Limitation is an important aspect to be considered, while filing the application for initiation of insolvency under section 7 & 9 of the Code. Following are some of the cases, in which this aspect of limitation had been deliberated upon by the different courts / benches in different situations.
A. Limitation under Article 137 of the Limitation Act.
i). Supreme Court of India.(11.10.2018) B.K. Educational Services Private Limited Vs. Parag Gupta And Associates (Civil Appeal No.23988 Of 2017)
# 27. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.
ii). Supreme Court of India.(18.09.2019) Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (India) Ltd & Anr (Civil Appeal No. 4952 Of 2019)
# 6) Having heard the learned counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being “an application” which is filed under Section 7, would fall only within the residuary article 137.
iii). Supreme Court of India. (25.09.2019) in Jignesh Shah & Anr. vs Union of India & Anr. [W.P.(C) No.455 of 2019]
# 25. ….. The trigger for limitation is the inability of a company to pay its debts. Undoubtedly, this trigger occurs when a default takes place, after which the debt remains outstanding and is not paid. It is this date alone that is relevant for the purpose of triggering limitation for the filing of a winding up petition. Though it is clear that a winding up proceeding is a proceeding ‘in rem’ and not a recovery proceeding, the trigger of limitation, so far as the winding up petition is concerned, would be the date of default. Questions as to commercial solvency arise in cases covered by Sections 434(1) (c) of the Companies Act, 1956, where the debt has first to be proved, after which the Court will then look to the wishes of the other creditors and commercial solvency of the company as a whole. The stage at which the Court, therefore, examines whether the company is commercially insolvent is once it begins to hear the winding up petition for admission on merits. Limitation attaches insofar as petitions filed under Section 433(e) are concerned at the stage that default occurs for, it is at this stage that the debt becomes payable.
# 30. ….. There is no averment in the petition that thanks to these or other facts the Company’s substratum has disappeared, or that the Company is otherwise commercially insolvent. It is clear therefore that even on facts, the company’s substratum disappearing or the commercial insolvency of the company has not been pleaded. Whereas, in Form-1, upon transfer of the winding up proceedings to the NCLT, what is correctly stated is that the date of default is 19th August, 2012; making it clear that three-years from that date had long since elapsed when the Winding up Petition under Section 433(e) was filed on 21st October, 2016.
iv). Supreme Court of India (30.09.2019) in Sagar Sharma Vs. Phoenix Arc Pvt. Ltd & Anr. (Civil Appeal No. 7673 of 2019)
# 1) By our judgment dated 11.10.2018 in B.K. Educational Services Private Limited vs. Parag Gupta and Associates (2018 SCC OnLine SC 1921 in paragraphs 2, 20, 38, 43, 48 & 49) we had made it clear that the Insolvency and Bankruptcy Code’s coming into force on 01.12.2016 is wholly irrelevant to the triggering of any limitation period for the purposes of the Code. ……….
# 2) We had also made it clear beyond any doubt that for applications that will be filed under Section 7 of the Code, Article 137 of the Limitation Act will apply. ……….
# 3) Article 141 of the Constitution of India mandates that our judgments are followed in letter and spirit. The date of coming into force of the IBC Code does not and cannot form a trigger point of limitation for applications filed under the Code. Equally, since “applications” are petitions which are filed under the Code, it is Article 137 of the Limitation Act which will apply to such applications.
v). Supreme Court of India (14.08.2020) in Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Private Limited & Anr. [Civil Appeal No. 6347 of 2019]
# 30. When Section 238-A of the Code is read with the above-noted consistent decisions of this Court in Innoventive Industries, B.K. Educational Services, Swiss Ribbons, K. Sashidhar, Jignesh Shah, Vashdeo R. Bhojwani, Gaurav Hargovindbhai Dave and Sagar Sharma respectively, the following basics undoubtedly come to the fore:
(a) that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation;
(b) that CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor;
(c) that intention of the Code is not to give a new lease of life to debts which are time-barred;
(d) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues;
(e) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs;
(f) that default referred to in the Code is that of actual non-payment by the corporate debtor when a debt has become due and payable; and
(g) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and
(h) an application under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application.
vi). NCLAT (2020.03.12) in Ishrat Ali Vs. Cosmos Cooperative Bank Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 1121 of 2019]
# “11. The aforesaid decisions of the Hon’ble Supreme Court and this Appellate Tribunal make it clear that for the purpose of computing the period of limitation of application under Section 7, the date of default is ‘NPA’ and hence a crucial date.”
