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Asset Reconstruction Company (India) Limited vs Tulip Star Hotels Limited & Ors.

Civil Appeal · 2022 INSC 777Decided 1 Aug 2022
Civil Appeal Nos. 84-85 of 2020
Indira Banerjee · J.K. Maheshwari · V. Ramasubramanian as the second judge · J.K. Maheshwari as the co-signatory

Background

A consortium of banks led by Bank of India had sanctioned a large loan to V. Hotels Ltd. (the Corporate Debtor), which was later assigned to Asset Reconstruction Company (India) Limited (the Financial Creditor) after the account became a non-performing asset in 2008. Over the following years the Corporate Debtor repeatedly proposed and revised settlement terms, made partial payments, and acknowledged its outstanding liability in correspondence and its own financial statements. When the Financial Creditor eventually filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) in 2018 to initiate insolvency proceedings, the NCLAT held the application was barred by limitation, prompting this appeal to the Supreme Court.

Decision Breakdown

The Supreme Court allowed the appeal and set aside the NCLAT's order. It held that under Section 18 of the Limitation Act (applicable to IBC proceedings), a written acknowledgment of a subsisting debt made before the limitation period expires resets the limitation clock for a further three years, and that even an offer of one-time settlement can qualify as such an acknowledgment. Tracing the record, the Court found the Corporate Debtor had acknowledged its liability multiple times within the relevant periods (through settlement letters, part-payments, and its own financial statements from 2008-09 through 2016-17) so the three-year limitation period kept getting extended, making the 2018 IBC application well within time.

Lesson Learnt

A debtor's own written acknowledgment of an outstanding debt (including a settlement proposal, part-payment, or an admission of liability in its financial statements) can revive or extend the limitation period for recovery/insolvency proceedings against it; creditors should track these acknowledgments carefully as they can be decisive in showing a claim is not time-barred.

Official source (sci.gov.in)View Judgment (PDF)

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