Debt acknowledgement in balance sheets and letters by corporate debtor extends limitation for Section 7 application beyond date of default and NPA, even post Covid exclusion; debtor cannot invalidate own acknowledgements citing ICAI non-compliance (38 words).

JUDGEMENT

(06.02.2026)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed by the Appellant i.e., Vishal Singh, Promoter & Director of the suspended Board of Director of Corporate Debtor, Rudra Auto Tech Engineering Pvt. Ltd., under Section 61 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) against the Impugned Order dated 03.06.2024 passed by the National Company Law Tribunal, Allahabad Bench ("Adjudicating Authority") in CP(IB) No. 56/ALD/2023.

The Nainital Bank Limited, who is the Financial Creditor, is the Respondent herein.

2. The Appellant contended that the Respondent had filed CP(IB) No. 56/ALD/2023, under Section 7 of the Code read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, on 20.07.2023, before the Adjudicating Authority, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

3. The Appellant submitted that upon receipt of notice, the Corporate Debtor duly filed a detailed reply along with all requisite annexures, raising a categorical preliminary objection that the Section 7 Application was ex-facie barred by limitation. It was specifically pleaded that the Date of Default was 23.10.2018, and therefore the limitation period of three years expired on 22.10.2021. It was further pointed out that the Respondent committed serious illegalities by not providing adequate Term Loan and Cash Credit limits, and by resorting to illegal “teeming and lading” adjustments between the Corporate Debtor and its sister concern, Naini Auto Tech, thereby falsely portraying both units as going concerns for recovery of principal and interest, even during the period when both accounts had already been declared NPA as per RBI guidelines.

4. The Appellant further submitted that the Appellant specifically highlighted the statutory provisions and settled judicial precedents to establish that the Date of Default is a sine qua non for computing limitation under the Code, but despite this, the Adjudicating Authority, by the Impugned Order dated 03.06.2024, admitted the Section 7 Application and initiated CIRP against the Corporate Debtor, declared moratorium under Section 14 of the Code, and formed a prima facie view that the Application was within limitation and fulfilled the requirements of Section 7(5)(a) of the Code.

5. The Appellant contended that it is a settled proposition of law that the “Date of Default” is mandatory and must be specifically mentioned in Form- 1/Form-5 filed under Section 7 of the Code. The Date of Default determines the limitation period for filing an application. Non-mentioning or incorrect mention of the Date of Default renders the Application incomplete and defective, thereby attracting Section 7(5)(b) of the Code. The Appellant submitted that in the present case, the Respondent has mentioned the Date of Default as 31.10.2019 in Part IV of Form-1, whereas it is an admitted position that the account of the Appellant was classified as NPA on 23.01.2019, as per RBI guidelines.

6. The Appellant contended that the RBI Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning clearly defines a Non-Performi