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Axis Bank Limited vs. Naren Sheth & Anr. (2023 INSC 820)

Civil Appeal · 2023 INSC 820Decided 12 Sept 2023
Civil Appeal No. 2085 of 2022
Vikram Nath · Ahsanuddin Amanullah

Background

Axis Bank had leased 11 floors of a Mumbai building (Solaris "C") from a company that later merged into what became the Corporate Debtor, Shreem Corporation Ltd., and held a mortgage over part of the property to secure a large security deposit. Separately, the State Bank of India (SBI) had its own secured loan to the same company, which was declared a Non-Performing Asset in 2013. In 2020, SBI filed an insolvency application (Section 7 of the IBC) against the company, but Axis Bank objected that the application was filed too late, beyond the three-year limitation period, and that it was never made a party even though its own security interest was directly affected. SBI argued the delay should be excused because the company had acknowledged the debt afresh through its balance sheet and two "One Time Settlement" (OTS) proposals.

Decision Breakdown

The Supreme Court held that a fresh, dated acknowledgment of debt, whether in a company's statutory balance sheet or in a written settlement (OTS) proposal, restarts the limitation clock under Section 18 of the Limitation Act, and such documents can validly be introduced even at the appellate stage if not filed with the original petition. Since the company's 2015 balance sheet and its 2017/2018 OTS proposals fell within the extended limitation period, SBI's insolvency application was not time-barred, and the National Company Law Appellate Tribunal (NCLAT) was right to reject Axis Bank's challenge. The Court also left it open for a separate intervenor (Ruby Mills Ltd., holding disputed funds related to the debtor) to pursue its own remedies before the insolvency authorities.

Lesson Learnt

A company cannot escape an insolvency claim merely by pointing to the passage of time from the original default date. If it has acknowledged the debt again later (even informally, through a balance sheet entry or a settlement offer), that acknowledgment can revive the creditor's right to sue within a fresh limitation period.

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

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