The muddle around the applicability of the Limitation Act to the Insolvency and Bankruptcy Code has long been settled in 2017 by the B. K. Educational Services Pvt. Ltd. vs Parag Gupta & Associates, however, the ambiguity surrounding the meaning and scope of ‘default’ and ‘acknowledgement’ as to when the period of limitation starts to run still remains.
Undeniably, the most crucial issue to be determined is the existence of a default and a corresponding dispute under the Code. As per Section 3(12) of the IBC, 2016 default means a debt that is ‘due and payable’ and has not been repaid by the debtor or the corporate debtor. The term ‘due and payable’ has been interpreted by the Apex Court to mean a debt that is not barred by the period of limitation under the Limitation Act, 1963 i.e. a debt which is barred by limitation is only ‘due and recoverable’ but not ‘due and payable’. This is because when the limitation period runs out, even though the right to a remedy extinguishes, the debt remains due until its satisfaction.
In general, the period of limitation with respect to an application under the IBC in relation to the purchase and sale of goods begins to run from the date of delivery of goods under Article 14 of the Limitation Act, 1963. However, in the case of a Running and mutual or a Running and non-mutual Account, the period of limitation commences differently. This is because whether a suit is barred by the period of limitation or not is a mixed question of law and fact, therefore, each case is to be viewed differently upon its merits when determining a debt as ‘due and payable under the IBC.
A Running and mutual or a Running and non-mutual Account is an unsettled account that gets crystallised only when the demand for payment is made by the creditor. The period of limitation in such a case is to be determined as per Article 113 of the Limitation Act, 1963 to begin to run from the date the right to apply accrues. This is because there are continuous and regular transactions of sale/purchase and payments between the parties where no payment is made against any specific debt. The transactions are entered into the debit and the credit columns and the difference is continuously struck in the balance column. Thus, what remains ‘due and payable’ is not any specific debt/invoice but the balance due at the foot of the account. Therefore, Article 113 and not Article 14 applies to suits for recovery of money due at the foot of the Running and mutual or a Running and non-mutual Account. In such a case, the cause of action or default arises when the payment is denied by the debtor. Upon denial, the entire amount at the foot of the account, irrespective of the date of invoice, becomes ‘due and payable’ from the date of the demand as the right to apply under Article 137 of the Limitation Act, 1963 accrues when there is an unequivocal threat to infringe that right.
In addition to the above, the Apex Court has provided a breather to the creditors by giving a wider, more liberal, contextual and purposive interpretation to the clause ‘as far as may be’ under Section 238A of the IBC, 2016. Section 238A of the IBC, 2016 has been interpreted to not exclude the applicability of Section 5, 6, 14, 18 or any other applicable provision of the Limitation Act, 1963 to proceedings before the NCLT/NCLAT under the Code.
- Bharath Skins Corporation vs Taneja Skins Company Pvt. Ltd. (2011) SC
- M/s Shakti Bhog Food Industries…vs The Central Bank of India (2020) SC
- Sesh Nath Singh vs Baidyabati Sheoraphuli Co
The period of limitation may also be extended beyond a period of 3 years by way of acknowledgement of debt under Section 18 of the Limitation Act, 1963 when a written acknowledgement of debt has been given prior to the expiry of the period of limitation for that specific case. In such a case, a fresh period of limitation begins to run from the date of acknowledgement by the debtor. The delay may also be condoned under Section 5 of the Limitation Act, 1963 upon a condition precedent of the existence of a sufficient cause for not making the application in the prescribed time. The delay can be condoned by way of filing of an application under Section 5 of the Limitation Act, 1963 and is not granted as a matter of right. However, the delay may be condoned irrespective of a formal application being filed if there is sufficient cause at the discretion of the court.
Therefore, in view of the author, the period of limitation for filing a suit under IBC is 3 years from the date of denial of payment by the corporate debtor and not from the date of invoice in case of a running and mutual or a running and non-mutual account and not from the date of an invoice which can get extended even further by the applicability of Section 5, 14, 18 of the Limitation Act, 1963.
# Insolvency and Bankruptcy Code # Limitation Act # Supreme Court # Running Mutual Account # Running non- mutual account # Acknowledgement of debt
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