1. Operational creditor filed application under Section 9 of the Insolvency and Bankruptcy Code, 2016, for recovery of dues, contested on grounds of limitation. (Para 1 , 3 )
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2022 Supreme(SC) 296
SUPREME COURT OF INDIA
(From the National Company Law Apellate Tribunal)
HEMANT GUPTA, V. RAMASUBRAMANIAN, JJ.
SVG Fashions Pvt. Ltd. (Earlier Known as SVG Fashions Ltd. - Appellant
Versus
Ritu Murli Manohar Goyal & Anr. - Respondents
Civil Appeal No. 4228 of 2020
Decided On : 29-03-2022
Important Points
IMPORTANT POINT
Limitation – When time begins to run, it can only be extended in the manner provided in Limitation Act.
Limitation – When time begins to run, it can only be extended in the manner provided in Limitation Act.
Subject
Insolvency and Bankruptcy - Limitation Period
Act Referred
Headnote
Insolvency and Bankruptcy Code, 2016 – Section 9 – Limitation Act, 1963 – Section 18 – Dishonour of cheques – Money claim – Limitation – When time begins to run, it can only be extended in the manner provided in Limitation Act – Law as it has developed on applicability of Section 18 of Limitation Act and circumstances in which it would apply, have also not been examined by NCLAT – Impugned order of NCLAT set aside and matter remanded back to NCLAT for fresh consideration. (Paras 9 and 10)
Facts of the case:
Aggrieved by the order of the National Company Law Appellate Tribunal, reversing the order of ‘Admission’ passed by the National Company Law Tribunal and holding that their application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation, the operational creditor has come up with the present appeal.
Findings of Court:
Order of NCLAT is liable to be set aside and the matter liable to be remanded back for a fresh consideration.
Result : Appeal allowed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) : Mr. Saurabh Mishra, AOR
For the Respondent(s): Mr. Keith Varghese, Adv. Ms. Rashi Bansal, AOR Mrs. Meera Mathur, AOR Mr. Sumit Kansal, Adv. Mr. Bhupesh Kumar Pathak, Adv.
For the Appellant(s) : Mr. Saurabh Mishra, AOR
For the Respondent(s): Mr. Keith Varghese, Adv. Ms. Rashi Bansal, AOR Mrs. Meera Mathur, AOR Mr. Sumit Kansal, Adv. Mr. Bhupesh Kumar Pathak, Adv.
Table of Contents
2. Operational creditor relied on acknowledgment of liability via letter and cheques; corporate debtor contended the claim was barred by limitation and cheques were lost. (Para 4 , 6 )
3. NCLAT failed to consider material evidence regarding acknowledgment of liability and overlooked settled legal principles concerning Section 18 of the Limitation Act, 1963. (Para 7 , 8 , 10 )
4. Acknowledgment of liability under Section 18 of the Limitation Act, 1963, extends limitation, and such acknowledgment may include entries in a company's balance sheet. (Para 9 )
5. Appeal allowed, NCLAT order set aside, and matter remanded for fresh consideration in light of the observations and legal principles indicated. (Para 10 )
6. How does Section 18 of the Limitation Act, 1963, apply to the extension of limitation in insolvency proceedings?
When time begins to run, the limitation period can be extended in the manner provided under the Limitation Act, specifically through an acknowledgment of liability in writing as per Section 18. (Para 9 )
7. Can a company's balance sheet entry serve as a legal acknowledgment of liability?
Yes, an entry in the balance sheet of a company can be treated as an acknowledgment in writing under Section 18 of the Limitation Act, subject to any caveats found in accompanying reports. (Para 9 )
8. What is the legal consequence if an appellate authority overlooks vital evidence and settled law on limitation?
The failure of an appellate authority to consider vital evidence, such as a letter acknowledging liability, or to examine settled law on limitation, vitiates the order, rendering it liable to be set aside. (Para 8 , 10 )
JUDGMENT :
V. Ramasubramanian, J.
Aggrieved by the order of the National Company Law Appellate Tribunal (for short "NCLAT"), reversing the order of 'Admission' passed by the National Company Law Tribunal (for short "NCLT") and holding that their application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short "the Code") was barred by limitation, the operational creditor has come up with the present appeal.
2. We have heard the learned counsel for the appellant-operational creditor; the learned counsel for the first respondent-shareholder and Director of the corporate-debtor and the learned counsel for the second respondent-Interim Resolution Professional.
3. The appellant herein filed an application under Section 9 of the Code on 20.04.2018 against M/S Arpita Filaments Private Limited, contending inter alia: that the corporate-debtor started having business dealings with them from 2013; that they sold and delivered various fabrics to the corporate-debtor; that the corporate-debtor was irregular in making payments as per the bills; and that the demand notice issued by them under Section 8 of the Code read with Rule 5 did not invoke any response.
4. Before NCLT, the corporate-debtor raised four major objections, one of which was that the claim was barred by limitation. But NCLT found on the basis of a letter dated 28.09.2015 produced by the operational creditor that six cheques had been issued in favour of the operational creditor. These cheques returned dishonoured when presented for payment. The stand taken by the corporate-debtor was that those six cheques were lost by the corporate-debtor in March 2017 and that they had already issued "stop payment instructions" to the bank on 4.03.2017. The corporate-debtor also claimed that the letter dated 28.09.2015 relied upon by the operational creditor was issued by Shree Adeshwar Textiles and that therefore, the operational creditor cannot rely upon the same to save limitation.
5. However, the NCLT, by an order dated 26.09.2019 overruled the objections and held that there was an acknowledgment of liability on the part of the corporate-debtor and that therefore, the application was within the period of limitation. Consequently, the NCLT ordered the admission of the application under Section 9 of the Code and also declared moratorium in terms of Section 14.
6. On an appeal filed by the appellant, the NCLAT held that the debt arose during the period from 11.08.2013 to 02.09.2013 and that the six cheques purportedly issued towards part payment of the liability having been issued on 5.12.2017, will not save limitation. The NCLAT further held that even if the date of default is taken to be 7.10.2013 as pleaded by the operational creditor, the acknowledgment of liability in terms of Section 18 of the Limitation Act ought to have happened on or before 07.10.2016. But the cheques were dated December 2017 and hence NCLAT reversed the decision of NCLT and dismissed the application of the operational creditor.
7. But we find from the order of NCLAT that there was no discussion at all about the letter dated 28.09.2015. According to the operational creditor, the six cheques in question were handed over along with the letter dated 28.09.2015. The cheque numbers and the bank on which the cheques were drawn, given in the letter dated 28.09.2015 tallied with the particulars of those six cheques allegedly lost by the corporate debtor in March 2017. Though the first respondent herein clamed in his affidavit in reply that the corporate-debtor had issued stop payment instructions, he conceded that the acknowledgment issued by the banker contained the date 01.01.2018.The following extract from the affidavit in reply/objections of the Director of the corporate-debtor makes an interesting reading:
"...Hereto annexed and marked collectively as Annexure-C are copies of the intimation issued by the banker of the Corporate Debtor duly recording the instruction of stop payment qua the cheques in questio
