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Section 18 of Limitation Act applicable to proceedings under Insolvency and Bankruptcy Code, 2016

May 31, 2022
insolvency

By Nihit Nagpal and Anuj Jhawar

The Hon’ble Supreme Court vide its order dated April 18, 2022 in State Bank of India Vs Krishidhan Seeds Private Limited[1] has observed that Section 18 of the Limitation Act, 1963 is applicable to proceedings under the Insolvency and Bankruptcy Code, 2016.

Brief Facts

The National Company Law Tribunal rejected the application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 by the State Bank of India for initiation of the Corporate Insolvency Resolution Process on the ground of limitation, stating that the Respondent’s loan account had been declared to be an NPA on June 10, 2014, while the proceeding under Section 7 of the Insolvency and Bankruptcy Code, 2016 had been instituted on September 19, 2018, i.e. beyond a period of three years from the date on which the right to take appropriate legal action had accrued. The National Company Law Tribunal further observed that in the decision in the case of V Padmakumar vs Stressed Assets Stabilisation Fund and Another[2], the National Company Law Appellate Tribunal has held that a statement contained in the balance sheet cannot be treated as an acknowledgement of liability under Section 18 of the Limitation Act, 1963. The order of the National Company Law Tribunal was upheld in appeal by the National Company Law Appellate Tribunal.

Section 18 of Limitation Act, 1963 applicable to Insolvency and Bankruptcy Code, 2016 proceedings

The Hon’ble Supreme Court observed that Section 18 of the Limitation Act, 1963 could indeed be held applicable to the proceedings under the Insolvency and Bankruptcy Code, 2016, as also held in Sesh Nath Singh v Baidyabati Sheoraphuli Coop. Bank Ltd.[3] The Hon’ble Supreme Court further observed that an acknowledgement in a balance sheet without a qualification can be relied upon for the purpose of the proceedings under the Insolvency and Bankruptcy Code, 2016, in recognition of the prior decision in Asset Reconstruction Company (India) Limited v Bishal Jaiswal and Another[4].

Conclusion

The provisions of Section 18 of the Limitation Act, 1963 are not alien to and are indeed applicable to proceedings under the Insolvency and Bankruptcy Code, 2016 and an acknowledgement in a balance sheet without a qualification can furnish a legitimate basis for determining as to whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default, as has been recognized by the Supreme Court in the instant case.

[1] Civil Appeal No 910 of 2021

[2] 2020 SCC Online NCLAT 417

[3] (2021) 7 SCC 313

[4] (2021) 6 SCC 366

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