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Rajendra Narottamdas Sheth v. Chandra Prakash Jain

Civil Appeal · 2021 INSC 579Decided 30 Sept 2021
Civil Appeal No. 4222 of 2020
Justice L. Nageswara Rao · Justice B.R. Gavai · Justice B.V. Nagarathna

Background

A bank, as financial creditor, sought insolvency proceedings against a telecom infrastructure company for defaulting on loans, and the company's suspended directors challenged the application on two grounds: that it was filed by a bank officer under a general power of attorney rather than someone specifically authorised, and that it was filed more than three years after the loan account was declared a non-performing asset, making it time-barred.

Decision Breakdown

The Supreme Court held that a bank officer holding a general power of attorney authorising him to manage the bank's legal affairs and file proceedings is validly authorised to file an insolvency application, and the use of the words "power of attorney" rather than "authorisation" does not change that. On limitation, the Court held that the corporate debtor's own later letters acknowledging the outstanding debt (including one from November 2018) extended the limitation period under Section 18 of the Limitation Act, so the April 2019 application was filed within time even though more than three years had passed since the original 2014 default. The appeal was dismissed.

Lesson Learnt

A debtor's own written acknowledgment of what it owes, even years after the original default, can restart the clock on how long a creditor has to take legal action, so acknowledging a debt in writing is not a mere formality.

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

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