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Debt Acknowledged After Limitation Period Expiry Cannot Initiate the Proceedings Under CIRP

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The appeal was filed by the appellant against the order dated 11th December 2019 passed by National Company Law Tribunal (NCLT), Chennai wherein the adjudicating authority accepted the Insolvency Application u/s 7 of IBC. The appellant here was CR Badrinath and the respondents were Eight Capital India (M) Ltd. and M/s Wellknit Apparels Private Limited. National Company Law Appellate Tribunal (NCLAT) overturned the decision of NCLT stating that debt acknowledged after limitation period expiry cannot initiate CIRP.

Facts of the Case

The applicant herein is a debenture holder through master facility agreement and debenture subscription agreement which was entered on 21st May 2007. According to this agreement, a sum of Rs 15 crores was given to the respondent no 2, and the respondent no 1 company subscribed to two series of fully convertible debentures with each of it for 84 months. According to clause 1 of the agreement, it was clearly stated that until the agreement subsides and the date on which fully convertible debentures are converted into equity, the fully convertible debentures would earn interest quarterly @12% p.a. and 6% p.a. in case of any default or delay in payment. There were defaults by the appellant in the payment of interest.  

The Decision of NCLT

Considering the definition of Financial Debt u/s 5(8) of IBC, the tribunal observed that any amount raised according to the issuance of debentures falls within the definition of Financial Debt. So, the principal, as well as the interest amount, would be paid by the corporate debtor. The corporate debtor had also acknowledged the applicant as “Debenture Holder” in the balance sheet for the Financial Sheet for the year 2016-17 and hence establishes a financial debt is due to the financial creditor. Hence, the application was accepted u/s 7 of IBC. 

Arguments before NCLAT


  1. The date of default was 31st December 2007 and the application was filed on 26th February 2019 which is more than 11 years. Hence, the period of limitation started on 31st December 2007.  
  2. It was stated by the appellant that even if the respondent’s contention is accepted and the amount became due on 20th May 2014. The application was still time-barred since it was filed on 26th February 2019 which was after 4 years and 9 months. 
  3. The appellant also relied on section 3 of the limitation act which clearly stated that application after the prescribed period shall be dismissed, even if the limitation has not been contended by the respondent.


  1. Bar of limitation cannot be invoked if the corporate debtor acknowledged the o/s debt in writing by entering into the memorandum of agreement and the same was done by the appellant on 18th April 2017. 
  2. For the above argument, the respondents also cited the case of Food Corporation of India vs Assam State Cooperative Marketing & Consumer Federation Limited as the court stated that “if an acknowledgment of lithe ability has been given in writing then the limitation period gets extended.” 

Court’s Analysis

  • It was accepted by the appellant as well as the respondent that the consequence of default was the entire amount which became due and was immediately payable. Hence, the limitation period began on 31st December 2007.  
  • In the entire duration, only the amount paid was Rs 39,86,371 and that was for the quarter ending 31st September 2007. The corporate debtor defaulted on the payment of interest till the time stipulated in the agreement i.e. 20th May 2014. Therefore, the default started from 31st December 2007 and continued till 20th May 2014.  
  • The case of B.K. Educational Services (P) Ltd. vs Parag Gupta & Associates was cited as it stated that “If the default has occurred over 3 years before the date of filing of the application, the application would be barred by the under Article 137 of the limitation act.” In the case also, the application is barred by Article 137 of the limitation act.  

Court’s Decision

The appellate tribunal stated that NCLT had erred by admitting the application under section 7 of IBC. Therefore, the appeal succeeded and the impugned order was set aside. is now on Telegram. Follow us for regular legal updates and judgments from the court. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can also subscribe to our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.


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