NCLAT upholds Section 7 application admission after corporate debtor's written repayment promise resets limitation period

NCLAT dismissed appeal challenging admission of Section 7 application filed by financial creditor. Tribunal held financial debt was established through ledger entries showing interest payments and TDS, confirmed by corporate debtor's letter dated 20.08.2020 admitting loan. Application filed on 20.01.2023 was not time-barred as corporate debtor's written promise to repay on 20.08.2020 triggered fresh limitation period under Section 25(3) of Indian Contract Act. Section 10A did not bar application since default occurred before Section 10A period commenced. Corporate debtor's promise to allot residential premises developed by director could not extinguish financial debt owed by company.

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Issues Involved:

1. Whether the amount claimed by the Applicant under Section 7 was a financial debt.
2. Whether Section 7 application filed by the Financial Creditor dated 20.01.2023 was barred by time, given the loan was disbursed on 16.12.2016.
3. Whether Section 7 application was barred by Section 10A since, as per the letter dated 20.08.2020 issued by the Corporate Debtor and acknowledged by the Financial Creditor, the amount was to be paid by 01.12.2020, and the default, if any, occurred on 01.12.2020, is hit by Section 10A.

Detailed Analysis:

1. Financial Debt:

The Tribunal examined whether the amount claimed under Section 7 constituted a financial debt. The Financial Creditor provided ledgers indicating outstanding amounts and interest payments, suggesting a financial debt. The Corporate Debtor's own ledger and the letter dated 20.08.2020 acknowledged the loan, reinforcing the existence of a financial debt. The Tribunal concluded that the Financial Creditor successfully proved the existence of a financial debt.

2. Time-Barred Application:

The Appellant argued that the application was time-barred under Article 21 of the Limitation Act, which provides a three-year limitation for loans payable on demand. The loan was disbursed on 16.12.2016, suggesting the limitation expired on 15.12.2019. However, the Tribunal noted the letter dated 20.08.2020, where the Corporate Debtor promised repayment, effectively extending the limitation period under Section 25(3) of the Indian Contract Act, 1872. This promise in writing revived the limitation period, making the application filed on 20.01.2023 timely.

3. Section 10A Bar:

The Appellant contended that the application was barred by Section 10A of the IBC, as the default occurred during the period protected by Section 10A. The Tribunal found this argument unconvincing, noting that the default was based on a demand notice issued on 29.11.2022, with the default date being 07.12.2022, outside the Section 10A period. The Tribunal emphasized that the Corporate Debtor could not retroactively select a default date within the Section 10A period to evade liability.

Conclusion:

The Tribunal dismissed the appeal, upholding the Adjudicating Authority's decision to admit the Section 7 application. The Tribunal found no merit in the Appellant's arguments regarding the financial debt, time-bar, or applicability of Section 10A, and confirmed the existence and enforceability of the financial debt.

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