Section 238A of the Insolvency and Bankruptcy Code, 2016 ("IBC/ Code"), which makes the provisions of the Limitation Act, 1963 ("Limitation Act") applicable, "as far as may be", inter alia, to the proceedings or appeals before the Adjudicating Authority ("NCLT") and the Appellate Tribunal ("NCLAT") was introduced in the statutory books with effect from 06.06.20181. Notably, the reasons behind the introduction of the said provision, as enunciated under the Report of the Insolvency Law Committee2, was prefaced on an understanding that the enactment of a new law/ IBC was not meant to give a new lease of life to time barred debts and therefore, "[g]iven that the intent was not to package the Code as a fresh opportunity for creditors and claimants who did not exercise their remedy under existing laws within the prescribed limitation period, the Committee thought it fit to insert a specific section applying the Limitation Act to the Code." Relevantly, the Hon'ble Supreme Court3, after carrying out a thorough analysis of the said provision, in light of the objective behind its introduction, inter alia, clarified that the provisions of Section 238A of IBC are retrospective in their applicability, that is, from the date when the (provisions of) said enactment/ IBC was brought into force. Accordingly, it was clarified in explicit terms that any petition which, though, may have been preferred prior to the introduction of Section 238A under the Code, however, on the date of such presentation was barred under the law of Limitation, would not be maintainable. Ergo, it is quite understandable4 that the provisions of Section 238A of IBC introduce and extend the principles of repose, peace and justice, on which the law of Limitation is premised, to proceedings under the said enactment/ IBC and thereby, quickening diligence, preventing oppression, suppressing incidents of fraud, etc.
Evidently, there have been several instances where Corporate Debtors, in order to evade the actuation of Corporate Insolvency Resolution Process persistently endeavored to invoke the provisions under the Limitation Act. In fact, it is usually observed that confutations premised on limitation are often the vanguard bulwark, invoked by Corporate Debtors to defeat the initiation of IBC proceedings and in several instances, have proved to be quite efficacious in pruning unpropitious claims. Withal such instances of triumph, shields of limitation are of-times pierced by applicants, resorting to the exclusionary and/ or enlarging provisions under the Limitation Act, which have been resolutely avowed by various courts to be applicable to proceedings under the Code with full vigor. Markedly, in this context, the Hon'ble Supreme Court in Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank Ltd.5, candidly observed, "IBC does not exclude the application of Section 6 or 14 or 18 or any other provision of the Limitation Act to proceedings under the IBC in NCLT/ NCLAT. All the provisions of the Limitation Act are applicable to proceedings in NCLT/ NCLAT, to the extent feasible." Similarly, the Hon'ble Apex Court in Laxmi Pat Surana v. Union Bank of India6, inter alia, noted, "Section 18 of the Limitation Act gets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate resolution process under Section 7 IBC enures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt... Further, the acknowledgment must be of a liability in respect of which the financial creditor can initiate action under Section 7 IBC."
Significantly in another conspicuous exemplar, the Hon'ble Apex Court in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal7 held that in the instances where the amount borrowed by Corporate Debtor is reflected under its balance sheet, made or signed by a duly authorized agent of the said company, before the expiration of the prescribed period of limitation, same may amount to acknowledgement for the purpose of limitation8. Notably, while reaching the said conclusion, the Hon'ble Court was not only guided by several previous precedents, rather, hinged its reasoning on a scrupulous scrutiny of the provisions under Section 18 of the Limitation Act, including its scope and ambit. Consequently, the Hon'ble Court in unambiguous terms observed, "statement of law contained in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, AIR 1962 Cal 115, that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act." Needless to exemplify that while reaching the said inference the Apex Court was cognizant of the fact that an acknowledgment does not renew debt, rather, only creates a new right of action. At the same time, it was echoed under the instant dictate that for the provisions under Section 18 of Limitation Act to be made applicable in a given case, the same need not be accompanied by promise to pay either expressly or even by implication, however, an acknowledgment must, "indicate the existence of jural relationship between the parties such as that of debtor and creditor, and it must appear that the statement is made with the intention to admit such jural relationship."
