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Kotak Mahindra Bank Limited vs Kew Precision Parts Private Limited & Ors.

Civil Appeal · 2022 INSC 800Decided 5 Aug 2022
Civil Appeal No. 2176 of 2020
Indira Banerjee · J.K. Maheshwari · V. Ramasubramanian as the second judge

Background

Kotak Mahindra Bank, as a financial creditor, sought to initiate insolvency proceedings against Kew Precision Parts Pvt. Ltd. (the corporate debtor) over unpaid loans, after the debtor's account was declared a non-performing asset in September 2015. The National Company Law Tribunal (NCLT) admitted the bank's insolvency application, relying on a one-time-settlement offer the debtor made in December 2018 as an acknowledgment that revived the limitation period. On appeal, the National Company Law Appellate Tribunal (NCLAT) reversed this, holding the bank's application was filed beyond the three-year limitation period and closing the insolvency proceedings, without considering a settlement agreement the debtor and bank had actually signed on 20 December 2018 for repayment of a lump sum.

Decision Breakdown

The Supreme Court held that the NCLAT had erred by not considering whether the 20 December 2018 settlement agreement, under which the debtor promised to repay a specific lump sum by a fixed date, could operate as a fresh, enforceable promise to pay a debt under Section 25(3) of the Indian Contract Act, which is legally distinct from a mere "acknowledgment of debt" under Section 18 of the Limitation Act. The Court also held that the NCLAT should have given the bank a chance to explain any delay and cure defects in its application (as required before dismissal under Section 7(5)(b) of the IBC) rather than simply closing the proceedings. Since these questions had not been examined by either tribunal, the Supreme Court set aside the NCLAT's order (to the extent it closed the insolvency proceedings) and remitted the matter back to the NCLT to reconsider the limitation question afresh in light of the settlement agreement and the relevant law.

Lesson Learnt

A written settlement promise to repay a specific debt by a fixed date can independently revive an otherwise time-barred debt under contract law, distinct from and in addition to a limitation-extending "acknowledgment", so tribunals and courts must examine both possibilities before treating a claim as time-barred, and must give a claimant a fair opportunity to address limitation issues before shutting out its case.

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

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