Sarita Jain Proprietor of Pratham Traders Vs. Silvertoan Papers Ltd. - Extension of Limitation U/s 18 of The Limitation Act.

NCLT New Delhi-VI (05.03.2021) in Sarita Jain Proprietor of Pratham Traders  Vs. Silvertoan Papers Ltd. [IB-3128/(ND)/2019 ]

• The Supreme Court in a recent ruling, Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr, Civil Appeal No. 6347/2019, has held that Section 18 of the Limitation Act, 1963 ('Limitation Act'), which provides for a fresh period of limitation to be computed from the time when an acknowledgment of liability has been made in writing and signed, is not applicable to proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 ('Code').

Excerpts of the order;

# 1. This is a petition filed by Ms. Sarita Jain Proprietor of Pratham Traders the petitioner/operational creditor seeking to initiate CIRP against the Respondent company /Corporate Debtor M/s Silvertoan Papers Limited, under Section 9 of IBC 2016 for the alleged default on the part of the Corporate Debtor in settling the amount of Rs. 63,14,705/- as on 31.12.2018 along with the interest component towards the goods supplied. The case of the operational creditor is as follows: 

• i. The Operational Creditor supplied the Wheat Straws and raised 2 invoices  in the name of proprietorship concern, however, the Corporate Debtor failed  and neglected to pay the entire amounts under 2 (two) invoices in question,  issued by Operational Creditor. It is stated that as per the agreed conditions   of payment for the supplies, the Operational Creditor/Applicant is entitled to  charge interest @ 24% quarterly compounding 7 (seven) days after the delivery of the goods.

• ii. It is submitted that as on 31.12.2018, outstanding amount under the invoices are Rs. 37,37,666/- towards principal and Rs. 25,77,039/- towards interest calculated @ 24% compounded quarterly, thereby, aggregating to Rs. 63,14,705/-. That when the Operational Creditor approached the Corporate Debtor for payment of the outstanding dues, the corporate Debtor sought more time to make the payment, however, the Corporate Debtor acknowledged and confirmed the outstanding dues of the Operational Creditor by endorsing the Statement maintained by the Operational Creditor. 

• iii. The operational creditor has served demand notice dated 20.03.2019 to the corporate debtor. The corporate debtor sent a reply letter dated 24.04.2019 raising certain dispute regarding claim of operational creditor. 

# 3. The following objections have been raised by the respondent: 

• That it is most pertinent to mention that the applicant has deliberately not mentioned the date of default in Form V which fact itself make the whole proceeding as void-ab-initio, here it is also most important to mention the reason of non-mentioning of date of default as the date of default is 10.09.2016 and the alleged claim of applicant is time barred and due to which reason also the present application is not at all maintainable. 

• Further, the applicant had tried to get the limitation renewed on the basis of mere acknowledgment of a junior clerk which document itself is under challenge due to following reasons: 

• a) The name of the Company i.e., “Corporate-debtor” is wrongly written as “Silvertoan Paper Mills Ltd.” in place of “Silvertoan Papers Limited”. 

• b) The acknowledgement had been shown by a junior clerk named as “Deopal” while acknowledgement is fabricated with the signature mentioned as “Devpal”. 

• c) The said fabricated acknowledgment is under protest in criminal case no. 236/11 of 2020 in the district court of Muzaffarnagar. 

• The respondent has relied upon recent judgments by the Hon'ble Apex Court in the matter of Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. (Civil Appeal No. 6347/2019 dated 14.08.2020), and also in the matter of B.K. Educational Services Private Limited v. Parag Gupta and Associates (Civil Appeal No. 23988/2017) whereas the Hon'ble Apex Court had categorically decided that apart from Article 137 of Limitation Act no part of limitation act is applicable on Section 7, 9 and 10 application of IBC, 2016. Further it has also been decided that the acknowledgement of a debt does not result into extension of period of limitation. Copy of Judgment in Civil Appeal No. 6347/2019 and in Civil Appeal No. 23988/2017. 

