No Limitation Relief for Voluntary Mediation, Rules NCLT Delhi Bench

No Limitation Relief for Voluntary Mediation, Rules NCLT Delhi Bench

Introduction

The National Company Law Tribunal (NCLT), New Delhi Bench, Court-IV, comprising Manni Sankariah Shanmuga Sundaram (Member-Judicial) and Atul Chaturvedi (Member-Technical), held that the time spent in voluntary pre-institution mediation proceedings cannot be excluded while computing limitation under Section 14 of the Limitation Act. The decision underscores that such mediation, not mandated by the Insolvency and Bankruptcy Code (IBC), falls outside the ambit of proceedings protected under Section 14.

Factual Background

The operational creditor, Shiva Asphaltic Products Private Limited, supplied bitumen emulsion to the corporate debtor, Atlas Constructions Private Limited. Despite delivery and acknowledgment of goods, the corporate debtor failed to make payment of the due amount. The operational creditor issued a demand notice, which remained uncomplied with, although the corporate debtor expressed a willingness to reconcile the accounts.

Procedural Background

Before filing the application under Section 9 of the IBC to initiate the Corporate Insolvency Resolution Process (CIRP), the operational creditor initiated voluntary pre-institution mediation before the District Legal Services Authority (DLSA). However, the corporate debtor did not participate in the proceedings, leading the operational creditor to approach the NCLT with the present petition.

Issues

1. Whether the period spent in voluntary pre-institution mediation proceedings can be excluded from the computation of limitation under Section 14 of the Limitation Act, 1963.

Contentions of the Parties

Operational Creditor’s Contentions: The operational creditor argued that the corporate debtor had acknowledged the goods supplied and corresponding invoices, amounting to an admission of liability. It further submitted that the time spent in pre-institution mediation proceedings should be excluded under Section 14 of the Limitation Act, as such proceedings were bona fide and pursued prior to filing the insolvency application.

Corporate Debtor’s Contentions: The corporate debtor denied any acknowledgment of debt and maintained that the petition was barred by limitation. It argued that Section 14 did not apply to voluntary mediation as such proceedings were not judicial in nature or pursued under any legal compulsion.

Reasoning and Analysis

The NCLT observed that the corporate debtor’s willingness to reconcile accounts did not constitute an unequivocal acknowledgment of debt under Section 18 of the Limitation Act. The tribunal held that the pre-institution mediation proceedings could not be treated as a proceeding for exclusion under Section 14, since such mediation was voluntary and not within the statutory framework of the IBC.

The bench emphasized that Section 14 protects litigants who pursue remedies in wrong forums under a bona fide mistake of jurisdiction, but not those who voluntarily engage in mediation outside statutory mandates. Referring to the IBBI Expert Committee’s “Report on Framework for Use of Mediation under the Insolvency and Bankruptcy Code, 2016,” the tribunal reiterated that mediation conducted before filing an insolvency petition does not qualify as a proceeding “in relation to insolvency.”

Accordingly, the tribunal concluded that the time spent in voluntary pre-institution mediation proceedings cannot be excluded for computing limitation under Section 14 of the Limitation Act.

Implications

This decision draws a clear boundary between statutory and voluntary proceedings for the purpose of limitation computation. It signals to operational creditors that while pre-institution mediation may be a constructive step for dispute resolution, it cannot be used to extend or suspend limitation under Section 14. The decision reinforces the principle that only judicial or quasi-judicial proceedings pursued in good faith under a mistaken jurisdictional belief can attract exclusion under Section 14, thus ensuring stricter adherence to limitation periods under the IBC framework.

In this case the appellant was represented by Mr. Nipun Gupta, Advocate. Meanwhile the respondent was represented by Mr. Shrey Patnaik, Ms. Saira Khan, and Mr. Ritwik Batra, Advocates.