# 16. Therefore, we hold that a Judgment or a decree passed by a Court for recovery of money by Civil Court/ Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the ‘I&B Code’.”
# 18. Section 14(2) of the Limitation Act, 1963 makes it clear that in computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.
# 19. Therefore, to take advantage of Section 14(2), the Applicant must satisfy:
i. That the applicant has been prosecuting with due diligence in another civil proceeding, whether in a court of first instance or of appeal or revision.
ii. against the same party; and
iii. for the same relief.
# 21. An action taken by the ‘Financial Creditor’ under Section 13(2) or Section 13(4) of the ‘SARFAESI Act, 2002’ cannot be termed to be a civil proceeding before a Court of first instance or appeal or revision before an Appellate Court and the other forum. Therefore, action taken under Section 13(2) of the ‘SARFAESI Act, 2002’ cannot be counted for the purpose of exclusion of the period of limitation under Section 14(2) of the Limitation Act, 1963. In an application under Section 7 relief is sought for resolution of a ‘Corporate Debtor’ or liquidation on failure. It is not a money claim or suit. Therefore, no benefit can be given to any person under Section 14(2), till it is shown that the application under Section 7 was prosecuting with due diligence in a court of first instance or of appeal or revision which has no jurisdiction.
vii). NCLAT (2020.03.12) in V. Padmakumar vs. Stressed Assets Stabilisation Fund (SASF) & Anr [Company Appeal (AT) (Insolvency) No. 57 of 2020]
# 13. The aforesaid decisions of the Hon’ble Supreme Court and this Appellate Tribunal make it clear that for the purpose of computing the period of limitation of application under Section 7, the date of default is ‘NPA’ and hence a crucial date.
# 16. ……… Thus, while holding so, the Hon’ble Supreme Court held that the date of default to be taken into consideration for computing the period of limitation of application under Section 7. As the decision of Hon’ble Supreme Court is binding, we hold that mere filing of a suit for recovery or a decree passed by a Court cannot shift forward the date of default
# 17. A suit for recovery of money can be filed only when there is a default of dues. Even if the decree is passed, the date of default cannot be shift forward to the date of decree or date of payment for execution as a decree can be executed within specified period i.e. 12 years. If it is executable within the period of limitation, one cannot allege that there is a default of decree or payment of dues.
# 18. Therefore, we hold that a Judgment or a decree passed by a Court for recovery of money by Civil Court/ Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the ‘I&B Code’.
viii). NCLAT (2020.08.13) in Rajendra Kumar Tekriwal Vs. Bank of Baroda [Company Appeal (AT) (Insolvency) No. 225 of 2020]
# 11. In view of the foregoing discussion, we find that the arguments canvassed on behalf of the Appellant that initiation of ‘Corporate Insolvency Resolution Process’ at the instance of the ‘Financial Creditor’ was unsustainable as the same had been filed well beyond the period of three years from the date the account of ‘Corporate Debtor’ was classified as NPA. In these circumstances, we uphold the argument advanced on behalf of the Appellant that the subsequent developments in the form of recovery proceedings before the Debts Recovery Tribunal culminating in passing of recovery order/ decree would not shift the date of default leading to classification of Corporate Debtor’s account as NPA. We find that on the date of triggering of ‘Corporate Insolvency Resolution Process’ at the instance of the ‘Financial Creditor’, the claim was clearly barred by limitation in terms of Article 137 of the Limitation Act, 1963.
ix). NCLAT (2020.11.04) Stressed Assets Stabilization Fund Vs. Royal Brushes Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 949 of 2020 ]
# 3. It is manifestly clear that the ground agitated for assailing the impugned order is founded on plea of extension of limitation. The date of default being 1st July, 2001, the cause of action would not shift and therefore, limitation for initiating Corporate Insolvency Resolution Process would commence from the date of default.
