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OTS Proposal Is An 'Acknowledgement Of Debt' Under Section 18 Of Limitation Act: NCLAT Delhi

Pallavi Mishra
22 July 2022 3:45 AM GMT
OTS Proposal Is An Acknowledgement Of Debt Under Section 18 Of Limitation Act: NCLAT Delhi

The National Company Law Appellate Tribunal ("NCLAT"), New Delhi Bench, comprising of Justice Anant Bijay Singh (Judicial Member) and Ms. Shreesha Merla (Technical Member), while adjudicating an appeal filed in Tejas Khandhar v Bank of Baroda, has held that a One Time Settlement (OTS) proposal falls within the definition of 'acknowledgement of debt' under Section 18 of the Limitation Act, 1963.

Background Facts

Bank of Baroda ("Financial Creditor/Respondent") had extended financial assistance to the Mr. Tejas Kandhar ("Corporate Debtor"/ "Appellant") to the tune of Rs.9,91,00,000/-. On 08.10.2013, a loan recall Notice under Section 13(2) of the SARFAESI Act, 2002 was issued by the Financial Creditor to the Corporate Debtor, demanding payment of Rs. 6,11,42,097/-. In 2016, the Debt Recovery Tribunal ('DRT') had allowed the Financial Creditor to recover a sum of Rs.50,00,000/- and thereafter a sum of Rs.20,00,000/- towards interest. A One Time Settlement ('OTS') proposal dated 01.08.2016 was filed before the DRT, Pune by the Corporate Debtor which remained unaccepted. Subsequently, another OTS proposal dated 07.03.2018 was accepted by the Financial Creditor on 27.03.2018. However, the Corporate Debtor failed to fulfill its repayment obligations.

The Financial Creditor filed a petition under Section 7 of the Insolvency and Bankruptcy Act, 2016 ("IBC"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor. The Adjudicating Authority admitted the application and initiated CIRP against the Corporate Debtor vide an order dated 10.01.2020. The Corporate Debtor filed an appeal before the NCLAT, challenging the initiation of CIRP.

Contentions Of The Appellant

The Corporate Debtor (Appellant) submitted that the 'date of default' was 01.07.2013 and the date of NPA was 22.09.2013, whereas the Financial Creditor had filed the petition on 11.07.2019. Three years period of limitation had expired on 22.09.2016, therefore, the petition was barred by limitation. Further, the Financial Creditor had not raised the plea of extension of Limitation or 'acknowledgement of debt' under Section 18 of the Limitation Act, 1963 and therefore cannot agitate this plea at such a belated stage.

Decision Of The NCLAT

The Bench relied on the Supreme judgment of Dena Bank v C. Shivkumar Reddy and Anr., (2021) 10 SCC 330, wherein it was held that:

"Section 18 of the Limitation Act, 1963 gets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate Resolution Process under Section 7 of IBC ensures. Section 18 of the Limitation Act would come into play every time when the Principal Borrower and/or the Corporate Guarantor (Corporate Debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgment, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to 'acknowledgment of the debt', from time to time, for institution of the proceedings under Section 7 of IBC. Further, the acknowledgment must be of a liability in respect of which the 'Financial Creditor' can initiate action under Section 7 of IBC………….This Court sees no reason why an offer of One Time Settlement of a live claim, made within the period of limitation, should not also be construed as an acknowledgment to attract Section 18 of the Limitation Act."

The Bench observed that the Corporate Debtor has addressed a letter dated 22.11.2018 to the DGM, Bank of Baroda stating that as per 'Mutually Agreed Settlement Terms' they had so far paid a sum of Rs.3,25,00,000/- and have also deposited a sum of Rs.50,00,000/- in DRT Pune.

"It is seen from the record that the date of default has been mentioned as 13.09.2013, which stood revived with the OTS proposal dated 01.08.2016 filed vide I.A. 1155/2016 before the DRT Pune, well within the three year period. Subsequently, another settlement proposal dated 07.03.2018 was accepted by the Bank on 27.03.2018, wherein a timeline was provided for the payment of the balance amount. We are of the considered view that the OTS proposal dated 01.08.2016 filed vide I.A. 1155/2016 falls within the ambit of 'acknowledgement of debt' as defined under Section 18 of the Limitation Act, 1963, which is further fructified by the admitted OTS dated 27.03.2018 again within three years of the previous proposal where the 'debt' is acknowledged to be 'due and payable'."

The Bench held that the OTS proposal dated 01.08.2016 and 27.03.2018 fall within the definition of the ambit of 'acknowledgement of debt' as envisaged under Section 18 of the Limitation Act, 1963 and accordingly dismissed the appeal filed by the Corporate Debtor.

Case Title: Tejas Khandhar v Bank of Baroda, Company Appeal (At) (Insolvency) No. 371 Of 2020

Counsel For Appellant: Mr. Pulkit Deora, Advocate.

Counsel For Respondent No.1: Mr. Brijesh Kumar Tamber, Advocate.

Click Here To Read/Download Order

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