Section 9 application admissible: written acknowledgments and part payments reset limitation under Section 19; COVID exclusion made filing timely

NCLAT, PB, New Delhi held the Section 9 application admissible: written acknowledgments and part payments triggered fresh limitation dates under Section 19, and the SC's COVID-19 exclusion extended the limitation, rendering the 12.07.2022 filing timely. The tribunal rejected a claim for post-invoice interest because invoices and the record showed no agreement or clause for interest. Having found the principal debt liquidated, the tribunal closed the CIRP against the corporate debtor and disposed of the appeal.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the Section 9 application based on two invoices (due 31.01.2017 and 02.02.2017) filed on 12.07.2022 was barred by limitation.

2. Whether the Operational Creditor was entitled to include interest as part of the operational debt along with the principal amount claimed.

ISSUE-WISE DETAILED ANALYSIS

Issue I - Limitation: Whether the Section 9 application was time-barred

Legal framework: Section 19 of the Limitation Act, 1963 (effect of payment on account of debt or of interest on legacy) provides that a payment on account of a debt made before the prescribed period restarts the period of limitation from the time of payment, subject to the proviso requiring an acknowledgement of payment in handwriting or a writing signed by the person making the payment. The Court also considered the exclusion of limitation period directed by the Supreme Court in the suo-motu writ petition regarding COVID-19 (period of judicial/quasi-judicial limitation excluded from 15.03.2020 to 28.02.2022).

Precedent treatment: The Court examined and relied upon the principles in Shanti Conductors Pvt. Ltd. v. Assam State Electricity Board (treating Section 19 analogous to earlier Section 20 jurisprudence), including the requirement that (i) payment must be made within the prescribed period and (ii) there must be a written acknowledgement as required by the proviso. The Court also relied on established precedents treating part payments and acknowledgements as restarting limitation where conditions are met, and on decisions giving effect to the COVID-19 exclusion of limitation period.

Interpretation and reasoning: The Section 9 pleadings expressly pleaded two part payments on 15.05.2017 and 26.09.2017. The Tribunal examined contemporaneous pleadings and communications (reply to demand notice and appeal synopsis and list of dates) and found admissions by the Corporate Debtor that part payments were made, including an admission that USD 174,214.56 was paid to the Bank on 15.05.2017 and other payments on 26.09.2017. These admissions in writing satisfied the proviso to Section 19. The part payments were therefore held to constitute payment on account of debt within the prescribed period, thereby creating a fresh period of limitation from those dates. Counting three years from the dates of part payment would have rendered the limitation period to expire during the COVID-19 excluded period; applying the COVID-19 exclusion (suo-motu order), the Section 9 application filed on 12.07.2022 fell within the extended limitation and was not time-barred.

Ratio vs. Obiter: Ratio - Acknowledged part payments made to the creditor within the prescribed period, evidenced in writing, restart limitation under Section 19; when the restarted period falls within the COVID-19 excluded period, an application filed thereafter is within time. Obiter - Observations on the sufficiency of particular documentary proofs relied upon (e.g., content of reply to demand notice and synopsis) are fact-specific elucidations rather than broad new principles.

Conclusion: The Section 9 application was not barred by limitation. The Operational Creditor was entitled to treat 15.05.2017 and 26.09.2017 as fresh commencement dates under Section 19, and applying the COVID-19 exclusion, the application filed on 12.07.2022 was within time.

Issue II - Entitlement to interest as part of operational debt

Legal framework: Under the Code, "debt" for an operational creditor may include interest only where interest is payable in terms of an agreement between the parties or where the obligation to pay interest is otherwise established by mutual consent or binding documentation. Unilateral invoices alone cannot convert unpaid interest into an enforceable component of operational debt absent agreement or conduct establishing acceptance.

Precedent treatment: The Court relied on multiple prior decisions of the Tribunal (including recent and consistent authority) holding that: (i) invoices unilaterally raising interest cannot override a written agreement that contains no provision for interest; (ii) in absence of contractual stipulation or mutual conduct evidencing acceptance, only the principal constitutes the operational debt for Section 9 purposes; and (iii) the Code is not a debt-collection forum to pursue disputed interest where no contractual basis exists. The Tribunal referenced and applied those precedents rather than distinguishing them.

Interpretation and reasoning: The invoices on record did not contain any clause for payment of interest. There was no documentary evidence of any agreement between the parties obligating the Corporate Debtor to pay interest, nor evidence of prior conduct by the Corporate Debtor paying interest that would amount to mutual consent. The Tribunal noted that unilateral inclusion of interest in invoices, without agreement or acceptance, cannot recast the contractual terms of parties and cannot form the basis for initiating CIRP to recover interest. The Tribunal further observed that the principal amount was in fact paid to the Operational Creditor during the appeal proceedings, leaving only the disputed interest claim, which lacks contractual foundation.

Ratio vs. Obiter: Ratio - In absence of an agreement or conduct establishing an obligation to pay interest, interest cannot be included in the operational debt for the purposes of initiating CIRP under Section 9; only the principal amount constitutes the actionable debt. Obiter - Comments on the policy objectives of the Code (resolution over recovery) and the inappropriateness of invoking CIRP to recover disputed interest are consistent with precedent but serve as contextual reinforcement.

Conclusion: The Operational Creditor was not entitled to include interest in the operational debt. The invoices lacked a stipulation for interest and no agreement or acceptance by the Corporate Debtor was shown; consequently, interest was not recoverable through the Section 9 process.

Consequence and Final Conclusion

Given that (a) the Section 9 application was held to be within limitation as the part payments restarted the limitation period and the COVID-19 exclusion applied, and (b) the principal amount was paid (liquidating the principal debt) and interest was not a sustainable claim, the Tribunal concluded that there was no necessity to continue the Corporate Insolvency Resolution Process and ordered closure of the CIRP. The Tribunal treated the liquidation of principal as dispositive and held that the Operational Creditor was not entitled to interest as part of the operational debt. The order of the Adjudicating Authority admitting the Section 9 petition was effectively negated by these conclusions and the CIRP was closed; no costs were imposed.

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