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Ashutosh Gupta and Gaurav Rana

Moot Question V, Whether Acknowledgment Of Debt Extend Limitation Period Under IBC-

National Company Law Appellant Tribunal (“NCLAT”) in the recent judgment Bimalkumar Manubhai Savalia Vs. Bank of India deliberated and held various interesting integrities and aspects relating to applicability of law of Limitation under Insolvency Bankruptcy Code, 2016 of India (“IBC” or “Code”) like in which circumstances Section 18 of the Limitation Act, 1963 (“Limitation Act”) would be applicable under IBC, whether acknowledgment of debt would extend the limitation period under IBC, whether part payment will extend the limitation under IBC, and also discussed whether admission made in proceedings under Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI”) and Debt Recovery Tribunal (“DRT”) would extend the limitation for IBC (“Moot Questions”).

In this article we will be discussing Moot Questions and the NCLAT finding on the same.

Before adverting to finding and rationale of the NCLAT on the Moot Questions, it is relevant to discuss the facts leading to the Order.


That the Appeal was preferred by Shareholder and ex-Director of M/s. Radheshyam Agro Products Pvt Ltd. (“Corporate Debtor”) taking the stand that the application filed by the Bank of India (“Financial Creditor”) is time barred. As per Application filed by the Financial Creditor date of default is 05.11.2014 and said Application was filed before the Adjudicating Authority on 30.08.2018. Further Corporate Debtor tried twice in the year 2016 to settle the dispute by offering One Time Settlement (“OTS”), first was issued on 28.04.2016 and the second revised offer was on 01.06.2016 with regard to the same. Though none of the said letters were approved by the Financial Creditors and both OTS were rejected. Further Guarantor to the said financial debt paid the amount of Rs. 1,26,619/- and Rs. 1,28,645/- by transferring the same to the account of the Corporate Debtor on 01.04.2017.

Further Financial Creditor also initiated proceedings under SARFAESI and DRT started in 2017. The Adjudicating Authority, in its observation to above, held that the Application is within limitation taking into account the OTS proposal dated 01.06.2016 and the amounts which have come from the Guarantor into the loan account of the Financial Creditor on 31.03.2017.


Financial Creditors argued that Application was filed before the Adjudicating Authority on 30.08.2018 which is within limitation period for the reason that the Corporate Debtor issued a letter dated 28.04.2016 and the second letter on 01.06.2016 with regard to the settlement. He submitted that the letter dated 28.04.2016 was issued with a phrase ‘without prejudice’. However, in the second letter the word ‘without prejudice’ was not used and therefore the letter dated 01.06.2016 can be treated as an acknowledgement of debt by the Corporate Debtor.

Financial Creditors also submitted that the payment made by the Guarantor on 01.04.2017 was in accordance with deed of guarantee dated 15.07.2010 and said amount can be treated as an acknowledgement for the purpose of limitation. To which the learned counsel of the Appellant argued referring to Section 19 of the Limitation Act, that the amount have been appropriated by the Financial Creditor from the Guarantor and cannot be regarded for extending the period of limitation.

Financial Creditor also took a stand that in Application under Section 17 of ‘SARFAESI’ Act Appellant has admitted the fact of taking loan and failed to repay the same. Therefore, as per Financial Creditor submits that the same acts as an acknowledgment for the purposes of limitation

On the other hand main ground taken by the Appellant is with regard to the Application filed by 1st Respondent under Section 7 of IBC is time barred.


NCLAT, considered form-1, a statutory form to be filed under Section 4(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority Rules), 2016. Part-IV of the Form, the particulars of the Financial Debt has been given and the debt and default has been mentioned as on 05.11.2014. The very Next question arose before NCLAT was whether application filed on 30.08.2018 was within limitation period applicable to application filed under Section 7 & 9 of IBC.

NCLAT observed that OTS was not accepted by the 1st Respondent/the Financial Creditor, therefore, the same cannot be treated as an acknowledgement in view of Section 18 of the Limitation Act, 1963. NCLAT is reference to the amount paid by the Guarantor, also noted that, Article 19 of the Limitation Act will fall under the category of first division of schedule which applies to the suits. However, Section 7 of the IBC is not a suit and as held by Hon’ble Supreme Court in B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates passed in Civil Appeal No. 23988 of 2017 reported in (2019) 11 SCC 633, Section 7 is an Application under the IBC which falls under the category of Application in para II of 3rd division. Further Hon’ble Supreme Court held in said dictum that the Article 137 will apply to the Applications filed under Section 7 & 9 of the IBC. Therefore, the stand taken by the Financial Creditor that part payment will extend the limitation period is misconceived.

NCLAT also relied on paragaraph-7 of “C. Shivkumar Reddy Vs. Dena Bank and Anr.” in Company Appeal(AT)(Insolvency) No. 407 of 2019 dated 18.12.2019 :-

There is nothing on record to suggest that the Corporate Debtor or its authorised representative by its signature has accepted or acknowledged the debt within 3 years from the date of default or from the date when account was declared NPA i.e., on 31.12.2013”

Relaying on above NCLAT held that :

“In the present case as held supra, there is no acknowledge issued by Appellant/Corporate Debtor prior to expiry of 3 years or from the date of default. Therefore, the Application filed by the 1st Respondent before the Adjudicating Authority on 30.08.2018 is beyond the period of limitation.”