B. Impact of recovery proceedings before DRT on date of default & extension of limitation.
x). NCLT Mumbai (02.07.2019) in Edelweiss Asset Reconstruction Company Limited v/s Octaga Green Power and Sugar Company Limited [CP 2987 (IB) /MB /2018]
# 17. It is an admitted fact that the Petitioner has initiated proceedings before the Ld. DRT in the year 2014 and the same has still pending adjudication. The date of default, as stated by the Petitioner in Form 1, is 31.3.2013, i.e. the date of classification of account of the Corporate Debtor as NPA. The Corporate Debtor has also acknowledged this date as the date of default. Therefore, it cannot be disputed that the proceedings before the Ld. DRT for the impugned debt was filed within the limitation period. Given the pending proceedings before the Ld. DRT, the right of the Petitioner to claim the impugned debt before a Court of Law cannot be said to be time-barred. Therefore, the contention of the Corporate Debtor about the claim being time-barred is not maintainable.
xi). NCLAT (06.09.2019) in Mr. Basab Biraja Paul & Ors. Vs.Edelweiss Asset Reconstruction Company Limited [Company Appeal (AT) (Ins) No.772 of 2019]
# 9. The Financial Creditor had moved DRT in 2014 which was a relief available at that time. We do not agree with the argument of the Appellants that Section 14 of Limitation permits exclusion of time of proceedings bona fide in a Court when the Court was without jurisdiction, and so pursuing relief in proper Court will not be helpful. It would be strange to say that if you prosecute relief in wrong Court, it would save limitation but if you prosecute relief in right Court, you cannot resort to additional relief which becomes available later. In our view, when the Financial Creditor was pursuing its remedies in proper forum, there was continuous cause of action existing and it cannot be said that the debt became time barred. The IBC was enforced in 2016 and the additional remedy became available. Financial Creditor resorted additionally to it and the Application was filed under Section 7. It could not be said to be time barred.
xii). NCLAT (07.02.2020) In Sh G Eswara Rao Vs Stressed Assets Stabilisation Fund, [Company Appeal (AT) (Insolvency) No. 1097 of 2019]
# 24. In the present case, the ‘Corporate Debtor’ defaulted to pay prior to 2004, due to which O.A. No.193 of 2004 was filed by Respondent (‘Financial Creditor’). A Decree passed by the Debts Recovery Tribunal or any suit cannot shift forward the date of default. On the other hand, the judgment and Decree passed by Debts Recovery Tribunal on 17th August, 2018, only suggests that debt become due and payable. It does not shifting forward the date of default as Decree has to be executed within a specified period. It is not that after passing of judgment or Decree, the default takes place immediately, as recovery is permissible, all the debts in terms of judgment and Decree dated 17th August, 2018 with pendent lite and future interest at the rate of 12% per annum could have been executed only through an execution case.
xiii). NCLAT (13.08.2020) in Rajendra Kumar Tekriwal Vs. Bank of Baroda [Company Appeal (AT) (Insolvency) No. 225 of 2020]
# 11. In view of the foregoing discussion, we find that the arguments canvassed on behalf of the Appellant that initiation of ‘Corporate Insolvency Resolution Process’ at the instance of the ‘Financial Creditor’ was unsustainable as the same had been filed well beyond the period of three years from the date the account of ‘Corporate Debtor’ was classified as NPA. In these circumstances, we uphold the argument advanced on behalf of the Appellant that the subsequent developments in the form of recovery proceedings before the Debts Recovery Tribunal culminating in passing of recovery order/ decree would not shift the date of default leading to classification of Corporate Debtor’s account as NPA. We find that on the date of triggering of ‘Corporate Insolvency Resolution Process’ at the instance of the ‘Financial Creditor’, the claim was clearly barred by limitation in terms of Article 137 of the Limitation Act, 1963.
C. Extension of limitation under section 18 of the limitation Act.
ixv). Supreme Court of India (25.09.2019) in Jignesh Shah & Anr. vs Union of India & Anr. [W.P.(C) No.455 of 2019]
# 19. The aforesaid judgments correctly hold that a suit for recovery based upon a cause of action that is within limitation cannot in any manner impact the separate and independent remedy of a winding up proceeding. In law, when time begins to run, it can only be extended in the manner provided in the Limitation Act. For example, an acknowledgement of liability under Section 18 of the Limitation Act would certainly extend the limitation period, but a suit for
recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding up proceeding is to be filed, by somehow keeping the debt alive for the purpose of the winding up proceeding.
xv). Supreme Court of India (14.08.2020) in Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Private Limited & Anr. [Civil Appeal No. 6347 of 2019]
Whether Section 18 Limitation Act could be applied to the present case
# 32. …….. As noticed, in B.K. Educational Services, it has clearly been held that the limitation period for application under Section 7 of the Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of Limitation Act, if any case for condonation of delay is made out.
