In a recent case, the Delhi bench of the National Company Law Appellate Tribunal (NCLAT)has held that the operational creditor was obviously entitled to the benefit of an extension of limitation under Section 19 of the Limitation Act when the corporate debtor clearly acknowledged the last payment, which was made within the three-year period, and both of the requirements outlined in Section 19 were met.
The corporate debtor, Super Floorings Pvt. Ltd., has filed this appeal in opposition to an NCLT ruling that dismissed its preliminary objection to the section 9 application, stating that it was barred by limitation. The CD had previously paid a number of payments to the operational creditor, the most recent of which was made by bank transfer on August 26, 2019. As a result, a section 8 demand notice was sent, followed by the filing of a section 9 application.
Corporate Debtor made a preliminary objection on the question of limitation when the application was brought up for consideration. After hearing from both parties, the adjudicating authority instructed them to provide comments on the point of limitation. After hearing arguments from both parties, the adjudicating authority issued an impugned ruling holding that the petition under Section 9 was within the limitation and rejecting the preliminary objection. This appeal has been filed since the aforementioned order has angered me.
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According to the appellant, the Operational Creditor argued that the last payment, which was made on August 26, 2019, extended the statute of limitations. However, since there was no running account between the parties, the last payment was insufficient to do so in accordance with Section 19 of the Limitation Act.
It was also stated that two requirements of Section 19 of the Limitation Act must be met: the payment must be recognized in writing and must have been made within the allotted time frame. It cannot be argued that the most recent payment was made in compliance with Section 19 of the Limitation Act, which allows for an extension of the statute of limitations.
The respondent submitted that the period of limitation would begun to run from the date of default which would be 26.08.2019 when the last payment was made by the Corporate Debtor to the Operational Creditor. It was argued that both the conditions under Section 19 of the Limitation Act are fulfilled in the present case. The payment by bank transfer is also made on instructions by the Corporate Debtor, hence, the bank transfer which is on the instructions of the Corporate Debtor is also an acknowledgment within the meaning of Section 19.
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The tribunal observed that two conditions need to be fulfilled for extending the benefit of Section 19 of the limitation which are: whether payment on account of debt or of interest on legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy; (ii) an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment.
A two member bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) viewed that the Supreme Court in Sant Lal Mahton vs. Kamla Prasad (1951) held that while requirement under section 19 of the Limitation Act is that payment should be made within the period of limitation. However, it does not require that acknowledgment should also be made within that period.
The tribunal while dismisisng the appeal, observed that when there is clear acknowledgment by the corporate debtor of last payment made on 26.08.2019 which payment was within the period of three years, the operational creditor was clearly entitled for the benefit of extension of limitation under Section 19 of the Limitation Act.
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