Operational Creditor Cannot Use Conflicting Debt Documents To Extend Limitation: NCLAT New Delhi

The New Delhi National Company Law Appellate Tribunal (NCLAT) on 29 July held that an operational creditor cannot invoke insolvency proceedings by relying on inconsistent documents regarding the debt claimed and simultaneously seek to treat those documents as an acknowledgement of liability to extend the limitation period under Section 18 of the Limitation Act, 1963.

A Bench comprising Judicial Member Justice N Seshasayee and Technical Member Arun Baroka dismissed the appeal filed by Sturdy Industries Limited against the order of the Jaipur Bench of the National Company Law Tribunal (NCLT), which had rejected its insolvency petition as time-barred and affected by pre-existing disputes. It observed:

“An Operational Creditor cannot base a Section 9 petition on documents that are internally inconsistent as to the very debt claimed, and then ask this Tribunal to treat the same documents as an unequivocal acknowledgment extending limitation. For these reasons, the balance confirmations do not satisfy the requirements of Section 18 of the Limitation Act, and do not extend limitation for the Section 9 petition.”

Sturdy Industries Limited, an operational creditor, had filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the NCLT Jaipur Bench seeking initiation of the corporate insolvency resolution process (CIRP) against Surya Irrigation Pvt. Ltd.

The claim arose from supplies made during 2014-15, with the date of default stated as 7 March 2015. The operational creditor issued a demand notice on 10 March 2021, which was served on Surya Irrigation on 12 March 2021. The insolvency petition was filed on 23 September 2021.

The NCLT dismissed the petition on 6 November 2024, holding that the claim was barred by limitation and involved pre-existing disputes. A rectified order dated 12 February 2025 corrected clerical errors but did not modify the findings. Sturdy Industries challenged the order before the NCLAT with a delay of 125 days.

The appellant argued that the appeal was within limitation as the rectified order merged with the original order, causing the limitation period to begin from the later date. It further relied on balance confirmations, claiming that they amounted to acknowledgements of liability under Section 18 of the Limitation Act. It also submitted that Surya Irrigation had never disputed receipt of goods and that the disputes raised were merely superficial. It claimed that an incorrect entry in a 2019 letter showing a credit balance was a mistake and did not reflect the actual liability.

Surya Irrigation argued that the insolvency petition was clearly barred by limitation as the default occurred in 2015 and the limitation period under Article 137 of the Limitation Act expired in 2018. It submitted that the balance confirmations were undated, unproved and inconsistent in the amounts mentioned, and therefore could not qualify as valid acknowledgements under Section 18. It also argued that the appeal was filed beyond the statutory limit under Section 61(2) of the IBC and that rectification of clerical errors could not restart the limitation period.

The Bench held that limitation for filing an appeal runs from the date of pronouncement of the order and that correction of clerical errors does not extend the limitation period. It observed that the delay of 125 days exceeded the condonable period of 15 days beyond the prescribed 30-day period under Section 61(2) of the IBC. It stated:

“Thus, reckoned from the date of pronouncement, i.e., 06.11.2024, the outer limit of 45 days for filing the appeal expired well before the appeal came to be filed. The Appellant's own application admits a delay of 125 days. This delay is far in excess of the 15-day period we are empowered to condone. The appeal is, therefore, not maintainable and is liable to be dismissed on this ground alone.”

Further, the Tribunal held that Article 137 of the Limitation Act applies to applications under the IBC and provides a three-year limitation period from the date when the right to apply accrues. Since the default occurred on 7 March 2015, the limitation period expired in 2018 and the petition filed in 2021 was time-barred. It also examined the balance confirmations relied upon by Sturdy Industries and noted that the documents mentioned varying amounts of Rs. 4.73 crore, Rs. 3.05 crore and Rs. 2.44 crore. It observed:

“A document that records a shifting and unexplained figure each time does not read as an unequivocal admission of a fixed, ascertained debt. It is, at best, the evidence of an unsettled reconciliation between the parties, which is a different thing altogether from an acknowledgment of liability.”

The Bench also held that such inconsistent figures could not constitute an unequivocal acknowledgement of liability under Section 18 of the Limitation Act. It found that the correspondence between the parties disclosed genuine pre-existing disputes regarding the amount claimed.

Accordingly, the NCLAT dismissed the appeal.

For Appellants: Advocates Rishi Singhal and Reema Khanneotra

For Respondents: Advocates Ashish Kumar Singh, Amrita Sarkar, Gitesh Sinha and artik Gupta