Running Account Entries Cannot Extend Limitation For Time-Barred Debt: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has recently held that a creditor cannot extend the limitation period for recovering a time-barred debt merely by maintaining a running account in its own books unless the debtor acknowledges the liability in writing.

“The maintenance of running account of a debtor by the creditor in its books can not extend the period of limitation in respect of debt, the claim of which has become time barred, unless the said running account is acknowledged by the debtor in writing.,” the tribunal observed.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar made the observation while dismissing Tricon Infra Buildtech Pvt. Ltd.'s insolvency plea against Pony Infrastructures and Contractors Ltd.

Tricon Infra had sought initiation of the corporate insolvency resolution process alleging a default of Rs 20.97 crore arising from civil construction works executed at the DB Residencies and Orchid Centre projects in Pune.

The operational creditor argued that a purported RA-18 & Final Bill dated July 1, 2019, along with an endorsement dated July 23, 2019 stating “File will not be processed / sent to H.O. until No Claim Certificate is attached,” extended the limitation period on the basis that the debt formed part of a running account.

“Accordingly, we are of considered view, in the absence of acknowledgement of debt arising from bill No. RA-1 to RA-17, the limitation in respect of such amounts due from the corporate debtor expired on 25.11.2019,” the tribunal said.

The tribunal held that each invoice constituted an independent debt and limitation had to be assessed separately.

“It is trite that the debt due under each invoice constitutes an independent and distinct debt, and the limitation is to be determined in relation to each default,” the bench said.

The tribunal noted that the RA-18 bill did not disclose details of work executed, did not refer to any work order, and did not show total amounts due under earlier running bills. It held that, at best, the endorsement could only relate to the amount claimed in RA-18 and not earlier invoices.

The bench also held that payment under RA-18 itself had not become due because no interim certificate required under the contract had been placed on record.

Separately, the tribunal found that claims relating to idle labour charges, business losses, losses arising from delays, and other consequential heads were disputed damages claims requiring adjudication.

Relying on Mobilox Innovations v. Kirusa Software, the tribunal held that pre-existing disputes barred admission of the insolvency plea.

Accordingly, the petition was dismissed.