Supreme Court Rejects NCLAT View: RP Admission Not Acknowledgment, CIRP Barred by Limitation

<p>The <span class="key-term" data-definition="Supreme Court of India — the apex judicial body in India whose decisions bind all lower courts; its rulings shape legal and policy frameworks (GS2: Polity)">Supreme Court</span> has overturned a <span class="key-term" data-definition="National Company Law Appellate Tribunal — the appellate authority for decisions of the NCLT on corporate matters, including insolvency (GS2: Polity)">NCLAT</span> order that treated a resolution professional’s claim admission as an acknowledgment of debt, thereby resetting the limitation period for filing a <span class="key-term" data-definition="Corporate Insolvency Resolution Process — a time‑bound procedure under the Insolvency and Bankruptcy Code to resolve a financially distressed company (GS3: Economy)">CIRP</span>. The apex court clarified that such admission is a purely administrative step and cannot extend the three‑year limitation prescribed by <span class="key-term" data-definition="Section 18 of the Limitation Act — provision that allows a fresh limitation period if a debtor acknowledges liability before the original period expires (GS3: Economy)">Section 18 of the Limitation Act</span>. As a result, the application filed on 23 September 2024 was held to be barred by limitation.</p> <h3>Key Developments</h3> <ul> <li>Bench of Justices <strong>Pamidighantam Sri Narasimha</strong> and <strong>Alok Aradhe</strong> ruled that admission of a claim by an interim or full‑time <span class="key-term" data-definition="Resolution Professional — an officer appointed under the IBC to manage the debtor’s affairs, collect and verify creditor claims, but without adjudicatory powers (GS3: Economy)">RP</span> is an administrative act, not an acknowledgment of liability.</li> <li>The Court affirmed that the right to initiate a <span class="key-term" data-definition="Section 7 of the IBC — provision allowing a creditor to file an application for initiating CIRP against a defaulting corporate debtor (GS3: Economy)">Section 7</span> application arises on the date of default, here 6 December 2016 when the loan was classified as a non‑performing asset.</li> <li>Limitation periods were computed excluding three suspension intervals: the DHFL CIRP (3 Dec 2019 – 7 Jun 2021), the Covid‑19 moratorium ordered by the Court (15 Mar 2020 – 28 Feb 2022 plus 90 days), and a later CIRP (23 Dec 2021 – 29 Jul 2024). Only three days of limitation remained, expiring on 1 August 2024.</li> <li>Since the fresh application was filed on 23 September 2024, it fell outside the permissible window and was dismissed.</li> </ul> <h3>Important Facts</h3> <p>The dispute originated from two loans advanced by <span class="key-term" data-definition="Diwan Housing Finance Corporation Ltd (DHFL) — a major housing finance company that later entered insolvency, its assets were transferred to asset reconstruction firms (GS3: Economy)">DHFL</span> in 2014, amounting to Rs 12 crore and Rs 11 crore respectively. After default, the loans were assigned to <strong>Omkara Asset Reconstruction Pvt Ltd</strong>, which sought CIRP initiation. The earlier CIRP involving DHFL was set aside, prompting Omkara to file fresh applications in 2024.</p> <p>The appellant, former director <strong>Shankar Khandelwal</strong>, argued that the limitation period should restart from the dates when the RP admitted the creditor’s claim (2 May 2022 and 21 Feb 2024). The NCLAT accepted this view, but the Supreme Court rejected it, emphasizing the statutory role of the RP under <span class="key-term" data-definition="Section 18 of the IBC — empowers the RP to receive, collate, and verify creditor claims; it does not confer adjudicatory authority (GS3: Economy)">Section 18 of the IBC</span>.</p> <h3>UPSC Relevance</h3> <ul> <li>Understanding the interplay between the <span class="key-term" data-definition="Insolvency and Bankruptcy Code (IBC) — comprehensive legislation governing insolvency resolution for companies, individuals, and banks (GS3: Economy)">IBC</span> and the <span class="key-term" data-definition="Limitation Act — law prescribing time limits for filing civil suits and applications, crucial for procedural law (GS2: Polity)">Limitation Act</span> is essential for GS 2 and GS 3.</li> <li>The judgment clarifies the statutory limits of a <span class="key-term" data-definition="Resolution Professional — see above (GS3: Economy)">RP</span>, a key actor in corporate insolvency, highlighting the separation of administrative and adjudicatory functions.</li> <li>It illustrates how courts interpret “acknowledgment of liability,” a concept often examined in legal and policy analysis.</li> <li>The case underscores the impact of extraordinary periods (e.g., Covid‑19 moratorium) on procedural timelines, relevant for contemporary governance questions.</li> </ul> <h3>Way Forward</h3> <p>Stakeholders must recognize that merely recording a claim does not reset limitation periods; explicit, timely acknowledgment is required. Creditors should monitor the three‑year limitation from the default date and be vigilant about statutory suspensions. Legislators may consider clarifying the effect of RP actions on limitation to avoid future litigation. For aspirants, mastering the procedural nuances of the IBC and Limitation Act will aid in answering both factual and analytical UPSC questions.</p>