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Letter of the Managing Director of the Corporate Debtor is not an Acknowledgement under Section 18, the Limitation Act, 1963: National Company Law Appellate Tribunal

The question as to whether the law of limitation barred a claim under Section 9 of the Insolvency and Bankruptcy Code, 2016, was examined by the NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI, consisting of Justice M. Venugopal, Member (Judicial); Mr. V. P. Singh and Dr. Ashok Kumar Mishra, Members (Technical), in the matter of State of West Bengal through the Principal Secretary, West Bengal Biotech Development Corporation Limited vs. Keshav Park Private Limited & Ors. [Company Appeal (AT) (Insolvency) No. 330-331 of 2020], on 08.12.21.

The facts of the case were that the appellant, which owns 100% share in the West Bengal Biotech Development Ltd, has filed this appeal against the Order admitting the petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor, West Bengal Biotech Development Corporation Limited, and a moratorium was declared. The Operational Creditor and respondent had approached and represented to the Corporate Debtor that it engaged in interior decoration and renovation work, and in a bonafide belief of the same, the Corporate Debtor assigned work to the respondent. The work done by the respondent was contrary to the plan, and therefore the Corporate Debtor was precluded from issuing a completion certificate. In view, the Corporate Debtor was constrained to carry out the remaining work through certain third-party Vendors. The respondent raised three bills for the purported work done. However, after passing about five years from the date of the aforesaid invoices, the respondent has issued the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016. After that, the Application under Section 9 of the Code was preferred by the respondent before the Adjudicating Authority in October 2018. The National Company Law Tribunal, Kolkata Bench, the Adjudicating Authority, after hearing the parties had admitted the Application under Section 9 filed by the Operational Creditor and by the Order dated 28th January 2020, allowed the Application primarily on the ground that the Reply dated 14th December 2017 issued by the Corporate Debtor to the Operational Creditor amounts to alleged promise to pay by the Corporate Debtor under Section 25 (3) of the Indian Contract Act, 1872.

The Learned Counsel for the appellants, submitted that the Corporate Debtor had provided original invoices, challans issued by the third-party Vendors, engaged by the Corporate Debtor on account of the respondent’s failure to complete the work, as envisaged under the plan. It was argued that as the claim of the respondents was based on three invoices raised on 11th February, 2012, and therefore submitted that the laws of limitation bar the alleged claims of the Operational Creditor. It was contended that the claim was time-barred and cannot be made the subject matter of the Section 9 petition filed in October 2018 under the Insolvency and Bankruptcy Code, 2016.

The Learned Counsel for the respondents, put forth the contention that the Operational Creditor had issued the demand notice on 7th October 2017, and through the letter dated 14th December 2017, the Managing Director of the Corporate Debtor requested the Operational Creditor to send its representative to the office of the Corporate Debtor with all the papers and documents for settlement of the claim, which served as an acknowledgement under Section 18 of the Limitation Act, 1963; and the letter amounts to a promise to pay a time-barred debt under Section 25 (3) of the Indian Contract Act, 1872.

The National Company Law Appellate Tribunal, held that the set aside the order of the Adjudicating Authority, observing that it failed to appreciate that the Reply of the Corporate Debtor dated 14th December 2017 could not have been construed as an alleged admission, nor the said letter dated 14th December 2017, amounts to a promise to pay within the meaning of Section 25(3) of the Indian Contract Act, 1872. Evaluating the letter of the Managing Director of the Corporate Debtor, the tribunal held that the same cannot be construed as an acknowledgement of the debt, and accordingly the said letter was not within limits so that the operational Creditor could claim the benefit of Section 18 of the Limitation Act, 1963.

Click here to read the judgement.

By Bhargavi

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