No Acknowledgement Of Liability Based On An Unrealized Cheque: NCLAT Chennai

Background Facts

M/s. Primee Silicones (Chennai) Pvt. Ltd. (“Operational Creditor”) supplied ‘Die Coat’ to M/s. UCAL Fuel Systems Ltd. (“Corporate Debtor”) from 2013 onwards and raised invoices in view of the same. The Operational Creditor contended that the last payment was received from the Corporate Debtor on 07.11.2019. On 23.10.2018 the Corporate Debtor had sent an email to the Operational Creditor, asking the latter to reconcile the accounts. The email also contained a ‘payment advice’ wherein specific invoice numbers were mentioned and details of a cheque dated 13.03.2017, amounting to Rs. 3 Lakhs, were also given. However, the said cheque was never realized.

When further payments were not received, the Operational Creditor issued a Demand Notice under the Insolvency and Bankruptcy Code, 2016 (“IBC”), on 07.02.2020 to the Corporate Debtor. Thereafter, on 24.02.2020 Operational Creditor filed a petition under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor.

The Corporate Debtor argued that the unpaid invoices dated back to 2017 and hence the application being filed on 24.02.2020 is time barred. The Operational Creditor submitted that the account of Corporate Debtor was a running account and the latter had acknowledged its liability in the email dated 23.10.2018, hence the application is not barred by limitation.

The Adjudicating Authority on 29.04.2021 rejected the application while observing that the Operational Creditor failed to prove existence of debt and default. Further, 17 out of 25 invoices were barred by limitation.

The Operational Creditor challenged the order dated 29.04.2021 before NCLAT.

NCLAT Verdict

The Bench observed that for an account to be regarded as ‘running account’ it is to be demonstrated that ‘Debit’ and ‘Credit’ entries are going on simultaneously or on a regular basis, and the balances are struck with some periodicity. Non-payment of invoices and payment without specifying a particular invoice, does not make the transaction a ‘running Account’. Further, the cheque dated 13.03.2017 was issued in respect of invoices dated 25.05.2015 to 25.09.2015. These invoices are beyond the limitation period and cannot be adjudicated upon.

“It is also a settled proposition of law that a cheque which has not been encashed cannot amount to an ‘acknowledgement of liability’ in terms of Section 18 of the Limitation Act, 1963. This ‘Tribunal’ is of the considered view that the emails relied upon by the ‘Appellant’ do not strictly construe an ‘acknowledgement of liability’ as provided for under Section 18 of the Limitation Act, 1963.”

The Bench held that a cheque which has not been encashed does not amount of acknowledgement of liability under Section 18 of the Limitation Act, 1963.

The Bench affirmed that the 17 out of 25 invoices raised by the Operational Creditor were barred by limitation. The Order dated 29.04.2021 was upheld and the appeal has been dismissed.

Case Title: M/s. Primee Silicones (Chennai) Pvt. Ltd. v M/s. UCAL Fuel Systems Ltd.

Case No.: Company Appeal (AT) (CH) (Ins.) No. 299 of 2021

Counsel For Appellant: Mr. T. Sri Krishna Bhagavat, Advocate.

Counsel For Respondents: Mr. P.H. Arvindh Pandian, Senior Advocate For Ms. R. Ragha Sudha, Advocate.

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