Status as on 07/08/2020
One hindrance in matters of recovery of long-standing operational debt has been the application of the Limitation Act, 1963 over Insolvency and Bankruptcy Code, 2016. However, the National Company Law Appellate Tribunal has paved the way for obtaining a fresh period of limitation for initiating CIRP as an Operational Creditor under Section 9 of the IBC.
The NCLAT while dealing with an appeal titled Jayprakash Vyas v. M/s Prabhat Steel Traders Pvt. Ltd, filed against an order passed by the NCLT Mumbai bench cleared several doubts. It highlighted the appropriate procedure and law for providing a fresh period of limitation to the longstanding operational debt.
The appellant contested the appeal on ground that the NCLT has made an error by not considering the debt to be time barred. The appellant further highlighted that the debt initially became due on 13th Dec, 2011. Thus, the initial period of limitation would be computed from 13th Dec, 2011. Therefore, making the default time barred as it has not occurred over three years prior to the date of filing of the application.
However, one major grey area for the NCLAT to remove was the effect of payment made on 30th May, 2015. It becomes an important question of law to explain and highlight the effect of payment over extending the period of limitation.
The NCLAT went on to remove several doubts and furthermore provided a procedure for extending the period of limitation.
- Firstly, to obtain either an acknowledgment under Section 18 of the Limitation Act, 1963 or payment from the Operational Creditor in terms of Section 19 of the Limitation Act, 1963
- Secondly, that payment must be obtained before the expiry of the initial period of limitation of the debt that being 3 years from the date of default.
Thus, the NCLAT made it clear that when part payment is made before the expiration of the initial period of limitation (3 years from the date of default) only then it may be extended. It provides a fresh period of limitation from the date of payment as per Section 19.
The NCLAT held that the Operational Creditor has received the last payment in lieu of debt from the Corporate Debtor on 30th May 2015, on account of invoice dated 13th December 2011. Therefore, the limitation period cannot be extended, given the statutory provision under Section 19 of the Limitation Act as the Corporate Debtor has made part payment after expiration of the period of limitation. It further stated that – “the Adjudicating Authority has erred in admitting the petition even without any consideration on the issue of limitation.”
Thus, this judgment will certainly be a landmark one in days to come as it provides certainty over the fact that period of limitation can be extended on the condition that the payment must be obtained within the initial period of limitation.
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