Acknowledgment of debt in later financial statements and settlement correspondence extended limitation for a Section 7 insolvency application.

Acknowledgment of liability in signed financial statements, annual reports and a one-time settlement proposal can extend limitation for a Section 7 Insolvency and Bankruptcy Code application. Although the account had been classified as NPA on 30 June 2014, later written statements recorded the borrowings and the settlement letter expressly referred to clearing the dues, bringing the case within the principle that written acknowledgment saves limitation. The limitation objection was therefore rejected and the Section 7 application was treated as within time.

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Issues: Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation in view of the account being declared NPA on 30 June 2014, and whether the subsequent financial statements and the one-time settlement letter constituted acknowledgment of liability extending the period of limitation.

Analysis: The account was classified as NPA on 30 June 2014, but the record showed later signed financial statements and annual reports for subsequent years acknowledging the borrowings. The Tribunal also relied on the letter dated 04.01.2020 proposing one-time settlement, which expressly referred to settling the dues and therefore amounted to acknowledgment of debt. In light of the legal position that acknowledgment in writing can extend limitation, the Section 7 application could not be treated as time-barred.

Conclusion: The limitation objection was rejected and the Section 7 application was held to be within time, in favour of the respondent.

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