# 33. Apart from the above and even if it be assumed that the principles relating to acknowledgement as per Section 18 of the Limitation Act are applicable for extension of time for the purpose of the application under Section 7 of the Code, in our view, neither the said provision and principles come in operation in the present case nor they enure to the benefit of respondent No. 2 for the fundamental reason that in the application made before NCLT, the respondent No. 2 specifically stated the date of default as ‘8.7.2011 being the date of NPA’. It remains indisputable that neither any other date of default has been stated in the application nor any suggestion about any acknowledgement has been made…………….In the variety of descriptions which could have been given by the applicant in the said Part- V of the application and even in residuary Point No. 8 therein, nothing was at all stated at any place about the so called acknowledgment or any other date of default.
# 33.1. Therefore, on the admitted fact situation of the present case, where only the date of default as ‘08.07.2011’ has been stated for the purpose of maintaining the application under Section 7 of the Code, and not even a foundation is laid in the application for suggesting any acknowledgement or any other date of default, in our view, the submissions sought to be developed on behalf of the respondent No. 2 at the later stage cannot be permitted. It remains trite that the question of limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. Indisputably, in the present case, the respondent No. 2 never came out with any pleading other than stating the date of default as ‘08.07.2011’ in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement.
xvi). NCLAT ( 18.12.2019) in C. Shivakumar Reddy Former MD of Kavveri Telecom Infrastructure Limited Vs. Dena Bank [Company Appeal (AT) (Insolvency) No. 407 of 2019]
# 7. In the present case, there is nothing on record to suggest that the ‘Corporate Debtor’ acknowledged the debt within three years and agreed to pay the debt. The application moved by ‘Corporate Debtor’ to restructure the debt or payment of the interest, does not amount to acknowledgement of debt. There is nothing on record to suggest that the ‘Corporate Debtor’ or its authorized representative by its signature has accepted or acknowledged the debt within three years from the date of default or from the date when the account was declared NPA, i.e., on 31st December, 2013. The Balance Sheet of the ‘Corporate Debtor’ for the year 2016-2017 filed after 31st March, 2017 cannot be termed to be a document of acknowledgement in terms of Section 18 of the Limitation Act.
# 8. Any dues payable, even if acknowledged after three years of limitation period, cannot be taken into consideration for the purpose of deriving conclusion under Section 18 of the Limitation Act.
xvii). NCLT Ahmedabad. (03.01.2020) in Bank of Baroda v/s. Pithampur Poly Products Pvt. Ltd. [C.P. (IB) No. 421/7/NCLT/AHM/2018]
# 17.7 Offering repeated OTS to the Applicant by the Corporate Debtor clearly showed that the debt has been acknowledged by the Corporate Debtor and there has been a continuous cause of action which gives rise to the claim of debt by the Applicant against the Corporate Debtor.
xviii). NCLAT (20.01.2020) in Vivek Jha Vs. Daimler Financial Services India Private Ltd. & Anr. [Company Appeal (AT) Insolvency No. 756 of 2018]
# 31. The Demand Notice dated 17.08.2017 was issued by the Respondent / Applicant for which the ‘Corporate Debtor’ and the co-Borrower to the loan agreement had not responded and not made payment of the outstanding sum of Rs. 29,29,149.74/-. As per Section 3(12) of the ‘I&B’ Code the ‘Corporate Debtor’ had committed default in respect of a financial debt envisaged u/s 5(8) of the Code. In Law, an ‘Acknowledgement’ in writing within expiration of prescribed period will mark a new commencement period for limitation to base a claim and the same will not create a new contract. In fact, it only extends the limitation period. Suffice it for this Tribunal to make a pertinent mention that if a suit is filed within three years from the last acknowledgement the same is not barred by limitation as per decision Union of India Vs. M.C. Pandey AIR 2009 NOC Page 494 (UTR). Further, an ‘Acknowledgement’ must be made before the expiration of the limitation period as per Section 18 of the Limitation Act, 1963. An ‘Acknowledgement’ of Liability not only saves limitation period but also confers on an individual a ‘cause of action’ to him, to lay his claim
# 32. Considering the fact that the Appellant / ‘Corporate Debtor’ had made a payment of three Lakhs through Cheque on 18.03.2015 and that the said payment was made after the issuance of Loan Recall notice dated 06.05.2014 and later a demand notice dated 17.08.2017 was issued by the Respondent to the Appellant / ‘Corporate Debtor’ and co-borrower in respect of the loan agreement dated 28.03.2013 where the ‘Corporate Debtor’ had agreed to pay Rs. 1,08,755/- per month beginning from 30.03.2013 to 30.03.2016 and also this Tribunal keeping in mind that the application u/s 7 of the ‘I&B’ Code was filed by the Respondent / Applicant before the Adjudicating Authority on 16.12.2017, this Tribunal comes to a consequent conclusion that the claim of the Respondent / Applicant is not barred by the plea of Limitation. Consequently, the present Appeal fails and the same is dismissed but without costs. All the pending IA’s are closed. The Appellant is directed to file certified copy of the Impugned Order dated 03.10.2018 within 4 days from today.
