Admission Of Claim By Resolution Professional Is Mere Recital Of Debt & Not Acknowledgment Of Liability U/S.18 Limitation Act: Supreme Court

The Apex Court was considering an appeal filed under Section 62 of the Insolvency and Bankruptcy Code, 2016 (Code) directed against the impugned judgment of the National Company Law Appellate Tribunal (NCLAT) affirming the order passed by the National Company Law Tribunal (NCLT), admitting two separate petitions under Section 7 of the Code and initiating the Corporate Insolvency Resolution Process (CIRP).

The Division Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held, “The admission of a claim by RP is merely an administrative/clerical task performed as part of its statutory duties under Section 18 of the Code and, therefore, admission of claim by RP only means induction/entry of a claim. An admission of a claim by RP is akin to mere recital/reference of debt, which does not amount to an acknowledgment under Section 18 of the 1963 Act. Therefore, IRP’s admission of secured financial creditors debt in first CIRP was not an acknowledgement under Section 18 of 1963 Act.”

Reference was made to the judgments in Prabhakaran & Ors. v. M. Azhagiri Pillai (Dead) by LRs. & Ors. (2006), Tilak Ram & Ors. v. Nathu & Ors.(1966) and Valliamma Champaka Pillai v. Sivathanu Pillai & Ors. (1979).

AOR Shubham Jain represented the Appellant while Senior Advocate Neeraj Kishan Kaul represented the Respondent.

Factual Background

The appeal was filed by the erstwhile Director of Shrinathji Business Ventures Private Limited and Samaria Business Ventures Private Limited (Corporate Debtors). Two separate loans were sanctioned by Dewan Housing Finance Corporation Ltd., (DHFL) in September 2014 for sums of Rs 12 crore and Rs 11 crore, out of which Rs 11.50 crore and Rs 11 crore were disbursed, respectively. The corporate debtors defaulted in repayment, and DHFL classified their accounts as Non-Performing Assets (NPA). DHFL itself entered CIRP pursuant to proceedings initiated by the Reserve Bank of India, and a resolution plan submitted by Piramal Capital & Housing Finance Ltd. (PCHFL) was approved by the NCLT, Mumbai. PCHFL assigned the subject loans to Omkara Asset Reconstruction Pvt. Ltd., the secured financial creditor. Following the termination of the earlier CIRP, the secured financial creditor filed an application under Section 7 of the Code against the corporate debtor.

The NCLT held that the application was within the limitation and admitted the same. The appellant challenged the aforesaid order in appeal. The NCLAT held that the admission of the claim by the Resolution Professional (RP) in the first CIRP against the corporate debtor on May 22, 2022, constituted a valid acknowledgement, and its subsequent updating on January 21, 2024, constituted a second acknowledgement. Accordingly, the NCLAT concluded that the petition under Section 7 of the Code was within limitation and affirmed the order of the NCLT. It was in such circumstances that the matter reached the Apex Court.

Reasoning

The Bench, at the outset, reiterated that the limitation for filing an application under Section 7 of the Code is three years and is governed by Article 137 of the 1963 Act. The Bench reaffirmed the view that accrual of such right arises on the date of the default, that is, when the corporate debtor first fails to discharge its repayment obligations. “The limitation begins to run from the date of classification of the account as NPA, being the date of default, and not from any subsequent proceeding initiated for recovery”, it added.

Considering that in the matter at hand, the accounts of the CD were declared NPA on December 6, 2016, the Bench clarified that the right to file a petition under Section 7 accrued on December 6, 2016. It was further clarified that the period of limitation would have expired on December 6, 2019. The Bench noted that there were certain events that intervened before filing the petition, including the commencement of CIRP of DHFL and the Suo Motu Order of the Court directing exclusion of the limitation period due to the Covid Pandemic.

It was also noted that before expiry of the extension of limitation by virtue of the Suo Motu order of the Court, CIRP as against the appellant itself commenced on December 23, 2021 and continued till July 29, 2024. The Bench was of the view that the petition under Section 7 was filed on September 23, 2024, which was well beyond the period of limitation. The Bench also held that the IRP’s admission of secured financial creditors' debt in the first CIRP was not an acknowledgement under Section 18 of the Limitation Act.

“It is a well-settled legal proposition that an acknowledgment under Section 18 of the 1963 Act can only extend/renew a limitation period which has not already expired10. Therefore, a limitation period can be extended only by an acknowledgment which is made within the period of limitation. In any case, the admission of claim of secured financial creditor by IRP on 02.05.2022 does not enure to the benefit of the secured financial creditor as the same was not made within the period of limitation”, it stated.

Thus, quashing the impugned judgment of the NCLAT and NCLT, the Bench allowed the appeal.

Cause Title: Shankar Khandelwal v. Omkara Asset Reconstruction Pvt. Ltd (Neutral Citation: 2026 INSC 429)

Appearance

Appellant: AOR Shubham Jain

Respondent: Senior Advocates Neeraj Kishan Kaul, Gaurav Agarwal, AOR Himanshu Shekhar Tripathi, Advocates Sejal Jain, Kaarunya Lakshmi, Nakul Patwardhan, Dhanya S Krishnan, Raghav Agarwal

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