Further in reference to the stand taken by the Financial Creditor relating to application filed under SARFAESI, the NCLAT opined that as per Section 238 of IBC, the Insolvency and Bankruptcy Code is a complete Code and will have overriding effect on other laws including SARFAESI and DRT. Relevant extract of Section 238 of IBC is reproduced herein below:

“The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law” 

NCLAT held that Code is complete in itself and therefore it governed by its own provisioning defined or specified under the code. The proceedings initiated or to be initiated under DRT or SARFAESI Act has no connection or relation with the Application filed under the Code as the Code is separate and independent in itself. Therefore it is held that DRT or SARFAESI proceedings shall have no per se effect IBC Application and will be extend the limitation period.

Further the NCLAT while considering the issue relating to effect of part payment on the limitation period, relied upon B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates Supra wherein it was held that:

“Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.”


NCLAT declined to accept the stand of the Financial Creditor that OTS would extend the time of limitation as the same were not accepted by the Financial Creditor and considered it as no acknowledgment was issued by the Corporate Debtor before expiry of 3 years of limitation.

NCLAT held that Code is complete in itself, thus proceedings initiated or to be initiated under DRT or SARFAESI Act will not extend the limitation period.

NCLAT also declined the version of Financial Creditor that part payment has extended the limitation, on the basis that Article 19 of the Limitation Act will not be applicable on the IBC in terms of Hon’ble Supreme Court judgment.

In the light of aforesaid NCLAT set aside the order of the Adjudicating Authority.


NCLAT gave its finding on the foundation of two judgments the first one is of Hon’ble Supreme Court in BK Education Supra wherein applicability of Limitation Act on IBC was considered and second one is its own judgment in C. Shivkumar Supra.

At this juncture it is relevant to understand the  law of interpretation of Section 18 of the Limitation Act, which deals with acknowledgement of debt and its effect on period of limitation. In Teumal Bishamal Sindhi V Mohandas Sindhi 1972 74 Bom LR 644 it was held that :

“Section 18 must be construed liberally, it does not require an acknowledgment to be in any particular form or to be express. Even a statement which if literally construed, does not amount to acknowledgement may be sufficient, it if implies an addition of liability.”   

General speaking, liberal construction of the statement on which he acknowledgement is sought to be founded should be given. Under law, it is not necessary that there should be specific and direct acknowledgment of particular liability. If there is an admission of facts of which the liability in question is necessary consequence, it should be taken as an acknowledgement. Same was propounded in Gurbachan Singh V. Inder Singh, 2002 (3) Punj LR 721. 

Thus in cases of Section 18 of Limitation Act, liberal approach must be taken while considering the acknowledgment and no hard and fast rule can be applied to ascertain whether statement is acknowledgement or not, it solely depends on the circumstances under which it is made. 

Further basic and imperative facet of an acknowledgement was discussed in Variety Supply Agency V. W.B. State Electricity Board 1991-92 96 CWN 814. Wherein it was held that, if statement is made, which relates to a present subsisting liability and indicate the existence of jural relationship between the parties such as, that of debtor and creditor and the intention to admit such jural relationship is evident, it amount to a valid acknowledgement. Such intention need not be in express terms and can always be inferred by implication from the nature of the admission and surrounding circumstances. Liberal construction of the statement in question should be given as far as possible.

That in the present case OTS offer was sufficient in terms of above dictums, wherein only statement referring existing debt and jural relationship is least required for falling under the Section 18 of the Limitation Act. However in the instant case NCLAT added one more proviso whereby OTS is required to be approved by the Financial Creditor until then same is not covered under Section 18 of the Limitation Act and can not extend the limitation period by 3 years. Though, same can not be attributed from the Limitation Act as well as from the law of land.

Further NCLAT Order refrained to consider the admission made in the SARFAESI and DRT proceedings by Corporate Debtor as valid acknowledgment under Section 18 of Limitation Act. That the said finding are in contrast with various dictums of different high courts wherein an acknowledgement of liability contained in a document filed in court would suffice for purpose of Section 18, same was held in Munshi Lal Vs Hira Lal ILR 1947 ALL 11. Further in Xavier V Kasi 1990 2 KLT 139 it was held that an admission of liability contained in a plaint or written statement would be good acknowledgment within the meaning of the section 18. It is interesting to note that, said orders of the high courts were neither relied by any party or by the NCLAT, hence said aspect and law are not considered by the NLCAT in arriving present Order.

Moving into next question settled by NCLAT, whether part payment would be treated as acknowledgement under Section 19 of the Limitation Act and thereby extends the period of limitation under the IBC. NCLAT while discussing he ambit of Section 19 of the Limitation Act went into discuss the Article 19 of the Limitation Act and held that Article 19 falls under division I of the Limitation Act and further held said division is not applicable on the IBC matters in terms of BK Education Trust supra. Though, it is correct that Article 19 of the Limitation Act is not applicable on IBC matters but question before NCLAT was about applicability, of Section 19 of the Limitation Act not of Article 19 applicability, hence NCLAT verdict is erroneous to that extent.

Be that as it may, till the present Order is not set aside/diluted by Hon’ble Supreme Court, same is law of land for Adjudicating Authorities, and part payment and/or admission by Corporate Debtor before other forums will not extend the limitation period.

 Authors are advocate at New Delhi and Managing Partner and Partner respectively at Indo Legal Services a boutique law firm in New Delhi.


Author Bio

MR. GAURAV RANA(Advocate, CS) Mr. Rana, Advocate is a member of Bar Council Association of Delhi High Court, India and an Associate member of Institute of Company Secretaries of India. He has extensive experience in commercial litigation, arbitration and regularly argues at various fora. He advises View Full Profile

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July 2024