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TMI Blog2021 (12) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... n 25 of the Indian contract act provides that agreement without consideration is void unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law - based on the statutory provision of Section 25(3) of the Contract Act, it is clear that there could be a valid contract to pay wholly or in part a time-barred debt. This can be treated as an exceptional general principle of the Contract Act, which provides that agreement without consideration is void. Illustration (e) of Section 25 of the Contract Act provides that if A owes B ₹ 1,000, but the debt is barred by the Limitation Act. A signs a written promise to pay B ₹ 500 on account of the debt. This is a contract. The learned Adjudicating Authority has taken an erroneous view of the matter and on evaluating the letter of the Managing Director of the Corporate Debtor as an acknowledgement of the debt - the said letter was not within limits so that the operational Creditor could claim the benefit of Section 18 of the Limitation Act. Appeal allowed. - Company Appeal (AT) (Insolvency) No. 330-331 of 2020 - - - Dated:- 8-12-2021 - [Justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not complete the subject work urgently since the inauguration of the said building was scheduled on 28.02.2011, which was six days after the issuance of the letter described above. Consequently, the Operational Creditor/Respondent No.1 failed to render the work as obligated under the job. The work done by the Operational Creditor/Respondent No.1 was contrary to the plan, and therefore the Corporate Debtor was precluded from issuing a completion certificate. In view, the Corporate Debtor was constrained to carry out the remaining work through certain third-party Vendors. 3.2 Respondent No.1 raised three bills dated 11th February 2012 for the purported work done. However, after passing about five years from the date of the aforesaid invoices, the Operational Creditor/Respondent No.1 has issued the demand notice dated 14th December 2017 under Section 8 of the IBC Insolvency and Bankruptcy Code, 2016 . After that, the Application under Section 9 of the IBC was preferred by Respondent No.1 before the Adjudicating Authority in October 2018. 3.3 The Corporate Debtor sent a reply to the demand notice, dated 14th December 2017, issued by the Operational Creditor. 3.4 The Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Debtor, namely, 'West Bengal Biotech Development Corporation Limited' (however wrongly mentioned in CP (IB) No. 1447/KB/2018 as 'West Bengal Biotech Development Limited' is a wholly-owned Government of West Bengal Undertaking. The State of West Bengal holds the entire shareholding of the Corporate Debtor through its nominee and/or nominees. The Corporate Debtor is engaged, inter-alia, in biotechnology. 4.2 The Operational Creditor, i.e. the Respondent No. 1 herein, had initially approached the Corporate Debtor and represented that the Operational Creditor is engaged, among other things, in the business of carrying out interior decoration and renovation work. Accordingly, under the negotiation entered into between the Operational Creditor and the Corporate Debtor, the Corporate Debtor had assigned the job to the Operational Creditor, i.e. Respondent No.1 to carry out glass partition, electrical fittings, air-conditioning fittings and false ceiling fittings in respect of a building situated in Salt Lake, Kolkata. This job work (hereinafter referred to as the 'said work') was to be done by Respondent No. 1 herein, in terms of a plan. 4.3 The Opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal debt claimed in the Application under Section 9 of the Code, 2016 filed by the Respondent No. 1 is based on three bills which the Operational Creditor admittedly raised upon the Corporate Debtor dated 11th February 2012. Therefore, on the face of it, the bills of 11th February 2012 cannot be made to be the subject matter of the Section 9 petition filed under the Code of 2016 in October 2018, since ex facie the claim of such operational debt arising on the said bills are barred by limitation. 4.7 However, the Adjudicating Authority, after hearing the parties had admitted the Application under Section 9 filed by the Operational Creditor and by the Order dated 28th January 2020, allowed the Application primarily on the ground that the Reply dated 14th December 2017 issued by the Corporate Debtor to the Operational Creditor amounts to alleged promise to pay by the Corporate Debtor under Section 25(3) of the Contract Act. 4.8 The Adjudicating Authority has failed to appreciate that the Reply of the Corporate Debtor dated 14th December 2017 could not have been construed as an alleged admission, nor the said letter dated 14th December 2017, amounts to a promise to pay within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 28th May 2012. Therefore, to claim any sum due based on the work allegedly done beyond the scope of the work order dated 22nd February 2011, needs to be proved and established with the help of supporting documents which were, however, not in this case. 4.15 The proposed meeting at the invitation of the Managing Director of the Corporate Debtor was for this purpose only, and there was no alleged admission or any 'acknowledgement of debt' on the part of the Corporate Debtor as has been incorrectly held upon the misconstruction and misinterpretation of the letter dated 14th December, 2017. 4.16 Respondent No. 1 could not produce the relevant documents called for despite having availed several opportunities from the management of the Corporate Debtor. Respondent No.1 did not provide a copy and details of the completion certificate to the Corporate Debtor. 4.17 There has been non-compliance with the provisions of Section 9(3)) and Section 9(3)(d) of the Code. However, the Adjudicating Authority overlooked the fatal defects that had rendered the Section 9 IBC application not maintainable. 