Tribunal extends limitation period based on acknowledgment of debt in insolvency case

The tribunal found that the letters dated 29/1/2018 and 30/7/2018 constituted an acknowledgment of debt, extending the limitation period as per Section 18 of the Limitation Act, 1963. The acknowledgment was considered valid even though it was not specifically addressed to the financial creditor. The tribunal admitted the application under Section 7 of the Insolvency & Bankruptcy Code, 2016, initiating the Corporate Insolvency Resolution Process against the corporate debtor. A moratorium was declared, and the Interim Resolution Professional (IRP) was appointed to manage the process.

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Issues Involved:
1. Whether the debt is barred by limitation.
2. Whether the letters dated 29/1/2018 and 30/7/2018 constitute acknowledgment as per Section 18 of the Limitation Act, 1963.

Detailed Analysis:

Issue 1: Whether the debt is barred by limitation.
The financial creditor filed an application under Section 7 of the Insolvency & Bankruptcy Code, 2016 to initiate the corporate insolvency resolution process against the corporate debtor. The amount of default stated was Rs. 3,35,62,739.73, including the principal sum and interest. The corporate debtor contended that the debt was time-barred, arguing that the acknowledgments were not in compliance with Section 18 of the Limitation Act, 1963.

The tribunal considered whether the debt was barred by limitation and examined the letters dated 29/1/2018 and 30/7/2018, which were requests from the corporate debtor to confirm the outstanding balance of ICD as on 31/12/2017 and 30/6/2018. These letters were intended for the statutory auditors of the corporate debtor, and the tribunal emphasized the importance of such confirmations in standard auditing practices. The tribunal concluded that these letters constituted an acknowledgment of debt, thus extending the limitation period as per Section 18 of the Limitation Act, 1963.

Issue 2: Whether the letters dated 29/1/2018 and 30/7/2018 constitute acknowledgment as per Section 18 of the Limitation Act, 1963.
The tribunal reproduced Section 18 of the Limitation Act, 1963, which states that an acknowledgment of liability in writing signed by the party against whom the property or right is claimed extends the limitation period. The tribunal noted that the letters from the corporate debtor confirmed the outstanding balance of ICD, which was sufficient to constitute an acknowledgment of debt. It was further noted that the acknowledgment does not need to be addressed to the financial creditor specifically; it can be addressed to any relevant party, including auditors.

The tribunal also referred to various decisions of NCLT and NCLAT, which held that the presentation of debt in the balance sheet constitutes an acknowledgment of debt. The corporate debtor's request for confirmation of the balance from the financial creditor implied that the loan was continuously outstanding in the balance sheet from earlier financial years. This acknowledgment was sufficient to extend the limitation period, and the tribunal concluded that the debt was not barred by limitation.

Additional Considerations:
The tribunal also considered Section 238A of the Insolvency & Bankruptcy Code, 2016, which applies the provisions of the Limitation Act, 1963 to proceedings before the Adjudicating Authority, NCLAT, DRT, or DRAT. The tribunal emphasized that the Insolvency & Bankruptcy Code, 2016 is not a recovery mechanism but a comprehensive code for insolvency resolution, and stale claims cannot be revived through it. The flexibility provided by Section 18 of the Limitation Act, 1963 was noted, and it was concluded that the emails constituted an acknowledgment of debt within the meaning of the provision.

Conclusion:
The tribunal found no merit in the corporate debtor's claim that the emails did not constitute an acknowledgment of debt. The petition was complete in all respects, and the financial creditor proposed the name of the Interim Resolution Professional (IRP), who was qualified and had no disciplinary proceedings pending against him. The tribunal admitted the application and ordered the initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. A moratorium was declared, and the IRP was directed to make a public announcement and call for the submission of claims. The tribunal also provided for the payment of an advance fee to the IRP and directed the registry to communicate the order to all concerned parties.

The matter was listed for the filing of the progress report on 26/11/2019, and a certified copy of the order was to be issued to all concerned parties upon compliance with requisite formalities.

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