Laws, Courts & Judgments.

NCLT Admits Insolvency Plea Against JS Designer Ltd., Rules OTS Proposal Revives Time-Barred Debt

New Delhi: The National Company Law Tribunal (NCLT), New Delhi Bench, has initiated the Corporate Insolvency Resolution Process (CIRP) against M/s. JS Designer Limited, admitting a petition filed by the Central Bank of India over a default of more than ₹20.46 crore.

In a significant ruling on the law of limitation, the bench, comprising Hon’ble Ms. Anu Jagmohan Singh (Acting President) and Hon’ble Ms. Jyotsna Sharma (Judicial Member), held that a One-Time Settlement (OTS) proposal for a time-barred debt constitutes a new and enforceable contract under Section 25 (3) of the Indian Contract Act, 1872 , thereby granting a fresh limitation period to the creditor.

Background of the Case

The Central Bank of India filed a petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, on May 13, 2024, seeking to initiate CIRP against M/s. JS Designer Ltd. The bank claimed a default amount of ₹20,46,15,294.

The Corporate Debtor, JS Designer Ltd., had availed working capital credit facilities from a consortium of banks led by Punjab National Bank, which also included the applicant, Central Bank of India. The loan account was declared a Non-Performing Asset (NPA) on March 30, 2018, with the date of default cited as December 30, 2017.

Arguments on Limitation

The primary legal issue before the tribunal was whether the petition was barred by limitation. The three-year limitation period, even after excluding the COVID-19 pandemic period as per Supreme Court directions, would have expired on February 6, 2024, well before the petition's filing date of May 13, 2024.

The Central Bank of India argued that the limitation period was revived due to two OTS proposals submitted by the Corporate Debtor on March 2, 2024, and May 1, 2024. The bank contended that these written proposals, which acknowledged the debt and promised to pay, created a fresh and legally enforceable contract under Section 25 (3) of the Indian Contract Act.

The Corporate Debtor, M/s. JS Designer Limited, failed to appear before the tribunal despite multiple notices and service of process through publication, leading the NCLT to proceed with the matter ex-parte.

Tribunal's Analysis and Legal Precedents

The NCLT agreed with the Financial Creditor's submissions, undertaking a detailed analysis of Section 25 (3) of the Indian Contract Act. This provision carves out an exception to the rule that an agreement without consideration is void, stating that a written and signed promise to pay a debt barred by limitation law is a valid contract.

The tribunal's order noted: > "In the instant case, through the OTS offers mentioned above, a promise was made in writing by the Corporate Debtor to pay the debt which was time-barred. Therefore, in our view, such a proposal shall be deemed a contract under the provisions of Section-25(3) of the Indian Contract Act. Hence, these OTS proposals being a statutory contract have given a fresh period of three years to the petitioner bringing this application within the limitation."

The bench relied on the Supreme Court's judgment in Kotak Mahindra Bank Ltd. v. Kew Precision Parts Pvt. Ltd. & Ors. , which held that a written promise to pay a time-barred debt constitutes a valid and independent contract, amounting to a novation. The tribunal also noted that a subsequent order from the Debt Recovery Tribunal (DRT) on April 2, 2025, directing the Corporate Debtor to pay the debt, provided another fresh cause of action.

Final Decision and Implications

Having established the existence of a valid 'debt' and a 'default' that was within the revived limitation period, the NCLT found the petition complete in all respects and admitted it under Section 7(5)(a) of the IBC.

The tribunal's decision has several key implications: 1. CIRP Initiated: Insolvency proceedings against M/s. JS Designer Limited have commenced. 2. IRP Appointed: Mr. Sanjay Aggarwal has been appointed as the Interim Resolution Professional (IRP) to oversee the company's affairs. 3. Moratorium Declared: A moratorium under Section 14 of the IBC has been imposed, prohibiting the institution of suits, foreclosure, or recovery actions against the company.

The ruling reinforces the principle that an unequivocal written acknowledgment and promise to pay, even for a debt that is technically time-barred, can resurrect a creditor's right to initiate legal recovery proceedings, including under the IBC.