Last Payment Made By Corporate Debtor Within Period Of Limitation Amounts To Acknowledgment U/S 19 Of Limitation Act: NCLAT

Brief Facts

The corporate debtor has filed this appeal challenging an order passed by the NCLT by which its preliminary objection to section 9 application that it was barred by limitation was rejected. The CD had made various payments from time to time to the operational creditor with the last payment made on August 26, 2019 via bank transfer. Consequently, section 9 application was filed after sending a demand notice under section 8 of the code.

When the application came for consideration, Corporate Debtor raised preliminary objection on the point of limitation. The Adjudicating Authority heard both the parties and directed parties to file notes on point of limitation. Both the parties filed their notes on point of limitation and Adjudicating Authority after hearing both the parties, by impugned order held that petition under Section 9 is within the limitation and the preliminary objection was rejected. Aggrieved by the said order, this Appeal has been filed.

Contentions:

The appellant submitted that the Operational Creditor has pleaded that the last payment extend the period of limitation which payment was made on 26.08.2019 whereas there being no running account between the parties the last payment cannot extend the limitation within the meaning of Section 19 of the Limitation Act.

It was also argued that Section 19 of the Limitation Act requires two conditions to be fulfilled namely that payment was made within the prescribed period of limitation and it must be acknowledged by some form of writing. The last payment made cannot be held to be in accordance with Section 19 of the Limitation Act permitting extension of limitation.

Refuting the submissions, the respondent submitted that the period of limitation would begun to run from the date of default which would be 26.08.2019 when the last payment was made by the Corporate Debtor to the Operational Creditor.

It was also argued that both the conditions under Section 19 of the Limitation Act are fulfilled in the present case. The payment by bank transfer is also made on instructions by the Corporate Debtor, hence, the bank transfer which is on the instructions of the Corporate Debtor is also an acknowledgment within the meaning of Section 19

That any view of the matter acknowledgment in writing by the Corporate Debtor is reflected in the reply to the demand notice and it is well settled that acknowledgment which was subsequently made can also be relied for purposes of Section 19 of the Limitation Act.

Observations:

The tribunal observed that two conditions need to be fulfilled for extending the benefit of Section 19 of the limitation which are: whether payment on account of debt or of interest on legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy; (ii) an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment.

Based on the above, it noted that in the present case, there is no dispute regarding fulfilment of condition (i) as noted above. Invoices were from January 2018 to August 2018 and last payment was made on 26.08.2019 i.e. well within period of 3 years from date when payment under invoices fell due.

In S.M. Ghogbhai vs. Schedulers Logistics India Pvt. Ltd.- 2022 the NCLAT held that “for the limitation for filing Section 9 application it is Article 137 of the Limitation Act, 1963 which is attracted. Under Article 137, time from which period begins to run is “when the right to apply accrues” the right to apply accrues when invoices issued by the Appellant to the Corporate Debtor were not paid.From the last payment, the Application could have been filed within three years.”

While applying the above ratio to the facts of the present case, the tribunal held that the present case is squarely covered by the above judgment as time to file an application under section 9 will start running from the last payment made therefore this judgment will be of no assistance to the appellant.

In Laxmi Trading Corporation vs. Hindustan Construction Company Ltd.- 2024 the NCLAT while rejecting the submissions of the appellant that their case is covered by Article I of the Limitation Act held that “It is well settled that the period of limitation for application under Section 9 of the IBC, would be governed by Article 137 of the Limitation Act, 1963.

“The claim of the Operational Creditor that they were having running account and are covered under Article 1 of the Limitation Act cannot be accepted. Since their claim of a running account cannot be accepted, therefore, the limitation does not get extended as claimed. Accordingly, the time from which period of limitation begins is when the right to apply accrues and right to apply accrues when the invoices were to be paid.”

It also noted that the Supreme Court in Sant Lal Mahton vs. Kamla Prasad (1951) held that while requirement under section 19 of the Limitation Act is that payment should be made within the period of limitation. However, it does not require that acknowledgment should also be made within that period.

The tribunal concluded that “when there is clear acknowledgment by the corporate debtor of last payment made on 26.08.2019 which payment was within the period of three years, we are of the view that the operational creditor was clearly entitled for the benefit of extension of limitation under Section 19 of the Limitation Act and both the conditions which are required to be fulfilled under Section 19 were fulfilled.”

Accordingly, the present appeal was dismissed.

Case Title: Super Floorings Pvt. Ltd. Vs. Napin Impex Ltd.

Case Number: Company Appeal (AT) (Insolvency) No. 1928 of 2024 & I.A. No.7115 of 2024

Judgment Date: 3/01/2025