NCLAT Restores Time-Barred Claim of Financial Creditor in Insolvency Proceedings - 2024-01-11

The National Company Law Appellate Tribunal (NCLAT) has restored the time-barred claim of a financial creditor in insolvency proceedings, holding that the claim was well within limitation despite the expiry of the contractual limitation period..
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The case involved ARSS Infrastructure Projects Ltd., a corporate debtor undergoing insolvency proceedings, and SREI Equipment Finance Ltd., a financial creditor. SREI had advanced loans to ARSS and had obtained security interests in the company's assets. However, ARSS defaulted on its loan obligations, leading to the initiation of insolvency proceedings..
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During the insolvency process, SREI submitted a claim for an outstanding amount of Rs. 919,78,94,038. However, the Resolution Professional (RP) rejected the claim on the ground that it was barred by limitation. SREI challenged this decision before the Adjudicating Authority, which also dismissed the claim on limitation grounds..
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SREI then appealed to the NCLAT, arguing that the limitation period had been extended due to various factors, including the acknowledgment of the debt by ARSS, the execution of an assignment agreement, and the impact of the COVID-19 pandemic..
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The NCLAT agreed with SREI's arguments and held that the limitation period had been extended. The tribunal noted that ARSS had repeatedly acknowledged the debt, both in its financial statements and in the assignment agreement. The tribunal also considered the fact that the assignment agreement had created a fresh relationship between the parties, discharging the old loan and creating a new one..
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Furthermore, the NCLAT took into account the impact of the COVID-19 pandemic, which had led to the extension of limitation periods by the Supreme Court. The tribunal held that SREI's claim was well within the extended limitation period..
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The NCLAT set aside the orders of the Adjudicating Authority and the RP and directed the RP to reconsider SREI's claim on merits..
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This decision highlights the importance of considering all relevant factors when determining whether a claim is barred by limitation in insolvency proceedings. It also emphasizes the impact of the COVID-19 pandemic on limitation periods.