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

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

Edelweiss Assets Reconstruction Company Limited. Versus Nishiland Park Limited

Edelweiss Assets Reconstruction Company Limited. Versus Nishiland Park Limited - TMI 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.