2026 (1) TMI 528 - AT - IBC

Operational debt invoices and internal liability transfer journal entries under IBC s.9 held time-barred; insolvency claim rejected.

An application under IBC s.9 based on alleged operational debt was held time-barred because any acknowledgement after expiry of the three-year limitation ... Limitation principles - Operational debt - time barred - threshold limit - no terms and conditions for interest payment as per the invoices - entitlement to the benefit of Section 25(3) of the Indian Contract Act - acknowledgement of debt u/s 18 of the Limitation Act, 1963 - Whether in this case the Appellant meets the threshold and whether any dispute exists and for that reason the petition is not to be admitted in insolvency u/s 9 of the Code. - HELD THAT:- It is settled law ‘that any acknowledgement after the date of expiry of limitation period i.e., three years, would have no effect and limitation would not extend on the: basis of such acknowledgement. We have perused the Ledger account of Respondent-CD-Global Extrusion which is at page 100- which doesn’t bear any signature but presumably prepared after 31st March 2020 as the last entry pertains to the journal entry of that date. Very interestingly, the journal entry dated 31st March 2020 has been made, which transfers all the liabilities of the Jamnagar unit into the account in the Mumbai unit- which is claimed to be done by the Appellant based on mutual discussion. Even though it has been signed by both the parties, but the Respondent denies any such understanding. We find that firstly it cannot be treated as acknowledgement of debt as it is just the transfer of the sales and purchase entries of earlier times from its Jamnagar unit – which had been closed. Whatever dates of those sales and purchases in Jamnagar account will continue to remain with the original date and cannot give new date and new life for limitation purposes to the transactions, basis just a journal entry which just shifts the entries from one account to another as it is, while maintaining the original character of the transactions. Even otherwise, we find that it may not be of any assistance to the appellant for the reason that the first four entries for which journal entry has been made on 31st March 2020 are time barred under the Code and even if it is treated as an acknowledgement, the petition is beyond three years for these entries and this debt is time barred and therefore for these invoices Appellant cannot pursue under code. Though the ledger of Respondent- Global Extrusions is signed by the Respondent but it is not a clear promise to pay ₹ 1,19,67,353 and in such a situation it cannot be argued that it falls within Section 25(3) of the Contract Act and creates a fresh contractual obligation. In this case, the document is ambiguous and merely an internal ledger and a routine balance confirmation without promise language, thus, we cannot accept it as a Section 25(3) promise, and the operational debt would remain time‑barred for IBC purposes. We also find that no interest was payable as there are no terms and conditions for interest payment as per these invoices and the interest has been arbitrarily calculated. Appellant has computed the invoices raised by their Jamnagar Unit as being due on 11.03.2019, and the invoices raised by their Mumbai unit as being due on 02.01.2020 in the Chart of Computation. Appellant in an innovative attempt to extend the limitation using such adjustment of book entries and that too unilaterally is misleading us and thus the Appellant has been wasting the precious time of the Tribunal. Thus, we find that the conclusions arrived at regarding the threshold in the impugned order cannot be faulted upon. We dismiss the appeal. Issues: (i) Whether the Insolvency Petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 meets the monetary threshold and is maintainable or is barred by limitation; (ii) Whether the ledger/journal entry and balance transfer from one unit to another or the ledger confirmation amounts to an acknowledgement or a Section 25(3) promise sufficient to revive time-barred debts; (iii) Whether interest as claimed is payable pursuant to the invoices.Issue (i): Whether the Insolvency Petition meets the threshold and whether the claimed debt is time-barred.Analysis: The admitted transactions and the accounts were examined to determine the dates on which specific invoices became due and whether exclusion periods or acknowledgements extended limitation. The tribunal evaluated (a) dates of earliest invoices from 2016–2017, (b) the effect of subsequent purchases and adjustments relied upon by the appellant to treat earlier invoices as accruing later, and (c) the availability of the exclusion period claimed for the Covid-19 era. The tribunal analysed whether deduction of time-barred entries would reduce the principal claim below the statutory threshold and whether the appellant’s method of unilateral ledger adjustments could validly alter limitation reckoning.Conclusion: The petition does not meet the threshold in view of time-barred entries; the earliest invoices remain time-barred and the claimed adjustments do not revive those entries for IBC purposes.Issue (ii): Whether the ledger/journal entry and balance transfer or the ledger confirmation constitute an acknowledgement of debt under the Limitation Act, 1963 or a binding promise under Section 25(3) of the Indian Contract Act, 1872 sufficient to revive time-barred debts.Analysis: The tribunal assessed the nature and language of the ledger, the journal entry dated 31.03.2020 transferring Jamnagar unit balances to the Mumbai account, and the jointly signed ledger materials. The tribunal distinguished mere book-keeping entries, routine balance confirmations and unilateral transfers from an express, unambiguous admission or promise to pay. It considered whether the ledger manifested a clear promise to pay a specific sum or was merely an internal transfer preserving original transaction dates, and found the document ambiguous and lacking promissory language required to operate as a Section 25(3) promise or a Section 18 acknowledgement that would extend limitation for the oldest invoices.Conclusion: The ledger/journal entry and related balance transfer do not constitute an acknowledgement or a Section 25(3) promise that revives time-barred debts; they are insufficient to render the contested invoices enforceable under the Code.Issue (iii): Whether interest claimed by the appellant is payable under the invoices.Analysis: The tribunal examined the invoices and terms relied upon by the appellant and found absence of contractual stipulation for interest in respect of the contested invoices; the interest component was not supported by clear contractual terms and appeared to be arbitrarily calculated.Conclusion: Interest as claimed is not payable on the contested invoices.Final Conclusion: The appeal is dismissed and the Adjudicating Authority's conclusion that the petition is barred by limitation and fails to meet the statutory threshold is upheld; ancillary claims based on ledger entries and asserted acknowledgements do not alter the legal effect of time-barred transactions and the asserted interest demand is unsupported.Ratio Decidendi: Mere internal ledger entries, journal transfers of historical balances, or routine balance confirmations that lack clear promissory language do not constitute an acknowledgement or a Section 25(3) promise capable of reviving time-barred debts for the purposes of initiating insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.