Written OTS Offer Revives Time-Barred Debt, NCLT Delhi Admits Insolvency Plea Against JS Designer

The National Company Law Tribunal at New Delhi has recently admitted Central Bank of India's insolvency plea against JS Designer Ltd, holding that the company's written one-time settlement proposals in 2024 constituted a fresh and enforceable promise to pay a time barred debt. A coram of Judicial Member Jyotsna Sharma and Technical Member Anu Jagmohan Singh noted that JS Designer had remained in continuous default since 2017, but its subsequent OTS offers revived the limitation period for enforcing the contract. “In the instant case, through the OTS offers mentioned above, a promise was made in writing by the Corporate Debtor to pay the debt which was time-barred. Therefore, in our view, such a proposal shall be deemed a contract under the provisions of Section 25(3) of the Indian Contract Act. Hence, these OTS proposals being a statutory contract have given a fresh period of three years to the petitioner bringing the application within the limitation.”, it said. The dispute arose from working capital credit facilities obtained by JS Designer under a consortium arrangement with Punjab National Bank as the lead bank, along with Oriental Bank of Commerce and Central Bank of India. To secure the facilities, the company executed a working capital consortium agreement and a joint deed of hypothecation in January 2012, creating a pari passu first charge on its current assets. JS Designer defaulted on 30 December 2017 and the account was classified as non performing on 30 March 2018. Its outstanding liability stood at about Rs 20.46 crore. The lenders initiated proceedings before the Debt Recovery Tribunal in 2019, which eventually resulted in a final order in April 2025 directing the company to pay the dues. Meanwhile, the bank filed the present CIRP application on 13 May 2024. Even after excluding the COVID 19 suspension period, the limitation for initiating insolvency proceedings expired in February 2024. The bank therefore relied on the debtor's written one time settlement proposals dated 2 March 2024 and 1 May 2024, which were addressed to Punjab National Bank, to bring the petition within time. The bank argued that these written proposals amounted to an unequivocal admission of liability and a fresh promise to discharge a time barred debt within the meaning of Section 25(3) of the Contract Act. It also pointed to the final DRT order as another event giving rise to a fresh cause of action. The corporate debtor did not enter appearance or file any reply despite repeated opportunities and service through publication, which led the Tribunal to proceed ex parte.While the original default would ordinarily make the insolvency application time barred, the tribunal held that the debtor's later conduct, specifically its written OTS proposals, created a fresh cause of action.Referring to the principles laid down by the Supreme Court on the scope of judicial scrutiny at the admission stage of insolvency proceedings, the Bench said, “Once NCLT is satisfied that the default has occurred, there is hardly any discretion left to refuse admission of the application.” It further recorded that Central Bank of India had placed sufficient materials in the form of sanction letters, hypothecation deeds, written OTS proposals to prove both financial debt and default. It also observed that despite multiple opportunities granted by the Tribunal, the Corporate Debtor did not appear nor file any reply to any of the claims by the Creditor. Accordingly, the application was admitted and an Interim Resolution Professional was appointed to manage and conduct the affairs of the corporate debtor. Case Title: Central Bank of India vs. JS Designer Limited Case Number: CP (IBC) No. 510/ND/2024 For Financial Creditor: B.K. Mishra, Ambuj Maurya, Tushar Mishra, Advocates For Corporate Debtor: None Click Here To Read/Download Order

Written OTS Offer Revives Time-Barred Debt, NCLT Delhi Admits Insolvency Plea Against JS Designer

Kirit Singhania

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