2026 (3) TMI 207 - AT - IBC

Acknowledgement of debt and settlement proposals extend limitation, enabling timely insolvency petitions and sustaining admission.

Acknowledgements of debt and subsequent one time settlement proposals operate as sufficient acknowledgement under the Limitation Act to extend limitation, ... Limitation and acknowledgment under Section 18 of the Limitation Act - compliance with principles of natural justice in ex parte proceedings - establishment of debt and default for admission under Section 7 - initiating the Corporate Insolvency Resolution Process (CIRP). Limitation and acknowledgment under Section 18 of the Limitation Act - Whether the Section 7 application was barred by limitation. - HELD THAT: - The Tribunal examined Part IV of the Section 7 application and the contemporaneous correspondence filed therewith, including the Corporate Debtor's letters dated 02.11.2015 and 18.11.2015 (acknowledging the irregularity and seeking restructuring) and subsequent OTS proposals (05.01.2018, 28.09.2020, 23.07.2024, 23.08.2024). These documents, pleaded and annexed to Part IV, constituted acknowledgements within the meaning of Section 18 of the Limitation Act and thereby extended the limitation. Further, the Financial Creditor's own CIRP period and the effect of the Supreme Court's order in Suo Moto Writ Petition No.3 of 2020 were held to enure to its benefit. On these bases the Adjudicating Authority's conclusion that the application was filed within limitation was upheld. [Paras 6, 7, 8, 9] The Section 7 application was not time-barred; limitation was extended by acknowledgments/OTS proposals and related events. Compliance with principles of natural justice in ex parte proceedings - Whether the Adjudicating Authority violated principles of natural justice by proceeding ex parte against the Corporate Debtor. - HELD THAT: - The Tribunal reviewed the chronology of substituted service (publication in the local newspaper), the Corporate Debtor's counsel entering appearance on 22.08.2025 and seeking time to file Vakalatnama and reply, and the subsequent adjournment granted when the Managing Director was recently released from custody. Despite opportunities and specific directions, no reply was filed and there was no appearance on 07.10.2025, leading to the ex parte order dated 06.11.2025. Given the counsel's initial appearance after substituted service and repeated opportunities granted by the Adjudicating Authority, the Tribunal found no breach of natural justice in proceeding ex parte. [Paras 11, 12, 13] No violation of principles of natural justice; ample opportunity was afforded before proceeding ex parte. Establishment of debt and default for admission under Section 7 - Whether the Financial Creditor had established debt and default sufficient for admission of the Section 7 application. - HELD THAT: - The Tribunal noted that disbursement was not disputed and that multiple restructuring requests and OTS proposals from the Corporate Debtor amounted to clear acknowledgements of debt. The documentary material in Part IV supported the Adjudicating Authority's findings that debt and default existed. On the record before it, the Tribunal found no error in the Adjudicating Authority's conclusion to admit the Section 7 application and appoint an Interim Resolution Professional. [Paras 12, 13] Debt and default were established on the record; admission under Section 7 was justified. Final Conclusion: The appeal is dismissed; the Adjudicating Authority's admission of the Section 7 application and related findings on limitation, natural justice and debt/default are upheld. Issues: (i) Whether the Section 7 application was barred by limitation; (ii) Whether admission of the Section 7 application and initiation of CIRP in absence of the Corporate Debtor (ex parte) violated the principle of natural justice.Issue (i): Whether the Section 7 application was time-barred.Analysis: The application's Part IV pleaded facts and annexed correspondence including demand notices, letters of acknowledgment dated 02.11.2015 and 18.11.2015, and multiple one time settlement (OTS) proposals dated 05.01.2018, 28.09.2020, 23.07.2024 and 23.08.2024. The Financial Creditor itself underwent CIRP between 03.02.2019 and 07.06.2021 and benefit of intervening orders (including the referenced Suo Moto proceedings) was available. The pleaded acknowledgments and subsequent OTS proposals fall within the scope of extension of limitation under Section 18 of the Limitation Act and provide sufficient material to hold that the filing on 01.03.2025 was within extended limitation.Conclusion: The Section 7 application was not barred by limitation; conclusion in favour of the Respondent.Issue (ii): Whether admission of the Section 7 application after ex parte proceedings violated the principle of natural justice.Analysis: Substituted service was effected by publication and compliance was filed. Counsel for the Corporate Debtor entered appearance on 22.08.2025 and sought time to file vakalatnama and reply and again sought adjournment on 16.09.2025; opportunities to file a reply were granted. No reply was filed and there was absence of appearance on subsequent dates leading to ex parte proceedings. The record shows repeated opportunities were afforded but not availed.Conclusion: There was no violation of the principle of natural justice; conclusion in favour of the Respondent.Final Conclusion: On the materials placed before the Tribunal, the Adjudicating Authority's findings that debt and default were proved and that the Section 7 application was timely filed are upheld; the admission order is sustained and the appeal is dismissed.Ratio Decidendi: Acknowledgments of debt and subsequent OTS proposals constitute sufficient acknowledgement under Section 18 of the Limitation Act to extend the period of limitation for filing a Section 7 insolvency application.