the debt, which reset the limitation period under Section 25(3) of the Indian Contract Act, 1872. This meant the application was not barred by time. The corporate debtor's submissions that the application was time-barred and that the promise made in the letter of 20.08.2020 triggered a new limitation period were dismissed.
The appellant appealed this decision, arguing that the loan was governed by Article 21 of the Limitation Act, with a three-year limitation period starting from 16.12.2016, expiring on 15.12.2019. They claimed that the promise to repay made in the letter dated 20.08.2020 did not reset the limitation period and that the default occurred during the Section 10A period, rendering the application barred. However, the NCLAT upheld the NCLT's decision, concluding that the promise in the letter of 20.08.2020 was enforceable, resetting the limitation period and that the application filed on 20.01.2023 was timely. The NCLAT also dismissed the appellant's argument regarding the applicability of Section 10A, noting that the default occurred before its commencement.
In addition, the NCLAT rejected the appellant's claim that the financial debt was extinguished by the corporate debtor’s promise to allot two residential premises. The NCLAT found no merit in this argument and concluded that the NCLT’s order admitting the Section 7 application was correct. Therefore, the appeal was dismissed, and the financial creditor’s application was upheld.
Mr. Kunal Tondon, Mr. Kush Chaturvedi, Mr. Kunal Vaishnav, Mr. Syed Faraz Alam, Mr. Atharv Gaur and Mr. Aayushman Aggarwal, Advocates represented the Appellant.
Mr. Rohan Taneja, Advocate appeared for Respondent No. 1.
Mr. Manoj Kumar Agarwal, Advocate appeared for the IRP.
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