2021 (11) TMI 477 - AT - Insolvency and Bankruptcy

Tribunal extends limitation period, deems debt acknowledgment timely, directs Adjudicating Authority to proceed accordingly.

The Tribunal allowed the appeal, setting aside the Adjudicating Authority's order that dismissed the application as time-barred. The Tribunal found that ... Locus of proprietorship firm to initiate CIRP - running account and part payment as acknowledgement - effect of acknowledgment under Section 18 of the Limitation Act, 1963 - effect of payment on account under Section 19 of the Limitation Act, 1963 - obligation of corporate debtor to reply to demand notice under Section 8 of the IBCLocus of proprietorship firm to initiate CIRP - Proprietorship firm has standing to initiate CIRP under the Code. - HELD THAT: - The Tribunal examined Section 2(f) of the Code and held that proprietorship firms are expressly included within the class of persons to whom the Code applies. Consequently, the Appellant, being a proprietorship concern, possessed the statutory capacity to invoke the insolvency process by filing a Section 9 application. [Paras 5]Appellant, a proprietorship concern, has locus to initiate CIRP and maintain the Section 9 application.Running account and part payment as acknowledgement - effect of acknowledgment under Section 18 of the Limitation Act, 1963 - Part payment and contemporaneous ledger/email communications constitute acknowledgment sufficient to compute a fresh period of limitation under Section 18. - HELD THAT: - On the material placed (ledger account covering 01.04.2015 to 31.03.2018, entries showing payments on 16/17/23.05.2017, and email of 10.05.2018 attaching statement of account), the Tribunal concluded there were continuing transactions amounting to a running account. The part payment by the corporate debtor coupled with the statement of account/email were held to operate as an acknowledgment of liability within the meaning of Section 18 of the Limitation Act, 1963, thereby triggering a fresh period of limitation computed from the date of acknowledgment/part payment. Applying that principle, the Section 9 application filed in November 2019 fell within the fresh limitation period. [Paras 6, 8, 10, 14]The part payment and the ledger/email constitute an acknowledgment restarting limitation; the Section 9 application is not time barred.Effect of payment on account of debt or of interest under Section 19 of the Limitation Act, 1963 - running account and part payment as acknowledgement - Payment on account supports computation of a fresh limitation period and validates the claim that the application was within limitation. - HELD THAT: - The Tribunal applied the doctrine that payment on account by the debtor before the prescribed period gives rise to a fresh limitation period (Section 19), and read Sections 18 and 19 together in the factual matrix of recurring transactions and part payments. The ledger entries and admitted payments were treated as payments on account and/or acknowledgments, reinforcing that the limitation period was revived and that the petitioner filed the Section 9 application within that revived period. [Paras 10, 14]Part payments recorded in the ledger/email operate to revive limitation so the claim is within time.Obligation of corporate debtor to reply to demand notice under Section 8 of the IBC - Failure of the corporate debtor to respond to the Section 8 demand notice is material and was not addressed by the Adjudicating Authority. - HELD THAT: - The Tribunal noted that the Section 8 demand notice of 25.02.2019 was delivered and that the corporate debtor did not reply within the statutory ten day period. The corporate debtor neither denied receipt before the Tribunal nor offered reasons for failing to reply in the record; the Adjudicating Authority had not considered this omission. The non reply was treated as relevant factual background supporting the continuity of the claim and the acknowledgement analysis. [Paras 11, 13]Non reply to the Section 8 notice by the corporate debtor was noted as relevant and the Adjudicating Authority's failure to address it was highlighted.Final Conclusion: Appeal allowed. The Adjudicating Authority's order dismissing the Section 9 application as barred by limitation is set aside; findings that the proprietor could maintain CIRP proceedings, that part payments and ledger/email constituted acknowledgment reviving limitation, and that the corporate debtor did not reply to the Section 8 notice were upheld; matter remitted to the Adjudicating Authority to proceed in accordance with law. Issues Involved1. Limitation Period for Filing the Application2. Acknowledgment of Debt3. Running Account Between Parties4. Locus Standi of Proprietorship Firm to Initiate CIRP5. Compliance with Section 8 of the Insolvency and Bankruptcy Code, 2016Issue-Wise Detailed Analysis1. Limitation Period for Filing the ApplicationThe primary issue was whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation. The Adjudicating Authority dismissed the application, stating it was filed beyond the three-year limitation period from the date of default on the invoices, which ranged from 19.05.2015 to 09.12.2016. The Appellant argued that the limitation period should be calculated from 10.05.2018, the date of an email acknowledgment of debt from the Corporate Debtor, making the application timely.2. Acknowledgment of DebtThe Appellant contended that the email dated 10.05.2018 from the Corporate Debtor, which included a statement of account, constituted an acknowledgment of debt under Section 18 of the Limitation Act, 1963. The Respondent countered that there was no express acknowledgment of debt, and the email could not be considered as such. The Tribunal found that the email and the part payment made on 17.05.2017 did indeed constitute an acknowledgment of debt, thereby extending the limitation period.3. Running Account Between PartiesThe Respondent argued that there was no running account between the parties, and the part payment made on 17.05.2017 should not be construed as payment towards the invoices. However, the Tribunal examined the ledger account and email communications, concluding that there were continuous transactions between the parties, establishing a running account.4. Locus Standi of Proprietorship Firm to Initiate CIRPThe Respondent questioned the locus standi of the Appellant, a proprietorship firm, to initiate Corporate Insolvency Resolution Process (CIRP). The Tribunal referred to Section 2(f) of the Insolvency and Bankruptcy Code, which explicitly allows proprietorship firms to initiate CIRP proceedings, thereby confirming the Appellant's locus standi.5. Compliance with Section 8 of the Insolvency and Bankruptcy Code, 2016The Appellant issued a Demand Notice under Section 8 of the Code on 25.02.2019, which the Corporate Debtor did not reply to. The Tribunal noted that the Respondent did not deny receiving the notice and failed to provide any reasons for not replying. This non-response was seen as an implicit acknowledgment of the debt.AssessmentThe Tribunal concluded that the part payment made on 17.05.2017, coupled with the email dated 10.05.2018, extended the limitation period, making the application filed in November 2019 timely. The Tribunal also noted the lack of response to the Section 8 notice as further evidence of the debt's acknowledgment. Consequently, the Tribunal allowed the appeal, setting aside the Adjudicating Authority's order and directing it to proceed in accordance with the law.