Author’s comments; In the present case the Appellant / ‘Corporate Debtor’ had made a payment of three Lakhs through Cheque on 18.03.2015, after the date of default ( Loan Recall notice dated 06.05.2014). As this payment was made within three years of default, the limitation gets extended under section 19 of “The Limitation Act. 1963”. There is no mention of CD ever giving any acknowledgement of debt.
Section 19 of “The Limitation Act. 1963” reads as under;
# 19. Effect of payment on account of debt or of interest on legacy.
Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made:
- Provided that, save in the case of payment of interest made before the 1st day of January, 1928, an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment.
- Explanation.—For the purposes of this section,—
- (a) where mortgaged land is in the possession of the mortgagee, the receipt of the rent or produce of such land shall be deemed to be a payment;
- (b) “debt” does not include money payable under a decree or order of a court.
ixx). NCLAT (07.02.2020) In Sh G Eswara Rao Vs Stressed Assets Stabilisation Fund, [Company Appeal (AT) (Insolvency) No. 1097 of 2019]
# 15. As the filing of Balance Sheet/ Annual Return being mandatory under Section 92(4), failing of which attracts penal action under Section 92(5) & (6), the Balance Sheet / Annual Return of the ‘Corporate Debtor’ cannot be treated to be an acknowledgement under Section 18 of the Limitation Act, 1963.
# 16. If the argument is accepted that the Balance Sheet / Annual Return of the ‘Corporate Debtor’ amounts to acknowledgement under Section 18 of the Limitation Act, 1963 then in such case, it is to be held that no limitation would be applicable because every year, it is mandatory for the ‘Corporate Debtor’ to file Balance Sheet/ Annual Return, which is not the law.
xx). NCLAT (17.02.2020) in Ashish Kumar vs. Vinod Kumar Pukhraj Ambavat RP. [Company Appeal (AT) (Insolvency) No. 1411 of 2019]
# 15. ……….. Thus, it is clear that by the OTS described above/letters, the Corporate Debtor had offered the payment of varying amounts to Allahabad Bank/Respondent No.2 for full and final settlement liability and thereby admitted the jural relationship of Debtor- Creditor between them and the bank.
# 16. Given the provision of Section 18 of the Limitation Act and the law laid down by Hon‟ble Supreme Court in case J.C. Budhraja the letters of acknowledgement/OTS created fresh period of limitation with effect from the date when the OTS/letter of acknowledgement was signed.
xxi). NCLAT (28.02.2020) in Rupesh Kumar Gupta vs. Punjab National Bank & Anr. [Company Appeal(AT) (Insolvency) No. 1119 of 2019]
# 9. Learned Counsel for the Respondent states that apart from the restructuring documents, there are Minutes of Meeting of Board of Directors of the Company as at page no. 19 of the Reply, which also can be taken as an acknowledgement under Section 18. Learned Counsel referred to resolution adopted by the Corporate Debtor Company in the Board of Directors meeting dated 30.09.2015, the relevant portion of which reads as under:
“1. THAT the Company do borrow the following additional financial assistance by way of Term Loan VI (Additional TL) (the “Facility”) in addition to the existing facility amounting to Rs. 228.00 Crores already availed by the Company from Punjab National Bank, Large Corporate Branch, Bhagwati Tower, R.K. Road, Near Cheema Chowk, Ludhiana, Corporation Bank, SCO 137-138, Sector 8C, Madhya Marg, Chandigarh & Central Bank of India. The Mall, Combere Mere Complex, Shimla to be provided to the Company on the terms and conditions as specified in sanction letter(s) issued by the aforesaid Banks as per the details given hereinbelow: …..”
# 11. . . . . . In the present case we have the Minutes of Meeting of the Board of Directors to which we have already referred and it can be clearly stated that there was an acknowledgement of debt by the Corporate Debtor as on 30.09.2015 under Section 18. Account had become NPA on 31.03.2015. With Acknowledgement dated 30.09.2015, the Application under Section 7 of IBC filed on 19.9.2018 was in time.
xxii). NCLAT (14.09.2020) in Yogeshkumar Jashwantlal Thakkar Vs. Indian Overseas Bank, [Company Appeal (AT) (Insolvency) No. 236 of 2020]
# 25. In the decision of Hon’ble Supreme Court in ‘Babulal Vardharji Gurjar’ V. ‘Veer Gurjar Aluminium Industries Pvt. Ltd. and Anr.’ (Civil Appeal no. 6357 of 2019 - decided on 14.08.2020) at paragraph 33.1 it is observed as under:-
That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement.