Quite understandably, applicability of provisions under Section 18 of Limitation Act is subject to several inbuilt restraints and would have no relevance in the cases where such acknowledgment is made after the expiry of the statutorily prescribed time period. Nevertheless, this situation is in stark variance to an instance where a borrower and/ or any person/ agent thereof makes a promise as envisaged under the provisions under Section 25(3) of the Indian Contract Act, 1872 ("Contract Act"). In fact, the Hon'ble Apex Court, quite recently, in Kotak Mahindra Bank Ltd. v. Kew Precision Parts (P) Ltd.9, while appreciating the dichotomy between the provisions under Section 18 of the Limitation Act and that under Section 25 of the Contract Act, inter alia, noted, "acknowledgment under Section 18 of the Limitation Act has to be made within the period of limitation and need not be accompanied by any promise to pay. If an acknowledgment shows existence of jural relationship, it may extend limitation even though there may be a denial to pay. On the other hand, Section 25(3) is only attracted when there is an express promise to pay a debt that is time-barred or any part thereof. Promise to pay can be inferred on scrutinising the document. Only the promise should be clear and unconditional."
Relevantly, Section 25(3) of the Contract Act voices one of the exceptions to the general rule of contracts; an agreement devoid of consideration are void, to affirm a, "promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits", would be a legally valid and enforceable promise. Clearly, the provisions under Section 25(3) of Contract Act are applicable in the cases only where a debt is one which would be enforceable against the 'defendants', but for the law of limitation. However, where a debt is not binding on a party for other reasons, and consequentially not enforceable against him, question of applicability of Section 25(3) of Contract Act does not arise. Nonetheless, it cannot be overemphasized that while an acknowledgment under Section 18 of Limitation Act is bounded within the confines of 'prescribed period' under law, promise under Section 25(3) of Contract Act, transgresses such limitations. In fact, under the latter instance, fresh period of limitation commences only when a promise, in a prescribed manner under law is made, though, even under such cases, right may confined only to the extent of promised amount. Therefore, in the instances, where a Corporate Debtor and/ or its agent(s) make a promise for even time barred claims in a manner as prescribed under Section 25(3) of the Contract Act, proceedings under IBC may be initiated and held to be maintainable provided that the promised amount under such situations exceeds/ meets the statutorily prescribed limits.
Conclusively, while on one hand, the provisions under Section 238A of IBC have proved to be of immense significance in warding off redundant claims and proceedings. On the other hand, the exclusionary and/ or enlarging provisions under the Code have proved to be a saving grace for justifiable claims. In particular, acknowledgment by/ on behalf of Corporate Debtor within the prescribed period or a promise to pay time barred claims, made as per the provisions under law may and have successfully been devised to elude the severities of law of limitation. In fact, with the recent precedents of the Hon'ble Supreme Court in Bishal Jaiswal and Kew Precision cases, the uncertainty and incertitude, if any, existing under law, appear to have been entirely dissipated. The only thing that remains is for the litigants and the concerned authorities to correctly appreciate and apply these dictates with paramount circumspection and prudence. It is only then, the provisions under law would reach to fruition.
Footnotes
1. Insolvency and Bankruptcy Code (Second Amendment) Act, 2018/ Act 26 of 2018.
2. March, 2018 Report
3. B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633
4. "The statute of limitation is founded on public policy, its aim being to secure peace in the community, to suppress fraud and perjury, to quicken diligence and to prevent oppression. It seeks to bury all acts of the past which have not been agitated unexplainably and have from lapse of time become stale." Refer to;Basawaraj v. Land Acquisition Officer, (2013) 14 SCC 81
5. (2021) 7 SCC 313
6. (2021) 8 SCC 481
7. (2021) 6 SCC 366
8. Section 18(1) of the Limitation Act, 1963 provides, "Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed."
9. (2022) 9 SCC 364
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