Part Payment by Corporate Debtor Extends Limitation Period for Filing Insolvency Application: NCLAT [Read Order]

The Principal Bench of the National Company Law Appellate Tribunal (NCLAT) at New Delhi recently ruled that a part payment made by the corporate debtor to the operational creditor against the total debt constitutes an acknowledgment of debt under the Limitation Act, 1963, thereby extending the limitation period for filing an insolvency application under the Insolvency and Bankruptcy Code, 2016 (IBC).

The finding came while the NCLAT dismissed an appeal by Ramniwas B. Somany, suspended director of Indian Denim Limited, challenging an order passed by the Ahmedabad Bench of the NCLT order on 22 September 2023, admitting a Section 9 application filed by the operational creditor Anushri Paper Pack Pvt. Ltd against Indian Denim Limited.

The operational creditor supplied corrugated packaging materials to Indian Denim Ltd., claiming an operational debt of ₹8,48,127, which comprised a principal amount of ₹3,65,616 and contractual interest amount of ₹4,82,511. The invoices for the supply of the packaging materials were issued between July and November 2013, and a demand notice dated 25 January 2019 against the same went unanswered.

A case was made before the NCLT Ahmedabad Bench which admitted the application and appointed Rahul Nareshbhai Shah as the Interim Resolution Professional (IRP) leading to the present appeal before the NCLAT.

The suspended director of Indian Denim, represented by Hemant Phalpher contended that the claim raised by the operation creditor was barred by limitation as the alleged default pertained to invoices from 2013 and the insolvency application was filed in 2019 - which was beyond the three-year limitation period prescribed under the Limitation Act, 1963.

The NCLAT bench comprising Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan and Naresh Salecha (Technical Member) observed that the corporate debtor had made a part payment of ₹40,000 by cheque dated 17 May 2016 to the creditor, which was cleared on 20 May 2016.

The tribunal noted that such acknowledgment of debt or part payment within the initial three-year limitation period from the due date of the last invoice (2 December 2013) results in a fresh limitation period starting from the date of the acknowledgment or payment.

Since the last payment made by the debtor was cleared on 20 May 2016, and the Section 9 application was filed on 06 May, 2019, it fell squarely within the extended limitation period.

Accordingly, the NCLAT endorsed the reasoning of the Ahmedabad NCLT that the ₹40,000 payment effectively revived the limitation period and validated the claim raised by the operational creditors as timely as per the IBC.

The NCLAT thus dismissed the appeal, holding that the operational creditor’s application was within limitation and that the NCLT rightly admitted the insolvency petition.

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