# 28 . . . . it is observed that ‘acknowledgement of liability should be made before the expiry of the prescribed period for instituting a suit on the basis of original cause of action’.
# 36 . . . . . . .As a matter of fact, Section 18 of the Limitation Act, 1963 is applicable both for ‘Suit’ and ‘Application’ involving ‘Acknowledgment of Liability’, creating a fresh period of limitation, which shall be computed from the date when the ‘Acknowledgment’ was so signed.
# 38. At this stage, this Tribunal, had perused the various confirmation letters as stated supra which are legally valid and binding documents between the inter se parties and the same cannot be repudiated on one pretext or other. Therefore, this Tribunal comes to an inevitable, inescapable and irresistible conclusion that the date of default i.e 01.01.2016 gets extended by the debit confirmation letters secured by the 1st Respondent/Bank from the Corporate Debtor (for making a new period run from the date of debit confirmation letters) towards the outstanding debt in ‘Loan Account’.
D. Limitation in case of continuing guarantee
xxiii). Supreme Court of India (10.04.2006) in Syndicate Bank vs Channaveerappa Beleri & Ors. [Appeal (civil) 6894 of 1997]
# 9. A guarantor's liability depends upon the terms of his contract. A 'continuing guarantee' is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred to these aspects only to underline the fact that the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract.
# 11. But in the case on hand, the guarantee deeds specifically state that the guarantors agree to pay and satisfy the bank on demand and interest will be payable by the guarantors only from the date of demand. In a case where the guarantee is payable on demand, as held in the case of Bradford (supra) and Hartland (supra), the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.
# 13. What then is the meaning of the said words used in the guarantee bonds in question? The guarantee bond states that the guarantors agree to pay and satisfy the Bank 'on demand'. It specifically provides that the liability to pay interest would arise upon the guarantor only from the date of demand by the Bank for payment. It also provides that the guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the Bank by the borrower. The terms of guarantee, thus, make it clear that the liability to pay would arise on the guarantors only when a demand is made. Article 55 provides that the time will begin to run when the contract is 'broken'. Even if Article 113 is to be applied, the time begins to run only when the right to sue accrues. In this case, the contract was broken and the right to sue accrued only when a demand for payment was made by the Bank and it was refused by the guarantors. When a demand is made requiring payment within a stipulated period, say 15 days, the breach occurs or right to sue accrues, if payment is not made or is refused within 15 days. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or right to sue accrues, when the demand is served on the guarantor.
# 14. We have to, however, enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non compliance. Where guarantor becomes liable in pursuance of a demand validly made in time, the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred. To clarify the above, the following illustration may be useful :
Let us say that a creditor makes some advances to a borrower between 10.4.1991 and 1.6.1991 and the repayment thereof is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1.4.1991. Let us further say a demand is made by the creditor against the guarantor for payment on 1.3.1993. Though the limitation against the principal debtor may expire on 1.6.1994, as the demand was made on 1.3.1993 when the claim was 'live' against the principal debtor, the limitation as against the guarantor would be 3 years from 1.3.1993. On the other hand, if the creditor does not make a demand at all against the guarantor till 1.6.1994 when the claims against the principal debtor get time-barred, any demand against the guarantor made thereafter say on 15.9.1994 would not be valid or enforceable.
Be that as it may.
ixxv). NCLT Mumbai (2019.02.14), in L & T Infrastructure Finance Company Limited vs Maharashtra Vidyut Nigam Private Limited [CP (I&B) 593/NCLT/MB/2018]
# 14. The Financial Creditor rebutted the defences raised by arguing the following:
a. The present Petition is not time-barred since the Deed of Guarantee dated 5th January 2015 annexed as Annexure K to the Application, at Pg. 253, is a continuing guarantee, payable on demand as stipulated in Clause 3b.It is further submitted that in Syndicate Bank vs. Channaveerappa Beleri and Ors. (2006 11 SCC 506), the Supreme Court held that limitation in respect of a guarantee of demand would run from the date that the guarantee is invoked, and the guarantor commits a breach by refusing to make payment.
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