Limitation in insolvency proceedings turns on the actual default date, statutory suspension periods, and timely acknowledgment of debt.

Limitation under Article 137 was held to run from the recalled demand in February 2001, not from the later date inserted in the insolvency filing. The period during which BIFR proceedings and the related appeal were actually pending was excluded under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, but only for those statutory suspension periods. After that exclusion, the three-year limitation had already expired before the Section 7 application was filed in December 2019. Recovery certificate references, OTS letters and later balance-sheet entries did not revive limitation because no timely acknowledgment fell within the critical period.

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Issues: (i) Whether the date of default was 01.06.2019 or 26.02.2001. (ii) Whether the period covered by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 was liable to be excluded for computing limitation. (iii) Whether, after such exclusion, the Section 7 application was still within limitation. (iv) Whether the recovery certificate, OTS letters and balance-sheet entries extended or revived limitation.

Issue (i): Whether the date of default was 01.06.2019 or 26.02.2001.

Analysis: The financial creditor's own recall notice showed that the loan had been recalled in February 2001 and payment was demanded within ten days. The later date inserted in the application was unsupported by the record and did not reflect the actual default. For limitation purposes under Article 137 of the Limitation Act, 1963, the relevant default date was the earlier recall and demand in 2001.

Conclusion: The date of default was 26.02.2001, not 01.06.2019.

Issue (ii): Whether the period covered by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 was liable to be excluded for computing limitation.

Analysis: Section 22(1) suspends proceedings and Section 22(5) directs exclusion of the suspended period while computing limitation. The existence of proceedings before BIFR and the subsequent pending appeal brought the matter within the statutory suspension period. The reasoning that exclusion could be denied merely because recovery proceedings had been taken elsewhere was not accepted on the facts. The embargo operated only for the actual periods during which the statutory proceedings remained pending.

Conclusion: The appellant was entitled to exclusion of the periods covered by Section 22(1) read with Section 22(5) of the Sick Industrial Companies (Special Provisions) Act, 1985.

Issue (iii): Whether, after such exclusion, the Section 7 application was still within limitation.

Analysis: Even after excluding the periods during which BIFR proceedings and the appeal were pending, the intervening gap after the cessation of the statutory bar was sufficient for the three-year limitation period to expire before the filing of the Section 7 application in December 2019. The later filing could not be saved once the statutory suspension ended and limitation had already run out.

Conclusion: The Section 7 application was barred by limitation.

Issue (iv): Whether the recovery certificate, OTS letters and balance-sheet entries extended or revived limitation.

Analysis: The recovery certificate, even if treated as a fresh point of reference, did not assist because the appeal-period exclusion already subsumed the relevant time. The OTS letters could at best operate as acknowledgments, but the later balance-sheet entries were recorded after the limitation period computed from the last effective acknowledgment had already expired. No document within the critical period revived the claim.

Conclusion: The recovery certificate, OTS letters and balance-sheet entries did not save limitation.

Final Conclusion: The challenge to the dismissal of the Section 7 application failed, and the finding that the insolvency petition was time-barred was sustained.

Ratio Decidendi: Where limitation is suspended by statutory sickness proceedings, only the actual period covered by the suspension is excluded, and a later insolvency application remains barred if, after such exclusion, the three-year period under Article 137 of the Limitation Act, 1963 has already expired and no timely acknowledgment extends it.

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