Insolvency & BankruptcyNational Company Law Tribunal & NCLATDebt Confirmation Letter = Fresh Limitation Period

September 21, 20200
Yogeshkumar Jashwantlal Thakkar Vs. Indian Overseas bank & Anr.  
[Company Appeal (AT) (Insolvency) No. 236 of 2020] | Date: 14.09.2020
The Appeal was filed by the Appellants against the order passed by the National Company Law Tribunal, Ahmedabad Bench (“NCLT”), wherein it ordered admission of Section 7 application.
The Appeal was filed on the ground that the application was barred by limitation as the application was filed on 01.04.2019, whereas the default date was 01.01.2016.
On the hand, the Respondent defended the challenge on the ground that the there was an acknowledgement of debt on behalf of the Corporate Debtor. Further, there was execution of numerous Revival Letters dated 31.03.2015, 30.04.2015 and 31.03.2017 which constitutes due acknowledgement of debt by the Corporate Debtor. Furthermore, Debt Confirmation Letters dated 02. 04.2013, 14.10.2013, 15.10. 2013, 30.09.2014, 20.05.2015, 05.06.2015, 02.09.2016 and 31.03.2017 were provided by the Corporate Debtor which further establishes the existence of debt that is due and payable. Thus, a fresh limitation period arose up to 31.03.2020 as there was a continuous cause of action because the acknowledgement of debt was made before expiry of the limitation period, that is, 3 years from default date 01.01.2016.
Whether Section 7 application was barred by limitation?
The Appellant Tribunal perused the Revival Letters and the Debt Confirmation Letters along with Section 7 application and inferred that the application was free from any legal infirmity.
The Tribunal also held that the period of limitation with regards to acknowledgment in writing begins from the date of signing of the acknowledgement. Further, the Tribunal acknowledged that the acknowledgement of debt should be made before the expiry of the prescribed limitation period from the original cause of action.
The Tribunal held an acknowledgement extends the period of limitation.” Further, it was held that, “an acknowledgement is to be an ‘acknowledgement of debt’ and must involve an admission of subsisting relationship of debtor and creditor; and an intention to continue it and till it is lawfully determined. An acknowledgement does not create a new right.”             
The Tribunal relied on the decision of Rajendra Kumar Tekriwal Vs. Bank of Baroda in Company Appeal (AT) (Ins) No. 225 of 2020 and Jagdish Prasad Sarada Vs. Allahabad Bank in Company Appeal (AT) (Ins) No. 183 of 2020, wherein it was held that: 
“the Limitation Act, 1963 will be applicable to all NPA cases provided, they meet the criteria of Article 137 of the Schedule to the Limitation Act, 1963, the extension of the period can be made by way of Application under Section 5 of the Limitation Act, 1963 for condonation of delay.”
The Tribunal held that there was a missed question of facts and law. The Tribunal was of the opinion that considering the timeline of occurrence of default and filing of the application, the appeal should be allowed. However, there is a debt confirmation letter dated 31.03.2017 from the Corporate Debtor in accordance to Section 18 of the Limitation Act, 1963. The Tribunal held that
“Section 18 of the Limitation Act, 1963 is applicable both for ‘Suit’ and ‘Application’ involving ‘Acknowledgment of Liability’, creating a fresh period of limitation, which shall be computed from the date when the ‘Acknowledgment’ was so signed. …And the debit confirmation letters in the instant case were duly acknowledged in accordance with Law.”
Thus, the Tribunal concluded that the default date was extended by virtue of the Debt Confirmation Letter and calls for a fresh limitation period to run from the date of Debt Confirmation Letter.
Henceforth, the Section 7 application filed on 01.04.2019 was not barred by limitation.
The default date under the Code is imperative to compute the period of limitation. The main objective of the prescribing a limitation period for filing a suit or application is to protect the rights of the aggrieved party who intends to invoke it within the prescribed limitation period as against those parties who sleep on their right by not exercising it for unreasonably long years.  However, when a the defaulter or the accused acknowledges his liability in the prescribed manner, the status quo gets disturbed. The date of acknowledgment becomes the renewed date of default such that the limitation period restarts from that date. This underlying principle under Section 18 of the Limitation Act, 1963 is in the interest of justice, applicable  for computing the limitation period under the Code.
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