Section 7 limitation and acknowledgment: balance sheets, settlement correspondence, and admitted dues can extend limitation despite "without prejudice" wording.

For Section 7 insolvency proceedings, limitation runs from the date of default, but it is extended by a clear written acknowledgment of liability made before expiry of limitation. Balance sheet entries, balance confirmations, payment requests, and settlement correspondence may amount to such acknowledgment where they admit dues and preserve a live jural relationship. The words "without prejudice" do not, by themselves, negate an acknowledgment if the communication otherwise admits liability. An authorisation objection failed where the filing was supported by the managing director's authority, and prior SARFAESI action did not bar commencement of CIRP because the Code has overriding effect.

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Issues: (i) Whether the Section 7 application was within limitation on the basis of the date of default and subsequent acknowledgments of liability; (ii) whether an offer of one time settlement marked "without prejudice" amounted to acknowledgment under Section 18 of the Limitation Act, 1963; (iii) whether the application was invalid for want of authorisation and whether SARFAESI proceedings barred initiation of CIRP.

Issue (i): Whether the Section 7 application was within limitation on the basis of the date of default and subsequent acknowledgments of liability.

Analysis: The relevant test is the date of default, not merely the date on which the account was classified as NPA. On the material placed, the default had occurred by 15/06/2013, but the record also showed written acknowledgments of liability within three years thereafter, including the declaration and confirmation of balance, the letter seeking immediate payment, and the balance sheet entries for later financial years. The balance sheets and accompanying notes were treated as unequivocal acknowledgments of liability, and no qualifying caveats were shown to displace that effect.

Conclusion: The application was within limitation and the objection on limitation failed.

Issue (ii): Whether an offer of one time settlement marked "without prejudice" amounted to acknowledgment under Section 18 of the Limitation Act, 1963.

Analysis: The expression "without prejudice" does not, by itself, negate an acknowledgment if the document otherwise admits liability. The communications and the email forwarding them showed that the debtor had acknowledged the debt and sought settlement. The phrase was held to be irrelevant in the facts of the case because the correspondence evidenced admission of dues and a live jural relationship.

Conclusion: The one time settlement correspondence amounted to acknowledgment and extended limitation in favour of the financial creditor.

Issue (iii): Whether the application was invalid for want of authorisation and whether SARFAESI proceedings barred initiation of CIRP.

Analysis: The authorisation objection was rejected because the Managing Director satisfied the requirement of a chief executive under the governing co-operative society statute, and the subsequent circular could not be applied retrospectively to defeat an earlier filing. The contention based on prior SARFAESI action also failed because the Code has overriding effect and the record did not establish any legal bar to a Section 7 proceeding on that ground.

Conclusion: The challenge to maintainability on both counts failed.

Final Conclusion: The admission of the Section 7 application was upheld, and all connected appeals were rejected.

Ratio Decidendi: For proceedings under Section 7 of the Insolvency and Bankruptcy Code, limitation runs from the date of default, but it is extended by a valid written acknowledgment of liability made before expiry of limitation, including in balance sheets or settlement correspondence, and the mere use of the words "without prejudice" does not nullify an otherwise clear acknowledgment.

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