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of <h1>Debt acknowledgment in settlement agreement extends limitation period under Section 18 making insolvency proceedings valid</h1> <h3>Ravi Raman Versus RR Info Park Private Limited, JM Financial Asset Reconstruction Company Limited</h3> Ravi Raman Versus RR Info Park Private Limited, JM Financial Asset Reconstruction Company Limited - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) are barred by limitation due to the claim being time-barred.Whether the acknowledgment of debt in the balance sheets and settlement proposals extends the limitation period under Section 18 of the Limitation Act, 1963.Whether the Memorandum of Compromise constitutes a valid acknowledgment or promise to pay a time-barred debt under Section 25(3) of the Contract Act.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Limitation Period for Section 7 ProceedingsLegal Framework and Precedents: The limitation period for filing an application under Section 7 of the I&B Code is governed by Article 137 of the Limitation Act, which prescribes a three-year limitation period from the date of default. Section 18 of the Limitation Act allows for the extension of this period if there is an acknowledgment of debt.Court's Interpretation and Reasoning: The court considered whether the acknowledgment of debt in balance sheets and settlement proposals extended the limitation period. It emphasized that the acknowledgment must be in writing and signed by the debtor.Key Evidence and Findings: The court noted the acknowledgment of debt in the balance sheets from 2014-2018 and the settlement proposals made by the debtor, which were considered sufficient under Section 18 of the Limitation Act.Application of Law to Facts: The court applied Section 18, concluding that the acknowledgment of debt extended the limitation period, making the Section 7 application timely.Treatment of Competing Arguments: The appellant argued that the limitation should be reckoned from the date of the recovery certificate (21.05.2013), while the respondent contended that subsequent acknowledgments reset the limitation period. The court favored the respondent's position.Conclusions: The court concluded that the proceedings under Section 7 of the I&B Code were not barred by limitation due to the acknowledgment of debt.Issue 2: Acknowledgment of Debt and Extension of LimitationLegal Framework and Precedents: Section 18 of the Limitation Act and Section 25(3) of the Contract Act were pivotal. The former pertains to acknowledgment of debt, while the latter deals with promises to pay time-barred debts.Court's Interpretation and Reasoning: The court interpreted these provisions to determine whether the debtor's actions constituted a valid acknowledgment or promise, thereby extending the limitation period.Key Evidence and Findings: The court found that the debtor's acknowledgment in the balance sheets and the settlement proposal constituted a valid acknowledgment under Section 18.Application of Law to Facts: By acknowledging the debt, the debtor effectively reset the limitation period, allowing the creditor to file the Section 7 application within the extended timeframe.Treatment of Competing Arguments: The appellant's argument that the acknowledgment was insufficient was countered by the court's reliance on established precedents supporting the sufficiency of balance sheet entries as acknowledgment.Conclusions: The court concluded that the acknowledgment of debt extended the limitation period, validating the Section 7 application.Issue 3: Memorandum of Compromise as AcknowledgmentLegal Framework and Precedents: The court examined whether the Memorandum of Compromise constituted a promise under Section 25(3) of the Contract Act.Court's Interpretation and Reasoning: The court reasoned that the Memorandum, being a written promise to pay, constituted a valid contract and acknowledgment of debt.Key Evidence and Findings: The Memorandum of Compromise and subsequent default by the debtor were pivotal in the court's analysis.Application of Law to Facts: The Memorandum was deemed a valid acknowledgment, further extending the limitation period for the Section 7 application.Treatment of Competing Arguments: The appellant's contention that the Memorandum did not affect the limitation was dismissed based on legal precedents affirming such documents as valid acknowledgments.Conclusions: The Memorandum of Compromise was a valid acknowledgment, supporting the timeliness of the Section 7 application.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'Section 18 of the Limitation Act cannot also be construed with pedantic rigidity in relation to proceedings under the IBC. This Court sees no reason why an offer of one-time settlement of a live claim, made within the period of limitation, should not also be construed as an acknowledgment to attract Section 18 of the Limitation Act.'Core Principles Established: Acknowledgment of debt, whether through balance sheets or settlement proposals, can extend the limitation period under Section 18 of the Limitation Act. The Memorandum of Compromise can constitute a valid acknowledgment or promise under Section 25(3) of the Contract Act.Final Determinations on Each Issue: The proceedings under Section 7 of the I&B Code were not barred by limitation. The acknowledgment of debt in the balance sheets and the Memorandum of Compromise extended the limitation period, validating the Section 7 application.
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