2021 (12) TMI 434 - AT - Insolvency and Bankruptcy

Appeal granted in Insolvency case due to time-barred claim

The appeal arose from the Impugned Order admitting a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, against a corporation. The ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - time limitation - HELD THAT:- The Ld. Adjudicating Authority has failed to appreciate that there is no promise to pay within the meaning of Section 25 (3) of the Indian Contract Act, 1872, which will be evident from the letter dated 14th December 2017. On perusal of the impugned order, it is clear that the Adjudicating Authority relying on the judgement of the Hon'ble Bombay High Court in the case of South Eastern Roadways [1992 (11) TMI 293 - BOMBAY HIGH COURT], has considered the letter issued by Corporate Debtor dated 14th December 2017 as an acknowledgement of debt in the form of a promise to pay the debt amount and given a finding that the Application filed by the Operational Creditor is beyond the given period of limitation. Section 25 of the Indian contract act provides that agreement without consideration is void unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law - based on the statutory provision of Section 25(3) of the Contract Act, it is clear that there could be a valid contract to pay wholly or in part a time-barred debt. This can be treated as an exceptional general principle of the Contract Act, which provides that agreement without consideration is void. Illustration (e) of Section 25 of the Contract Act provides that 'if A owes B ₹ 1,000, but the debt is barred by the Limitation Act. A signs a written promise to pay B ₹ 500 on account of the debt. This is a contract. The learned Adjudicating Authority has taken an erroneous view of the matter and on evaluating the letter of the Managing Director of the Corporate Debtor as an acknowledgement of the debt - the said letter was not within limits so that the operational Creditor could claim the benefit of Section 18 of the Limitation Act. Appeal allowed. Issues Involved:1. Whether the claim of the Operational Creditor is barred by the laws of limitation.Issue-wise Detailed Analysis:1. Whether the claim of the Operational Creditor is barred by the laws of limitation:The appeal arises from the Impugned Order dated 28th January 2020, further amended on 10th February 2020, passed by the Adjudicating Authority/National Company Law Tribunal, Kolkata Bench, admitting the petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code). The Appellant, the State of West Bengal, through the Principal Secretary, West Bengal Biotech Development Corporation Limited, filed this appeal against the order initiating the Corporate Insolvency Resolution Process (CIRP) against West Bengal Biotech Development Corporation Limited (WBBDCL).The factual background reveals that the Operational Creditor/Respondent No.1 approached WBBDCL for interior decoration and renovation work. The work included glass partitioning, installing electrical fittings, air-conditioning, and false ceilings. However, the Operational Creditor failed to complete the work as per the plan, leading WBBDCL to engage third-party vendors. Respondent No.1 raised three bills on 11th February 2012 but issued a demand notice under Section 8 of the IBC on 14th December 2017, followed by an application under Section 9 in October 2018.The Appellant contended that the claims were barred by limitation, as the invoices dated 11th February 2012 were time-barred when the Section 9 petition was filed in October 2018. The Operational Creditor argued that the Appellant admitted the dues in a letter dated 7th November 2017, promising to pay, thus extending the limitation period.The core issue for determination was whether the laws of limitation barred the claim. The Adjudicating Authority admitted the application under Section 9, interpreting the Corporate Debtor's reply dated 14th December 2017 as a promise to pay under Section 25(3) of the Indian Contract Act. The Adjudicating Authority relied on the judgment of the Hon'ble Bombay High Court in South Eastern Roadways v. UP State Agro Industrial Corporation Ltd., which held that an acknowledgment of liability or a promise to pay a time-barred debt could extend the limitation period.Upon analysis, it was found that the letter dated 14th December 2017, merely requested a discussion to settle the claim and did not constitute an acknowledgment of debt or a promise to pay under Section 25(3) of the Indian Contract Act. The invoices dated 11th February 2012 had a limitation period of three years, ending on 10th February 2015. The petition filed on 26th October 2018 was beyond this period, making the claim time-barred.Thus, the Adjudicating Authority's reliance on the letter as an acknowledgment of debt was erroneous. The appeal was allowed, and the Impugned Order admitting the petition was set aside. The Corporate Debtor was released from the rigours of the law imposed under Section 14 of the I&B Code, 2016, and the management was to be handed over to the erstwhile directors of the Corporate Debtor.Conclusion: The claim of the Operational Creditor was barred by limitation, and the appeal was allowed, setting aside the Impugned Order.