2022 (7) TMI 1284 - AT - Insolvency and Bankruptcy

Revival of Time-Barred Debt & Limitation Extension in Insolvency Proceedings

The Tribunal held that under Section 25(3) of the Indian Contract Act, a written promise to pay can revive a time-barred debt, creating a new enforceable ... Rejection of application for initiation of CIRP - Period of limitation - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - application was required to be filed within a period of three years from the date of default - what is the import of Section 25(3) of the Indian Contract Act, 1872? - whether the period of limitation has been extended in view of Section 18 of the Limitation Act, 1961 with the time-to-time partial payment and admission of debt by the Corporate Debtor? - HELD THAT:- It is an admitted fact that the period of three years had expired from the alleged date of default occurred in the year 1998 but there is no denial to the fact also that the Assignment Agreement was executed on 27.09.2013 between TFCI and the Appellant, assigning their entire debt of the Corporate Debtor and in the said agreement the Corporate Debtor and one Mr. Paresh Shah (as mortgagor) were confirming parties to the Assignment Agreement. As a matter fact, with the execution of the Assignment Agreement dated 27.09.2013, a fresh agreement for the payment of dues came into being and a period of three years began from the said date. There is no dispute about the fact that the debt has been acknowledged by the Corporate Debtor in its balance sheet for the year 2013-14. The first partial repayment of Rs. 75,00,000/- was made by the Corporate Debtor on 12.06.2015. The finding recorded by the Adjudicating Authority does not talk of this partial payment which acknowledges the debt and extends the period of limitation from the said date i.e. 12.06.2015 for another period of three years. It is needless to mention that the partial repayment of Rs. 75,00,000/- was made between 27.09.2013 to 27.09.2016 and because of said payment on 12.06.2015 the period of limitation had once again extended upto 12.06.2018. The Adjudicating Authority has further lost sight of the fact that another partial repayment of Rs. 50,00,000/- was made by the Corporate Debtor on 24.06.2018 which means that now the limitation would stand extended for a period of three years up to 24.06.2018. During the period of limitation i.e. 24.06.2014 to 24.06.2018 the Corporate Debtor vide letter dated 05.12.2016 confirmed and acknowledged its entire debt due and payable to the Appellant and as a result thereof, the limitation was extended from the said date i.e. 05.12.2016 to 05.12.2019. The Adjudicating Authority has only referred to the letter dated 05.12.2016 in Para VII of the impugned order to hold that Section 18 of the Limitation Act, shall not be applicable because the acknowledgement was made on 05.12.2016 which was beyond the period of three years from 27.09.2013. Thus, the Adjudicating Authority has committed error in appreciating the facts available on record in coming to the conclusion which is apparently contrary to the record. There are no hesitation to hold that the Adjudicating Authority has committed a patent error of law and fact while passing the impugned order, which deserves to be set aside - the matter is remanded back to the Adjudicating Authority to consider and decide the application filed under Section 7 of the Code in accordance with law - appeal allowed by way of remand. ISSUES PRESENTED and CONSIDEREDThe appeal raises two primary issues:1. The applicability and interpretation of Section 25(3) of the Indian Contract Act, 1872, particularly whether it can revive a debt barred by limitation through a written promise to pay.2. Whether the period of limitation for filing an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was extended due to the partial payments and acknowledgments of debt by the Corporate Debtor, in light of Section 18 of the Limitation Act, 1961.ISSUE-WISE DETAILED ANALYSISIssue 1: Section 25(3) of the Indian Contract Act, 1872- Relevant legal framework and precedents: Section 25(3) provides that a written promise to pay a debt, which is otherwise unenforceable due to the limitation period, constitutes a valid contract. The provision acts as an exception to the general rule that an agreement without consideration is void.- Court's interpretation and reasoning: The Tribunal considered precedents where courts have held that a written promise to pay a time-barred debt is enforceable. The Tribunal noted that the Assignment Agreement, wherein the Corporate Debtor acknowledged the debt, constituted a fresh contractual obligation under Section 25(3).- Key evidence and findings: The Corporate Debtor was a confirming party to the Assignment Agreement dated 27.09.2013, acknowledging the debt and promising to pay. This was deemed a valid contract under Section 25(3).- Application of law to facts: The Tribunal applied Section 25(3) to hold that the written acknowledgment in the Assignment Agreement revived the debt, making it enforceable despite the original limitation period having expired.- Treatment of competing arguments: The Respondent argued that the Assignment Agreement could not revive the limitation period. However, the Tribunal found that the written promise to pay under Section 25(3) was sufficient to create a new enforceable obligation.- Conclusions: The Tribunal concluded that the debt was revived by the Assignment Agreement, thereby allowing the Appellant to pursue the claim.Issue 2: Extension of Limitation Period under Section 18 of the Limitation Act, 1961- Relevant legal framework and precedents: Section 18 of the Limitation Act provides that an acknowledgment of liability in writing before the expiration of the limitation period extends the limitation period. The Tribunal referenced several judgments affirming the applicability of Section 18 to IBC proceedings.- Court's interpretation and reasoning: The Tribunal noted that partial payments and written acknowledgments by the Corporate Debtor extended the limitation period. The Tribunal emphasized the Supreme Court's stance that Section 18 applies to IBC proceedings.- Key evidence and findings: The Corporate Debtor made partial payments on 12.06.2015 and 24.06.2018, and acknowledged the debt in a letter dated 05.12.2016. These actions were within the extended limitation period.- Application of law to facts: The Tribunal found that the partial payments and acknowledgments effectively extended the limitation period, making the application under Section 7 of the IBC timely.- Treatment of competing arguments: The Respondent contended that the limitation period had expired. However, the Tribunal held that the actions of the Corporate Debtor extended the limitation period under Section 18.- Conclusions: The Tribunal concluded that the application under Section 7 was filed within the extended limitation period, owing to the acknowledgments and partial payments.SIGNIFICANT HOLDINGS- The Tribunal held that Section 25(3) of the Indian Contract Act allows for the enforcement of a time-barred debt through a written promise to pay, thereby creating a new enforceable obligation.- The Tribunal confirmed that Section 18 of the Limitation Act applies to IBC proceedings, allowing for the extension of the limitation period through acknowledgments and partial payments.- The Tribunal set aside the Adjudicating Authority's order, which had dismissed the application on limitation grounds, and remanded the matter for reconsideration.- The Tribunal directed the Adjudicating Authority to consider the application under Section 7 of the IBC in accordance with the law, acknowledging the extended limitation period due to the debtor's actions.