Continuing default and acknowledgment of debt can preserve Section 7 claims from limitation.

The appellant, an ex-director/promoter of Vigneshwara Developers Pvt. Ltd. (“Corporate Debtor”), challenged the NCLT’s order dated 10 October 2019 admitting the Corporate Debtor into CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) on an application filed by Lavkash Verma, a financial creditor.

The creditor had entered into a Developer-Anchor Unit Agreement in 2010 and claimed default in payment of assured returns and non-delivery of the unit.

During the pendency of winding-up proceedings before the Delhi High Court, the promoters proposed a scheme of compromise and arrangement supported by a substantial majority of creditors.

Although the revival scheme was sanctioned on 27 January 2020, it was subsequently declared unworkable and set aside on 4 January 2023.

The NCLAT applied Section 7 of the IBC, under which a financial creditor may initiate CIRP upon establishing a financial debt and default, and Article 137 of the Limitation Act, 1963, which prescribes a three-year limitation period for such applications.

Section 18 permits a fresh limitation period upon acknowledgment of liability within the prescribed period, while Section 22 recognises that limitation runs afresh in cases of continuing breach.

The Tribunal referred to B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates, Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd., and Sagar Sharma v. Phoenix ARC Pvt. Ltd. for the applicability of Article 137 to Section 7 proceedings.

It also relied on Shailendra Agarwal v. Asit Upadhyaya and Navin M. Raheja v. Vipul Jain for the proposition that non-delivery of a flat and continuing failure to refund amounts may constitute a continuing cause of action.

Further, relying on the principle stated in A. Navinchandra Steels Pvt. Ltd., the Tribunal held that pending winding-up proceedings do not bar an independent Section 7 proceeding when the requirements of the IBC are satisfied.

The NCLAT rejected the appellant’s contention that limitation commenced only from the original payment in 2010.

The respondent’s claim involved not merely the historical payment but also the continuing failure to hand over possession and the continuing obligation to refund or otherwise discharge the amount due.

The debt was also included in the revival scheme presented before the High Court, which the Tribunal treated as an acknowledgment of liability capable of extending limitation under Section 18 of the Limitation Act.

The Tribunal further noted that the scheme had ultimately failed and been set aside in 2023; therefore, the factual basis on which the appellant had sought to defer or defeat the insolvency proceedings no longer existed.

In light of that order, and because the winding-up proceedings did not legally exclude an independent Section 7 proceeding, the NCLAT held that the insolvency proceedings could continue.

The continuing failure to deliver possession, coupled with acknowledgment of the debt in the revival scheme, preserved or extended the limitation period.

Company Appeal (AT) (Insolvency) No. 1375 of 2019 was dismissed, all connected interlocutory applications were disposed of, and no order as to costs was made.