Acknowledgment of liability extends insolvency limitation where balance sheets, settlement proposals, and compromise records show a written promise to pay.

For a section 7 insolvency application, limitation is governed by section 238A of the IBC read with the Limitation Act, and the period can be extended by a written acknowledgment made before expiry. Balance sheet entries, a one-time settlement proposal, and a memorandum of compromise were treated as acknowledgments of liability on the facts, and the compromise also amounted to a written promise to pay under section 25(3) of the Contract Act. On that basis, the section 7 proceeding was held to remain within limitation and legally maintainable despite the original default predating the insolvency filing by more than three years.

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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 one-time settlement proposal, balance sheet entries and memorandum of compromise constituted acknowledgment of liability so as to extend limitation.

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 section 238A of the Insolvency and Bankruptcy Code, 2016, applying the Limitation Act, 1963. The relevant inquiry was not confined to the recovery certificate date alone, because the corporate debtor subsequently acknowledged the liability in writing on more than one occasion. The settlement framework, the compromise recorded before the tribunal, and the conduct of the debtor in seeking and agreeing to repayment were treated as legally relevant for computing limitation. In such circumstances, the proceeding could not be treated as time barred merely because the original default pre-dated the insolvency filing by more than three years.

Conclusion: The application under section 7 was not barred by limitation.

Issue (ii): Whether the one-time settlement proposal, balance sheet entries and memorandum of compromise constituted acknowledgment of liability so as to extend limitation.

Analysis: Section 18 of the Limitation Act, 1963 applies to insolvency proceedings and a written acknowledgment signed before expiry of the prescribed period gives rise to a fresh period of limitation. The debtor's balance sheets, read with the statutory financial statements framework under Schedule III of the Companies Act, 2013, were treated as acknowledgment of liability on the facts of the case. The one-time settlement proposal and the memorandum of compromise were also treated as acknowledgment and, independently, the compromise amounted to a written promise to pay within the meaning of section 25(3) of the Indian Contract Act, 1872. On that basis, the limitation period stood extended and the later revival of the section 7 proceeding remained maintainable.

Conclusion: The acknowledgments and compromise extended limitation in favour of the respondent.

Final Conclusion: The challenge to the admission of the section 7 proceeding failed because the debt had been acknowledged within limitation and the revival of the insolvency proceeding remained legally maintainable.

Ratio Decidendi: For insolvency proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016, a written acknowledgment of liability made before expiry of limitation, including through balance sheets, settlement proposals or a compromise recorded by the tribunal, extends limitation under section 18 of the Limitation Act, 1963, and a written promise to pay a barred debt is independently enforceable under section 25(3) of the Indian Contract Act, 1872.

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