# 4. The applicant in its rejoinder arguments submitted that objections raised by respondent are completely false, fabricated and manufactured and the claim of the applicant is due and payable in the eyes of law. 

# 5. Heard the parties and perused the case records. 

# 6. The claim of the applicant is not admitted by the respondent. In fact there are certain issues which should be adjudicated before ascertaining the claim of the applicant. At this stage it is immaterial to consider who will succeed. Besides this forum, in the present proceeding, is not supposed to examine the merit of the disputed claims made by the parties. 

# 8. The Hon'ble NCLAT in the case of Ishrat Ali Vs. Cosmos Cooperative Bank Ltd. & Anr has observed that: 

• “The date of coming into force of IBC Code does not and cannot form a trigger point of limitation for application filed under the Code. Equally, since “applications” are petitions, which are filed under the Code, it is Article 137 of the Limitation Act, 1963 which will apply to such applications. 

# 9. In the light of the aforementioned decision passed by Hon'ble NCLAT when we shall consider the case in hand and if we shall calculate the period of limitation from August 2016 then the present application is filed in the November 2019, much after the period of limitation prescribed under Article 137 of Limitation Act, i.e., three years when right to apply accrues. Hence the present petition is barred by limitation. 

# 10. The Supreme Court in a recent ruling, Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr, Civil Appeal No. 6347/2019, has held that Section 18 of the Limitation Act, 1963 ('Limitation Act'), which provides for a fresh period of limitation to be computed from the time when an acknowledgment of liability has been made in writing and signed, is not applicable to proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 ('Code'). 

# 11. In light of this ruling, a financial/ operational creditor will have to be vigilant while initiating proceedings under the Code and ensure that application is within 3 years from the date of default. The creditor will be unable to take the benefit of the provisions of the Limitation Act, which provide for a fresh period of limitation to run/exclusion of time in computing limitation. The same rule shall apply for the operational creditor as well as per the judgement passed by the Hon'ble Supreme Court. 

# 12. That apart the respondent has placed copies of invoices for re-supply of materials in place of defective materials. The said invoices have been disputed by the applicant in its rejoinder. Therefore, there exist various questions which require a proper adjudication in order to ascertain the claim of applicant. 

# 13.For the reasons stated above the application fails and therefore the same is dismissed as barred by limitation. 

# 14.It is made clear that any observations made in this order shall not be construed as an expression of opinion on the merit of the controversy and the right of the applicant before any other forum shall not be prejudiced on account of dismissal of instant application. 

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Blogger’ comments; In the said case the application has been dismissed on the following two counts.

1. Pre-existing dispute about the quality & resupply of defective material.

2. Extension of limitation; In the order, placing reliance on the Hon’ble Supreme Court (14.08.2020) in a recent ruling, Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr, Civil Appeal No. 6347/2019, AA had observed that Section 18 of the Limitation Act, 1963 ('Limitation Act'), which provides for a fresh period of limitation to be computed from the time when an acknowledgment of liability has been made in writing and signed, is not applicable to proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 ('Code').

Whereas Hon’ble Supreme Court, in the said case, had refrained to make any observation on this issue, to quote;

• 33.1 …………..in the present case, the respondent No. 2 never came out with any pleading other than stating the date of default as ‘08.07.2011’ in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement.

Further, Hon’ble Supreme Court (17.11.2020) in M M Ramachandran Vs South Indian Bank Ltd. & Ors..[Civil Appeal No. 2951 of 2020] held that;

• Heard. We do not find any merit in the appeal. The appeal is, accordingly, dismissed. Pending application(s), if any, shall stand disposed of.

The judgment of  NCLAT in M M Ramachandran, having been affirmed by the Supreme Court, is an authority on the application of Section 18 of the Limitation Act on proceedings under the Code and would help in countering the argument that Section 18 doesn’t apply to the Code. Thus, the doctrine of merger will apply to make the order of NCLAT absolute on the said issue of Section 18.

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