The Limitation Act, 1963 provides for a certain fixed period for filing of appeals and instituting Suits in different Courts. The Limitation Act is based on a general principle that for any act in violation of law, there has to be a strict period for filing for due redressal in the Courts so as to protect only the diligent & the aware and not to protect the careless and those sleeping over their rights. It is relevant to refer to the Latin maxim “Vigilantibus non domeintibus jur a subventiunt”, which is the foundation of this Act. If a sufferer approaches the Court after the prescribed time for redressal, the Court does not show indulgence because his actions are barred by the law of limitation.
The Limitation Act provides for different time periods for different situations in civil cases. The limitation periods are provided in the Schedule to the Act. In case of the money borrowed and not returned, the limitation period for filing such suit is of three years from the date the money has been lent. The Schedule provides a period of three years for a suit which relates to accounts, declarations, contracts, and twelve years for the suit which relates to possession of the immovable property and thirty years for mortgaged property.
The Limitation Act also provides for Condonation of delay under Section 5 of the said Act to condone delay occurring if the litigant was prevented by sufficient & reasonable cause from not moving to the redressal forum/Courts within the stipulated time.
It would be relevant to reproduce the relevant sections of the Limitation Act concerning suit for Recovery of Money. Section 18 & 19 of the said Act reads thus:
Effect of acknowledgment in writing.—
(1) Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.
(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. Explanation.—For the purposes of this section,—
(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;
(b) the word “signed” means signed either personally or by an agent duly authorised in this behalf; and
(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.
Effect of payment on account of debt or of interest on legacy.—Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made.”
Explanation.—For the purposes of this section,— Explanation.—For the purposes of this section,—
“(a) where mortgaged land is in the possession of the mortgagee, the receipt of the rent or produce of such land shall be deemed to be a payment;
(b) “debt” does not include money payable under a decree or order of a court.”
It would be relevant to refer to the recent judgement of the Apex Court in Dena Bank v. C. Shivakumar Reddy, 2021 SCC OnLine SC 543 decided on 4-8-2021 wherein this issue was dealt with extensively.
The main question involved in the said appeal before the Apex Court was whether a Petition under Section 7 of the the Insolvency and Bankruptcy Code, 2016 (IBC) would be barred by limitation, on the sole ground that it had been filed beyond a period of 3 years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the Appellant Bank, within a period of three years prior to the date of filing of the Petition under Section 7 of the IBC, by making a proposal for a One Time Settlement, or by acknowledging the debt in its statutory Balance Sheets and Books of Accounts.
The brief facts of the case are that the Corporate Debtor had admittedly paid Rs.111 lakhs towards interest on 28th March, 2014 evidencing that the loan was alive and there was a subsisting jural relationship. On 03.03.2017, within three years, the Corporate Debtor submitted a proposal for One Time Settlement of its Term Loan Account with the Appellant Bank. Thus, it was pleaded by the Appellant Bank that the Corporate Debtor had acknowledged its liability to the Appellant Bank and therefore the said Petition under Section 7 of the IBC was filed well within three years from the date of such acknowledgement and thus maintainable. It was also pleaded that the Corporate Debtor had admitted the existence of jural relationship of debtor and creditor, between the Corporate Debtor and the Appellant Bank by acknowledging the loan liability in its Balance Sheet.
It is no longer a matter of dispute that Section 18 of the Limitation Act applies to the proceedings under the IBC. The Apex Court in Sesh Nath Singh and Anr. vs. Baidyabati Sheoraphuli Cooperative Bank Ltd. And Anr, 2021 SCC Online SC 244, Laxmi Pat Surana vs. Union Bank of India and Ors, 2021 SCC Online SC 267 and Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Ors, 2021 SCC Online SC 321 have declared the Law that Section 18 of the Limitation Act applies to proceedings under the IBC.
On behalf of the Corporate Debtor, it was pleaded that the ‘Corporate Debtor’ had never accepted or acknowledged the debt within three years nor had agreed to pay the debt and the application moved by the Debtor to restructure the debt or payment of the interest did not amount to acknowledgement of debt. It was also pleaded that filing of the Balance Sheet & statutory accounts of the ‘Corporate Debtor’ for the year 2016-2017 did not tantamount to be a document of acknowledgment in terms of section 18 of the Limitation Act.
The Apex Court negated the arguments of the Debtor and held that an application under Section 7 of the IBC for initiation of corporate insolvency resolution process against a corporate debtor is not be barred by limitation if there is an acknowledgement of the debt by the corporate debtor before the expiry of limitation period. The Court also held that such acknowledgment can be by way of statement of accounts, balance sheets, financial statements and offer of one time settlement.
The Court noted that the Certificate of Recovery was issued by DRT in favour of the Bank on 25 May 2017. The Corporate Debtor did not pay dues in terms of the Certificate of Recovery. The Court held that the Certificate of Recovery gives a fresh cause of action & held thus:
“The Certificate of Recovery in itself gives a fresh cause of action to the Appellant Bank to institute a petition under Section 7 of IBC. The petition under Section 7 IBC was well within three years from 28th March 2014.“
Relying on the case of the Apex Court in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, 2021 SCC Online SC 321, the Court succinctly held thus:
“It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act.“
The Apex Court also observed that provisions of IBC and Rules and Regulations framed thereunder should be construed liberally and in a purposive manner so as to further the objects of enactment of the statute and should not be given a narrow, pedantic interpretation which defeats its very purposes.
This decision shall open floodgates for the Banks & Financial Institutions as the defaulting Companies, Trusts, Societies and LLPs are mandated to file their Balance Sheets and Statement of Accounts to the ROC & other statutory Bodies under their respective Acts. Not only this, every assessee having any status or Income/Loss whatsoever has to file his Income Tax Return and financial details & accounts. Thus, there is due ‘acknowledgement’ of the Debt whether payable to any Bank, Financial Institution, Private Lenders or Business Debtors. On a deeper understanding of the said judgement, it transpires that the said Loans/Debts cannot be written off as the same entails payment of Income Tax on such Incomes arising out of writing off the loans.
For the Business Organisations, this judgement will be a double edged sword. It will help in realising your otherwise ‘Bad Debts’ but at the same time it could entangle them in the clutches of Banks/ Financial Institutions/ Business Creditors. One thing is certain- this judgement shall have a wide impact on Businesses in times to come and it will become impossible for the business entities to ‘devour’ the Bank Loans on technicalities of Limitation.
Author Bio
The article deals with a very important facet of law. I fully endorse the view of the author of the article that the law laid down by the honourable apex court is bound to have great bearing on the transactions in the time to come.