NCLT Cuttack Admits Section 7 IBC Petition Filed by IDBI Bank Against Fortune Spirit Ltd.

NCLT Cuttack Admits Section 7 IBC Petition Filed by IDBI Bank Against Fortune Spirit Ltd.

“One Time Settlement acknowledgment extending IBC limitation period”

In a significant ruling, the Cuttack Bench of the National Company Law Tribunal has admitted a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 by IDBI Bank Limited against Fortune Spirit Limited. The petition was filed on the grounds of financial default, with the tribunal holding that the application was well within the prescribed limitation period owing to a subsequent acknowledgment of debt by the corporate debtor through a One-Time Settlement proposal.

Background of the Financial Arrangement

The corporate debtor, Fortune Spirit Limited, through its promoters and directors, approached IDBI Bank for a working capital facility of ₹15 crore intended for the construction of a factory, installation of machinery, and production of Indian Made Foreign Liquor. The loan was sanctioned in the form of a cash credit facility, backed by hypothecation and supported by personal guarantees from the directors. The terms included an interest rate of BBR + 200 basis points per annum, with repayment due within 12 months, excluding a moratorium period. On 30 December 2018, the loan was renewed, and the credit limit was revised to ₹12 crore as of 31 October 2019.

Declaration of Default and SARFAESI Proceedings

The loan account was subsequently classified as a Non-Performing Asset (NPA) on 31 March 2021. Thereafter, the financial creditor issued a loan recall notice on 6 May 2021 and initiated action under the SARFAESI Act, serving a demand notice under Section 13(2) and a possession notice under Section 13(4) on 11 and 12 August 2021 for various secured properties of the debtor.

One-Time Settlement and Acknowledgment of Debt

Amidst these proceedings, the corporate debtor submitted a One-Time Settlement (OTS) proposal on 23 February 2023 offering ₹10 crore with an upfront payment of ₹1 crore. IDBI Bank accepted the proposal on 12 June 2023, revising the settlement amount to ₹11 crore. However, the debtor failed to adhere to the revised payment schedule, leading the bank to revoke the OTS on 8 January 2024.

Contentions Regarding Limitation Period

A key issue raised by the corporate debtor was the applicability of the limitation period under the IBC. It was argued that the default date of 30 October 2020, mentioned in the bank’s recall notice, predated the application filing date of 7 March 2024, thereby exceeding the three-year limitation period. However, the tribunal held that the account was declared NPA on 31 March 2021, which constitutes the official date of default, and more importantly, the acknowledgment of debt via the OTS proposal on 23 February 2023 served to extend the limitation period as per provisions under the Limitation Act, 1963. This position was further substantiated by the proceedings in Writ Petition (Civil) No. 35696 of 2021 before the High Court of Orissa, which had earlier led to a temporary stay but was ultimately disposed of as infructuous on 3 February 2025.

Tribunal’s Observations and Final Order

The two-member NCLT bench, comprising Mr. Deep Chandra Joshi, Judicial Member and Mr. Banwari Lal Meena, Technical Member, ruled that:

• There exists a valid financial debt
• A default has occurred
• The petition was filed within the limitation period, owing to the acknowledgment of debt through OTS
• All statutory requirements under Section 7 of the IBC have been satisfied

Consequently, the Tribunal admitted the Section 7 application, paving the way for initiation of the Corporate Insolvency Resolution Process against Fortune Spirit Limited. This case reaffirms the legal position that an acknowledgment of debt—such as through an OTS proposal—can effectively extend the limitation period under the IBC, even if the original date of default appears to fall outside the three-year window. The order also demonstrates the tribunal’s adherence to both procedural rigor and the overarching objective of IBC to ensure timely resolution of insolvency proceedings.