NCLAT Confirms Part Payment Resets Limitation Period Under IBC, 2016
Acknowledgment of Debt by Part Payment Extends Limitation Under Section 18
In a significant ruling under insolvency jurisprudence, the National Company Law Appellate Tribunal has clarified the effect of part payment of debt on the limitation period under the Insolvency and Bankruptcy Code, 2016. The Principal Bench at New Delhi held that any part payment made by a corporate debtor amounts to an acknowledgment of debt under Section 18 of the Limitation Act, 1963, thereby extending the limitation period for initiating insolvency proceedings. This authoritative decision came in the matter of Ramniwas B. Somany vs. Anushri Paper Pack Pvt Ltd., arising from an appeal against the admission of a Section 9 application by the Ahmedabad Bench of the National Company Law Tribunal.
Case Background: Operational Debt and Insolvency Proceedings
The operational creditor, Anushri Paper Pack Pvt Ltd., had supplied corrugated packaging materials to Indian Denim Limited, raising invoices between July and November 2013. The total operational debt claimed amounted to ₹8,48,127, comprising a principal of ₹3,65,616 and contractual interest of ₹4,82,511. Despite issuing a demand notice on 25 January 2019, no response was received from the debtor. Consequently, the operational creditor filed a Section 9 application before the NCLT, Ahmedabad, seeking initiation of the Corporate Insolvency Resolution Process against Indian Denim Limited. The NCLT admitted the application on 22 September 2023, appointing Rahul Nareshbhai Shah as the Interim Resolution Professional.
Appeal and Challenge on Grounds of Limitation
The suspended director of Indian Denim Limited, Ramniwas B. Somany, represented by counsel Hemant Phalpher, challenged the admission order before the NCLAT. The primary contention was that the operational creditor’s claim was barred by limitation, since the invoices dated back to 2013, and the insolvency petition was filed in 2019, allegedly beyond the three-year limitation period stipulated under the Limitation Act, 1963.
NCLAT’s Observations on Part Payment and Limitation
The NCLAT Bench comprising Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan, and Technical Member, Naresh Salecha examined the timeline of events and payment records. It was noted that the corporate debtor made a part payment of ₹40,000 via cheque dated 17 May 2016, which was cleared on 20 May 2016. The Tribunal observed that this part payment was made within three years from the date of the last invoice and hence under Section 18 of the Limitation Act, it constituted a valid acknowledgment of debt. As a result, a fresh limitation period commenced from 20 May 2016, giving the operational creditor until 20 May 2019 to file the application. Since the Section 9 application was filed on 6 May 2019, the NCLAT concluded that the petition was well within the extended limitation period.
The NCLAT’s ruling provides critical clarity on how part payments influence the limitation period in insolvency matters. By affirming that a part payment resets the limitation clock, the Tribunal has upheld the operational creditor’s right to seek remedies under the IBC, even in older debt cases provided a valid acknowledgment of debt exists. This judgment will have far-reaching implications in similar cases, especially where creditors rely on sporadic payments from debtors to maintain their claims within limitation. It reinforces the importance for creditors to maintain records of all payments and acknowledgments, however minimal, to preserve their rights under the IBC.