The see-sawing of judgements, where time and again grounds pleading the application being barred by limitation have been raised and have been a subject matter of dispute and long drawn delays, appears to have finally concluded. By virtue of the recent orders of the Supreme Court in the matter of Jignesh Shah & Ors. Vs. Union of India & Ors. dated 25^th September 2019 and another in the matter of Gaurav Hargovind Bhai Dave Vs. Asset Reconstruction Company (India) Ltd. & Ors. dated 18^th September 2019, it has by now become a settled law that limitation period applies in respect of the applications filed under the Insolvency and Bankruptcy Code, 2016 (“Code“).

However, this needs to be considered in light of the fact that in the banking and finance sector, it is common practice to assign / transfer a defaulting loan to an asset reconstruction company (“ARC”) and/or securitization company (“SCs”) who step into the shoes of the existing creditor which is long overdue. In such a case, one wonders whether the assignee of a debt is barred from seeking relief under the Code on account of the limitation period of such debt having expired or close to expired. ARCs, SCs and financial creditors can breathe another sigh of relief as the National Company Law Appellate Tribunal (New Delhi Bench) (“NCLAT“) have thrown further light on the subject and deserves to be suitably considered.

The NCLAT in the matter of M M Ramachandran Vs. South Indian Bank Ltd. & Ors vide its order dated 22^nd January, 2020 has ruled that when an acknowledgement of debt in writing, including through a letter or an e-mail has been provided within the expiration of the period prescribed in the Limitation Act, 1963 (“Act“), such an acknowledgment shall mark a new commencement period for limitation. In other words, such an acknowledgement will extend the limitation period. With respect to the application being barred by limitation, the NCLAT seems to have adopted a view that ‘In Law, an ‘Acknowledgement’ in writing within expiration of prescribed period will mark a new commencement period for limitation to base a claim and the same will not create a new contract. In fact, it only extends the limitation period. Accordingly, if a suit is filed within three years from the last acknowledgement the same is not barred by limitation, as was observed in the matter of Union of India Vs. M.C. Pandey AIR 2009 NOC Page 494 (UTR). Further, an ‘Acknowledgement’ must be made before the expiration of the limitation period as per Section 18 of the Act. An ‘Acknowledgement’ of liability not only saves limitation period but also confers on an individual a ’cause of action’ to him, to lay his claim.’

However, it is conceivable that in several cases where the debt has been assigned to an ARC, there is no acknowledgement of the debt, but the debt is sporadically serviced by the defaulting debtor. Therefore, what may come as a relief to the Financial Creditors is the decision of the NCLAT in the matter of Vivek Jha Vs Daimler Financial Services India Private Ltd. & Anr. in Company Appeal (AT) Insolvency No. 756 of 2018 dated 13^th January 2020 (“Order“).

In the facts of the said case, although there was no acknowledgement of the debt in writing by the corporate debtor, the corporate debtor made part payment (to the tune of approximately 10% of the debt outstanding) after expiration of nearly one year from the date of loan re-call notice. The NCLAT has held that the period of limitation commences from the date of such payment by the corporate debtor which extends the period of limitation.

This Order of NCLAT seems to have relied on the same principle as was observed by the Hon’ble Gujarat High Court in its order dated 9^th May 2000 in the matter of Hindustan Apparel Industries vs Fair Deal Corporation wherein it was observed that a cheque is undoubtedly an acknowledgement of right or debt or liability and when the same is not issued as a post-dated cheque, date of issuance of cheque would assume importance, whether subsequently it is honoured or dishonoured. It is thus at the stage of issuance of the cheque that there surfaces an intention on the part of the debtor to acknowledge the liability/right/debt owing to the person in whose favour the cheque is issued. In case the cheque is honoured it would undoubtedly amount to part payment in writing and the same would fall under Section 19 of the Act. It was accordingly held that the payment by cheque which is dishonoured would amount to acknowledgement of a debt and a liability. Accordingly, by necessary consequence there will be saving of limitation as envisaged by Section 18 of the Act.

The NCLAT has put to rest the question relating to the effect of acknowledgement of debt on extension of limitation. Accordingly, these judgements passed by NCLAT serves to protect the rights of the financial creditors against the intentions on part of the borrowers to avoid repayments of the borrowed amounts on some pretext or other and challenging the maintainability of such application on the grounds of being barred by limitation.

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