India: Supreme Court Clarifies That Section 18 Of The Limitation Act, 1963 Applies To Insolvency And Bankruptcy Code, 2016

The applicability of Section 18 of the Limitation Act, 1963 ("Limitation Act") on proceedings under Insolvency and Bankruptcy Code, 2016 ("IBC") has been unclear and contentious till date. However, the Supreme Court ("Court") in a recent judgment dated 15.4.2021 delivered in the case of Asset Reconstruction Company (India) Limited Versus Bishal Jaiswal & Anr.¹ has cleared the air on the applicability of Section 18 and held that Section 18 of the Limitation Act, which extends the period of limitation depending upon an acknowledgement of debt made in writing and signed by the Corporate Debtor, applies to proceedings under the IBC. The Supreme Court has further held that entries in the Balance Sheet would amount to acknowledgment of debt for the purpose of extension of limitation under Section 18 of the Limitation Act.

Matter travelled to the Court from an Application under Section 7 of the IBC which was filed by the Lender against Corporate Debtor before the National Company Law Tribunal, Kolkata. The Lender relied upon the Balance Sheet of the Corporate Debtor and alleged that in view of Section 18 of the Limitation Act same shall amount to acknowledgment of debt and thus fresh period of limitation shall be computed from the time of such acknowledgment.

The Court while dealing with the issue initially relied upon reasons for insertion of Section 238A in the IBC. Section 238A of the IBC specifically provides that provisions of Limitation Act shall apply to proceedings before Adjudicating Authority as well as National Company Law Appellate Tribunal. The Court observed that the reason for insertion of Section 248A was to eliminate resurrection of time-barred debts. Court further observed that as a necessary consequence of the said insertion Section 9 of the Limitation Act which provides that when time begins to run cannot be halted except by a process known to law, shall also apply. On the issue whether Section 18 which has an effect of extending the period of limitation would apply or not the Court, relied upon its recent judgments delivered (on 22.3.2021) in the case of Sesh Nath Singh Versus Baidyabati Sheoraphuli Co-operative Bank² wherein it has been held that IBC does not exclude the application of Section 6 or 14 or 18 or any of the provisions of Limitation Act.³ The Court, also relied upon its another recent judgment delivered (on 26.3.2021) in the case of Laxmi Pat Surana Versus Union Bank of India⁴ wherein, it was held that this Court in the case of Babulal Vardharji Gurjar Versus Veer Gurjar Aluminium Industries (P) Ltd.⁵, had not ruled out applicability of Section 18 of the Limitation Act and that there is no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the IBC.

The Court, thus concluded that Section 18 will apply to proceedings under the IBC and period of limitation shall be extended from the date of acknowledgment of the debt. The Court, further examined various provisions of the Companies Act, 2013⁶ & numerous judgments⁷ and concluded that the Balance Sheet would amount to acknowledgment of debt for the purpose of extension of limitation under Section 18 of the Limitation Act, while highlighting the importance of the acknowledgement establishing a jural relationship between debtor and creditor⁸.

Footnotes

1. 2021 SCC Online SC 321

2. 2021 SCC Online SC 244

3. Refer paragraph 67 & 68 of the judgment.

4. 2021 SCC Online SC 267

5. (2020) 15 SCC 1

6. Court referred to Section 2(40), 92, 128, 129, 134, 137 of the Companies Act, 2013.

7. Mahabir Cold Storage v. CIT, 1991 Supp (1) SCC 402; A.V. Murthy v. B.S. Nagabasavanna, (2002) 2 SCC 642; Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128; Ajit Chandra Bagchi v. Harishpur Tea Company (P.) Ltd., 1990 SCC OnLine Gau 24; South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana, 1972 SCC OnLine Del 185; Bhajan Singh Samra v. Wimpy International Ltd., 2011 SCC OnLine Del 4888; CIT-III v. Shri Vardhman Overseas Ltd., 2011 SCC OnLine Del 5599; N.S. Atwal v. Jindal Steel and Power Ltd., 2013 SCC OnLine Del 3902; In Al-Ameen Limited v. K.P. Sethumadhavan, 2017 SCC OnLine Ker 11337; Zest Systems Pvt. Ltd. v. Center for Vocational and Entrepreneurship Studies, 2018 SCC OnLine Del 12116; Agni Aviation Consultants v. State of Telangana, 2020 SCC OnLine TS 1462;

8. Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad, (1962) 1 SCR 140

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