4.18 It is stated that even the name of the Corporate Debtor menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalysis: 9.1 It is an admitted fact that in the instant case, the Corporate Debtor issued an order on 22nd February 2011 to the Operational Creditor for interior decoration of the 1st, 2nd and 4th Floor of the building at EN24, Salt Lake, Sector-V, Kolkata. After the completion of the work, the Operational Creditor raised three bills on 11th February 2012, bearing bill No. Keshav / 11-12/1, Keshav / 11-12/2, Keshav / 11-12/3 amounting to ₹ 35,44,776/- and forwarded the same to the office of the Corporate Debtor through its forwarding letter dated 11th February 2012, out of which, an amount of ₹ 634,886/- was paid by the Corporate Debtor the dues above. 9.2 The Operational Creditor contended that despite several reminders, the Corporate Debtor failed to pay the outstanding amount. Finding no other alternatives, the Operational Creditor, as of 7th November 2017, issued a demand notice under Section 8 in 'Form 3' under the Insolvency and Bankruptcy Code 2016 read with Rule 5 of the IBBI (Application to Adjudicating Authority) Rules 2016 to the Corporate Debtor. 9.3 Immediately after receiving the demand notice dated 7th October 2017, the MD Managing Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation but was within the period of limitation. So, considering the Reply evidently sent by the corporate debtor is good to read. It reads as under; with reference to the demand notice dated 7th November 2017 on the above subject, I am directed to request you to send one of your representative/officials with all relevant papers/documents in this regard to my office chamber at Vigyan Chetna Bhawan,DD 26/B, 5th Floor, Sector 1, Salt Lake, Kolkata 700064 for a discussion in order to settle your claim soon. A date and time of your convenience for the said purpose may please be communicated at the earliest. This is topmost Urgent. Yours faithfully Managing director West Bengal biotech development Corporation limited Relying to reply Notice, the learned Counsel for the operational Creditor submits that the letter amount to a promise to pay a time-barred debt under section 25 (3) of the Indian contract act.----Referring to the Section 25(3) of the Indian contract act, the learned Counsel appearing for the operational Creditor attempted to prove that the corporate debtor did not dispute its claim but showed his readiness to settle the claim after a discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst 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. 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. It cannot be disputed that plaintiff provided storage space to the consignments beyond the free period mentioned in the consignment notes at Exs. 44 to 51. The goods arrived at Thane on 1-8-1977 and under the consignment notes had to be lifted by the Corporation within 15 days. Upto those 15 days no storage charges were to be claimed by the transporter viz. the plaintiff. But actual delivery was taken on 17-9-1977. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to the communication contained in Ex. 37. DW 1's saying that Ex 35 did not amount to an acknowledgment coupled with what were conceived to be ambiguities in Ex. 35, seem to have swayed the learned Trial Judge to take a totally erroneous view of the matter. Even if Ex. 35 does not come to the aid of the plaintiff, there is section 25(3) of the Indian Contract Act to which recourse can be had. This provision is in the following words:- An agreement made without consideration is void, unless- (3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the Creditor might have enforced payment but for the law for the limitation of suit . such an agreement is a contract. If Ex. 35 does not amount to an acknowledgment within the meaning of that expression appearing in section 18 of the Limitation Act, the same certainly attracts sub-section (3) of section 25 of the Indian Contract Act. Therefore, however looked at, the claim was within limitation and we so hold. (emphasis supplied) 9.10 Before arriving at any conclusion, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,000 for ₹ 10. A's consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration. (g) A agrees to sell a horse worth ₹ 1,000 for ₹ 10. A denies that his consent to the agreement was freely given. The inadequacy of the consideration is a fact which the Court should take into account in considering whether or not A's consent was freely given. Sec 18, Limitation Act, 1961 18. Effect of acknowledgment in writing.- (1) Where, before the expiration of the prescribed period for a suit or 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 evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or right. The Hon'ble High Court further held that the alleged document does not amount to an acknowledgement within the meaning of that expression appearing in Section 18 of the Limitation Act; the same certainly attracts Sub-section (3) of section 25 of the Indian Contract Act. Therefore, the claim was within limitation. 9.16 Undisputedly the alleged invoices against which Operational Creditor has filed the claim is dated 11th February 2012. The Operational Creditor has issued the demand notice on 7th October 2017. Through its letter dated 14th December 2017, the Managing Director of the Corporate Debtor requested the Operational Creditor to send its representative to the office of the Corporate Debtor with all the papers and documents for settlement of the claim. Issuance of a letter dated 14th December 2017 by the Corporate Debtor calling the representative of the Operational Creditor with all the papers to settle the dispute cannot be considered as an acknowledgement of debt in terms of Section 18 of the Limitation Act. However, to apply the benefit of Section 18 of the Limitation Act, it is necessary that before the expiry of the prescribed period of limitation for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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