Balance Sheet Entry Can't Revive Time-Barred Debt; NCLT Delhi Dismisses Bank's CIRP Plea Against Guarantor

The National Company Law Tribunal(NCLT) at Delhi has recently held that an acknowledgement of debt in a balance sheet executed after the expiry of the original limitation period “cannot revive a time-barred debt,” and that the pendency of proceedings before the Debt Recovery Tribunal does not save limitation under the Insolvency and Bankruptcy Code, 2016.

Holding so, the tribunal dismissed Central Bank of India's Section 7 (CIRP) application against PLB Infrastructure Pvt Ltd as “hopelessly time-barred.” It also dismissed the bank's plea to amend the CIRP application, holding that the date of default is material information and cannot be altered like a clerical error.

A bench of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi said the default occurred on February 3, 2016, the date on which the bank issued a demand notice under Section 13(2) of the SARFAESI Act to the corporate guarantor and the Section 7 petition was filed only on December 24, 2024.

Since eight years passed without any valid acknowledgement within the limitation period of three years, the tribunal held that the application was barred under Article 137 of the Limitation Act.

Central Bank had sought to initiate the Corporate Insolvency Resolution Process against PLB Infrastructure for an outstanding debt of Rs 75.76 crore. The company had furnished a corporate guarantee for Rs 15 crore as part of a Rs 125-crore consortium credit facility granted to principal borrower Shree Raj Mahal Jewellers Private Limited. The borrower's account was classified as NPA on November 8, 2015, following which the guarantee was invoked on February 3, 2016.

The tribunal noted that the bank itself admitted the date of default as February 3, 2016. As a result, the three-year limitation period expired on February 2, 2019 unless extended by a valid acknowledgement under Section 18 of the Limitation Act. The bank relied on an alleged acknowledgement in the guarantor's FY 2022-23 balance sheet to claim that limitation had been extended.

Rejecting the contention, the bench held that the financial creditor produced no evidence that any acknowledgement was made within the original limitation period. It added that the balance sheet entry relied upon was irrelevant to the computation of limitation since “the so-called acknowledgement in the 2023 balance sheet, even if accepted, cannot extend the limitation as it was made after the debt had already become time-barred.”

The tribunal also reiterated that proceedings before the DRT have no bearing on limitation under the IBC.

“The pendency of proceedings before the Debt Recovery Tribunal (T.A.No.401/2022) does not save the limitation period under the IBC, as settled that IBC is not a substitute for recovery proceedings but a process triggered only upon an existing default.", it said

It further dismissed the bank's amendment application seeking to alter the date of default, stressing that the date of default is not a clerical detail but “a material and substantive part of the petition, since it determines the existence of default as well as the issue of limitation,”. It therefore held that “such a change cannot be treated as a mere clerical or typographical correction.”

As the default has occurred more than three years before its filing and no valid acknowledgement exists within that period, the tribunal concluded that the petition was hopelessly time-barred and dismissed it accordingly.

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