Post-Limitation One-Time Settlement Proposal Doesn’t Extend Limitation Or Revive Time-Barred Debt
Introduction
The National Company Law Tribunal (NCLT), Indore Bench, has clarified that a one-time settlement (OTS) proposal submitted after the expiry of the limitation period does not extend or renew the limitation period under Section 18 of the Limitation Act, 1963. A Bench comprising Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta held that an acknowledgment made beyond the prescribed limitation period cannot give a “fresh lease of life” to a time-barred debt.
Factual Background
The Small Industries Development Bank of India (SIDBI) extended a credit facility of ₹440 lakhs to Bagree Alloys Limited, backed by personal guarantees executed by Krishnakant Bagree. The loan account was later classified as a Non-Performing Asset (NPA), and the guarantee was invoked. SIDBI subsequently filed a personal insolvency application under Section 95 of the Insolvency and Bankruptcy Code (IBC), relying on a One-Time Settlement (OTS) proposal submitted by the guarantor as an acknowledgment of debt to extend the limitation period.
Procedural Background
SIDBI claimed that a sum of ₹13.55 crore was outstanding from the personal guarantor. It argued that the OTS proposal constituted an acknowledgment of debt under Section 18 of the Limitation Act, thereby extending the limitation period. The respondent personal guarantor, however, contested the maintainability of the application, asserting that it was barred by limitation as it was filed nearly eight years after the guarantee was invoked. The respondent also noted that a prior Section 7 application filed by SIDBI against the corporate debtor had already been dismissed on limitation grounds.
Issues
1. Whether the One-Time Settlement proposal submitted after expiry of the limitation period could constitute an acknowledgment of debt under Section 18 of the Limitation Act.
2. Whether the present application filed under Section 95 of the IBC was barred by limitation under Article 137 of the Limitation Act.
Contentions of the Parties
Applicant (SIDBI): The OTS proposal represented a clear acknowledgment of liability and should be treated as valid acknowledgment under Section 18. Such acknowledgment extended the limitation period, making the application maintainable.
Respondent (Personal Guarantor): The application was filed eight years after the date of default and was therefore hopelessly time-barred. The OTS proposal was made beyond the limitation period, and under law, it cannot revive a time-barred debt. The prior dismissal of the Section 7 application on similar grounds reinforced that the claim was no longer enforceable.
Reasoning and Analysis
The NCLT referred to several judicial precedents to emphasize that acknowledgment of debt must occur before the expiry of limitation to be valid under Section 18. It cited Sri Kapaleswarar Temple v. T. Tirunavukarasu (AIR 1975 Mad 164), which held that acknowledgment made after the limitation period cannot revive a debt. Similarly, the Tribunal relied on Sampuran Singh & Ors. v. Niranjan Kaur & Ors. (1999) 2 SCC 679, where the Supreme Court reaffirmed that acknowledgment must be prior to the limitation expiry. Further, the Tribunal observed that Article 137 of the Limitation Act applies to insolvency proceedings, granting three years from the date of default for filing an application under Section 95 of the IBC. The Supreme Court in B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates (2019) 11 SCC 633 had already established that insolvency proceedings are subject to limitation under Article 137. Accordingly, the Bench held that since the acknowledgment (OTS proposal) was made after the limitation period had expired, it could not extend or renew the limitation period.
Implications
The NCLT held that the OTS proposal submitted after expiry of limitation does not extend the limitation period under Section 18 of the Limitation Act, and therefore, the personal insolvency application was time-barred.
In this case the applicant was represented by Ms. Bharti Nawlani, Advocate.