Limitation under IBC refund claims begins on project failure, while Section 65 requires proof of fraudulent filing.

A Section 7 IBC application was held time-barred because Article 137 applied and the refund right accrued when the project failed to commence within the stipulated contractual period; a later termination notice did not defer limitation. The corporate debtor was also found to have discharged the balance liability by showing payment records, refunded sums, and related correspondence indicating the remaining amount had been dealt with for onward refund and project purposes. Allegations of collusion were insufficient to attract Section 65, as the material did not establish fraudulent or malicious filing of the insolvency proceeding. The admission order under Section 7 was set aside.

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Issues: (i) Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation; (ii) whether the corporate debtor proved discharge of the balance liability of Rs. 1.7 crores; (iii) whether the facts justified invocation of Section 65 of the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation.

Analysis: Limitation for a Section 7 application is governed by Article 137 of the Limitation Act, 1963. The repayment arrangement under the agreements showed that the project had not commenced within the stipulated period and no sanction or further progress followed. The right to seek refund arose when the project failed to commence after the contractual period, and that cause of action was independent of any later exercise of the termination option. The application filed in 2022 was well beyond three years from the accrual of that right.

Conclusion: The application under Section 7 was barred by limitation and the finding on limitation was in favour of the appellant.

Issue (ii): Whether the corporate debtor proved discharge of the balance liability of Rs. 1.7 crores.

Analysis: The record showed an admitted payment of Rs. 3 crores, out of which Rs. 1.3 crores was refunded to the financial creditor. The remaining sum was shown by bank records and connected correspondence to have been paid to the intermediaries associated with the transaction for onward refund and project-related purposes. The surrounding conduct and long silence of the financial creditor also supported the conclusion that the balance amount had been dealt with as pleaded by the corporate debtor.

Conclusion: The corporate debtor established discharge of the balance liability and this issue was decided in favour of the appellant.

Issue (iii): Whether the facts justified invocation of Section 65 of the Insolvency and Bankruptcy Code, 2016.

Analysis: Although the corporate debtor alleged collusion and mala fides, the pleadings and material did not establish that the Section 7 proceeding itself had been filed fraudulently or with malicious intent. The circumstances were found insufficient to satisfy the ingredients of Section 65.

Conclusion: Section 65 was not attracted and this issue was decided against the appellant.

Final Conclusion: The admission order under Section 7 could not be sustained, and the insolvency application was set aside as time-barred.

Ratio Decidendi: Where a contractual refund right accrues on failure of the project to commence within the stipulated period, limitation under Article 137 begins from that accrual and is not postponed by a later discretionary termination notice.

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