2025 (1) TMI 266 - AT - IBC

Rejection of preliminary objections raised by the Corporate Debtor that application under Section 9 filed by the Operational Creditor is barred by time - HELD THAT - It is an admitted fact between the parties that invoices were raised from January, 2018 to August 2018. The copy of ledger has also been brought on the record which indicates that payments were made by the Corporate Debtor from time to time. As per ledger, last payment was received by the Operational Creditor on 26.08.2019 through bank receipt. The only question which needs consideration is as to whether the Operational Creditor was entitled for the benefit of Section 19 of the Limitation Act to enable it to seek extension of time from 26.08.2019 i.e. the last date of receipt of the payment. The Adjudicating Authority has treated the date of default as 26.08.2019 which is a date of the last payment receipt. In the present case, last payment was admittedly made on 26.08.2019 i.e. within the period of three years and there is also acknowledgment by the Corporate Debtor in writing which is reflected from the reply to demand notice. 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 and both the conditions which are required to be fulfilled under Section 19 were fulfilled. There are no error in the order of the Adjudicating Authority rejecting the objection of the corporate debtor that application under Section 9 was barred by time. Giving the benefit of last date of payment on 26.08.2019, the application was well within limitation. Conclusion - Section 9 application was not barred by limitation, as the acknowledgment of the last payment extended the limitation period. Appeal is dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by the Operational Creditor is barred by limitation.
Whether the last payment made by the Corporate Debtor on 26.08.2019 can extend the limitation period under Section 19 of the Limitation Act, 1963.
Whether the acknowledgment of the last payment by the Corporate Debtor in writing fulfills the conditions under Section 19 of the Limitation Act, 1963.
Whether the application of Article 137 of the Limitation Act, 1963 is appropriate for the Section 9 application.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation of Section 9 Application

Relevant Legal Framework and Precedents: The application of Article 137 of the Limitation Act, 1963, which prescribes a three-year limitation period, is considered. The Hon'ble Supreme Court's verdict in "B.K. Educational Services Pvt. Ltd. v. Parag Gupta" was referenced to establish that Article 137 governs applications under Sections 7 and 9 of IBC.
Court's Interpretation and Reasoning: The court held that the limitation period begins when the right to apply accrues, which is when the default occurs. The court emphasized that the last payment date is crucial for determining the start of a fresh limitation period under Section 19 of the Limitation Act.
Key Evidence and Findings: The last payment was made on 26.08.2019, and there was an acknowledgment in the Corporate Debtor's reply to the demand notice dated 28.09.2022.
Application of Law to Facts: The court applied Section 19 of the Limitation Act, finding that both conditions for extending the limitation period were met: the payment was within the prescribed period, and there was acknowledgment in writing.
Treatment of Competing Arguments: The Appellant argued that the last payment did not extend the limitation period as there was no running account and no acknowledgment in the prescribed form. The court rejected these arguments, citing the acknowledgment in the Corporate Debtor's reply.
Conclusions: The court concluded that the Section 9 application was within the limitation period, considering the acknowledgment of the last payment.

Issue 2: Application of Section 19 of the Limitation Act

Relevant Legal Framework and Precedents: Section 19 of the Limitation Act, 1963, which allows for a fresh limitation period from the date of payment acknowledgment, was analyzed. The judgment in "Shanti Conductors Private Limited" was referenced to clarify the conditions under Section 19.
Court's Interpretation and Reasoning: The court interpreted that Section 19 requires payment within the limitation period and acknowledgment in writing. The acknowledgment need not be within the limitation period.
Key Evidence and Findings: The acknowledgment in the Corporate Debtor's reply to the demand notice was deemed sufficient for Section 19's requirements.
Application of Law to Facts: The court found that the last payment made on 26.08.2019 and the acknowledgment in the reply letter satisfied Section 19's conditions, thus extending the limitation period.
Treatment of Competing Arguments: The Appellant's reliance on precedents that did not support their case was noted, and the court found those precedents inapplicable.
Conclusions: The court held that the conditions of Section 19 were fulfilled, allowing the extension of the limitation period.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The court quoted: "The period of limitation would begin 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."
Core Principles Established: The judgment reinforced the principle that acknowledgment of payment in writing extends the limitation period under Section 19 of the Limitation Act. It also affirmed that Article 137 applies to Section 9 applications under IBC.
Final Determinations on Each Issue: The court determined that the Section 9 application was not barred by limitation, as the acknowledgment of the last payment extended the limitation period. The appeal was dismissed, upholding the Adjudicating Authority's decision.

The judgment provides clarity on the interaction between the Limitation Act and IBC, particularly the application of Section 19 and Article 137, and emphasizes the importance of acknowledgment in extending limitation periods.

← Previous Next →