2022 (8) TMI 1563 - AT - IBC

Court Rules Promise to Pay Resets Limitation Period; Appeal Allowed Under Insolvency and Bankruptcy Code Section 7.

The court addressed two primary issues: whether the application under Section 7 of the Insolvency and Bankruptcy Code was time-barred under Article 137 of ... Dismissal of an application filed by the present Appellant (UCO Bank) as the Financial Creditor u/s 7 of the Insolvency and Bankruptcy Code, 2016 on the ground of limitation - whether a promise made by the debtor to pay the time barred debt would fall within the purview of Section 25(3) of the Indian Contract Act, 1872? - whether the limitation is to start running from the date promise is made, for a period of three years as required under Article 137 of the Act? - HELD THAT:- The letter dated 25.10.2019 is a sufficient evidence of the promise made by the Respondent to the Appellant to make the payments which are due, approved in the JLM held on 19.05.2017 and thus, would fall within the purview of Section 25(3) of the Indian Contract Act, which provides a promise and that too in writing. Undoubtedly, if the period of limitation is to be counted from the date of the default (NPA) and the application under Section 7 having been filed, it would be barred by limitation if it is to be seen in terms of Section 18 of the Act. But keeping in view the fact that after the expiry of period of limitation of three years, prescribed under Article 137 of the Act, if the Respondent has made the promise (commitment) to make the payments of the unpaid time barred debt, approved in the JLM, then it is a sufficient evidence to show the intention of the Respondent for creating a new agreement with the Appellant for the purpose of making payments of the unpaid debts. The matter is remanded back to the Adjudicating Authority to consider the application filed under Section 7 of the Code, having been filed within the period of limitation and decide the same in accordance with law - petition allowed by way of remand. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the 'Code') by the Financial Creditor (UCO Bank) is barred by limitation as per Article 137 of the Limitation Act, 1961.Whether a promise made by a debtor to pay a time-barred debt falls within the purview of Section 25(3) of the Indian Contract Act, 1872, thereby creating a new period of limitation.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Limitation Period under Article 137 of the Limitation ActRelevant Legal Framework and Precedents: Article 137 of the Limitation Act prescribes a limitation period of three years from the date of accrual of the default for filing applications under Section 7 or 9 of the Code.Court's Interpretation and Reasoning: The Adjudicating Authority initially dismissed the application, considering the default occurred on 06.03.2010, and the limitation period expired on 06.03.2013. The application was filed on 31.08.2018, beyond this period.Key Evidence and Findings: The acknowledgment dated 19.12.2016 was not considered to revive the limitation period as it was made after the expiration of the original limitation period.Application of Law to Facts: The court upheld the Adjudicating Authority's view that the application was time-barred under Article 137.Treatment of Competing Arguments: The Appellant did not rely on Section 18 of the Limitation Act but instead argued under Section 25(3) of the Indian Contract Act.Conclusions: The court initially found the application barred by limitation under Article 137.Issue 2: Promise to Pay Time-Barred Debt under Section 25(3) of the Indian Contract ActRelevant Legal Framework and Precedents: Section 25(3) of the Indian Contract Act allows a written promise to pay a time-barred debt to be enforceable, provided it is signed by the person to be charged.Court's Interpretation and Reasoning: The court considered whether the letter dated 25.10.2019 constituted a valid promise under Section 25(3), which would create a new agreement and revive the limitation period.Key Evidence and Findings: The letter from the Corporate Debtor referenced payments made and promised future payments, which the court found sufficient to constitute a promise under Section 25(3).Application of Law to Facts: The court determined that the letter evidenced a new agreement to pay the time-barred debt, thus falling within the scope of Section 25(3).Treatment of Competing Arguments: The Respondent's written arguments focused on the expiry of limitation under Section 18, which the court found irrelevant due to the Appellant's reliance on Section 25(3).Conclusions: The court concluded that the promise to pay the time-barred debt was valid under Section 25(3), and thus the limitation period was effectively reset.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'In our considered opinion letter dated 25.10.2019 is a sufficient evidence of the promise made by the Respondent to the Appellant to make the payments which are due, approved in the JLM held on 19.05.2017 and thus, would fall within the purview of Section 25(3) of the Indian Contract Act, which provides a promise and that too in writing.'Core Principles Established: A written promise to pay a time-barred debt can revive the limitation period under Section 25(3) of the Indian Contract Act, even if the original limitation period under Article 137 of the Limitation Act has expired.Final Determinations on Each Issue: The appeal was allowed, and the impugned order was set aside. The matter was remanded back to the Adjudicating Authority to consider the application filed under Section 7 of the Code as being within the period of limitation due to the new promise under Section 25(3).