2026 (2) TMI 241 - AT - IBC

Corporate guarantee invocation and balance sheet acknowledgement under Limitation Act sustain insolvency petition admission; appeal dismissed

Invocation of a corporate guarantee on 12.02.2020 triggered a fresh cause of action and the threeyear limitation period began from that date; ... Limitation and extension by acknowledgement - acknowledgement u/s 18 of the Limitation Act - invocation of corporate guarantee as triggering fresh cause of action - admission of Section 7 application under the IBC - debt and default for initiation of CIRP - consideration of amounts realized in liquidation/CIRP to ascertain outstanding debt. Limitation and extension by acknowledgement - HELD THAT:- Admittedly, the guarantee was invoked on 12.02.2020, hence, three years’ period shall commence from the said date. The Adjudicating Authority has returned a finding that in Balance Sheet of the year 2021-22 and 2023- 24, there is acknowledgment, which is acknowledgment within the meaning of Section 18 of the Limitation Act, therefore, limitation period stood extended and Application filed on 14.04.2025 is well within time. The Hon’ble Supreme Court in the matter of “Asset Reconstruction Co. (India) Ltd. Vs. Bishal Jaiswal [2021 (4) TMI 753 - SUPREME COURT]”, held that acknowledgment in the balance sheet is acknowledgement within the meaning of Section 18 of the Limitation Act. We, thus, are of the view that the Adjudicating Authority has rightly come to the conclusion that application filed on 14.04.2025 is not barred by time and by virtue of Section 18 the limitation shall extend and the application is well within time. Debt and default for initiation of CIRP - HELD THAT:- The Form-1 which is filed by the Financial Creditor is part of the record and has been filed by the Appellant as annexure to the appeal. In Part IV of the Form-1 the details of debt and date of default has been pleaded. Appellant has taken exception to the amounts which have been recorded with regard to liquidation of the Principal Borrower and resolution process of the another Corporate Guarantor. In so far as filing of Form-1, the necessary ingredients for proving debt and default are mentioned in Form-1. When the Form-1 and application was found complete, the Adjudicating Authority could have proceeded to admit the application. As far as amount of liquidation and CIRP of the Corporate Guarantor is concerned, those are resolution made by the Adjudicating Authority itself and matter of public knowledge, hence, there cannot be said to be any suppression on the part of the Applicant. We, thus, are of the view that there is no an error on which this Tribunal may interfere with the order admitting Section 7 application. We, thus, are of the view that there are no good grounds to entertain this appeal. Appeal is dismissed. Issues: (i) Whether the Section 7 application was barred by limitation; (ii) Whether the Adjudicating Authority correctly considered amounts received in liquidation of the Principal Borrower and resolution of another corporate guarantor when determining existence of debt and default and whether non-disclosure in Form-1 invalidated the application.Issue (i): Whether the Section 7 application was time-barred.Analysis: The date of invocation of the corporate guarantee and the subsequent demand notices were examined together with the impact of the Covid-19 extension of limitation. Entries in the corporate debtor's balance sheets for financial years 2021-22 and 2023-24 were treated as acknowledgements under Section 18 of the Limitation Act, 1963, thereby extending the limitation period. Judicial authority applying Article 137 and authorities on exclusion of Covid period were relied upon to compute the applicable period.Conclusion: The application was not barred by limitation; the limitation period was extended by the acknowledgements reflected in the balance sheets and the application filed on 14.04.2025 was within time.Issue (ii): Whether the Adjudicating Authority erred in taking into account amounts paid/receivable from liquidation of the Principal Borrower and CIRP of another corporate guarantor for determining debt and default, and whether non-disclosure in Form-1 vitiated the application.Analysis: The amounts admitted and paid in liquidation and the amounts computed under a resolution plan of another corporate guarantor were considered for ascertaining the remaining unpaid liability. The Form-1 filed contained the necessary particulars of debt and date of default; the additional liquidation/CIRP figures were drawn from public records and proceedings and were used solely to determine remaining outstanding debt for the Section 7 claim.Conclusion: Considering amounts from liquidation and CIRP for calculating remaining unpaid debt was permissible for assessing debt and default under Section 7; there was no suppression in Form-1 that warranted interference with admission of the application.Final Conclusion: The Adjudicating Authority's conclusions on limitation, acknowledgement, and computation of remaining unpaid debt were upheld; there are no grounds to interfere with the order admitting the Section 7 application and the appeal is dismissed.Ratio Decidendi: An entry in the corporate debtor's balance sheet constituting an acknowledgement under Section 18 of the Limitation Act extends the period for filing a Section 7 insolvency application, and amounts admitted/paid in liquidation or under another corporate debtor's resolution plan may be considered to determine the remaining unpaid debt for purposes of establishing debt and default under the IBC.