NCLAT Limits Benefit of Limitation Act for Fraud in Creditor Company, Not Corporate Debtor

NCLAT Limits Benefit of Limitation Act for Fraud in Creditor Company, Not Corporate Debtor

The Delhi Bench of the National Company Law Appellate Tribunal (NCLAT), headed by Justice Ashok Bhushan (Chairperson) and Technical Members Barun Mitra and Arun Baroka, has dismissed an appeal and ruled that the benefits of Section 17 of the Limitation Act, 1963, which allows for late filing of claims based on fraud, are not available when the fraud occurred in the creditor company, not in the corporate debtor company.

On December 17, 2019, the National Company Law Tribunal (NCLT) accepted a Section 9 application to initiate the Corporate Insolvency Resolution Process (CIRP) against Three C Universal Developers Pvt. Ltd. (Corporate Debtor/Respondent).

The Corporate Debtor's Interim Resolution Professional (IRP) then issued a public notice inviting claims until December 31, 2019.

On January 16, 2021, the Committee of Creditors (CoC) approved a resolution plan submitted by a resolution applicant in the CIRP.

On December 23, 2021, the NCLT approved the initiation of the Corporate Insolvency Resolution Process (CIRP) for a related company of the Corporate Debtor, Three C Green Developers Pvt. Ltd., in a separate matter. On February 21, 2022, a resolution professional was appointed for Three C Green Developers Pvt. Ltd. (Appellant).

On April 6, 2022, the Appellant sent a letter with a claim form to the Corporate Debtor's Resolution Professional, stating that the name of Three C Green Developers Pvt. Ltd. was not included in the Corporate Debtor's List of Creditors, nor was a claim for the company mentioned in the Information Memorandum.

The Resolution Professional (RP) did not accept the Appellant's claim. The Appellant then filed an application, IA No. 1688 of 2022, challenging the RP's non-acceptance of the claim.

The NCLT initially dismissed the application, but the NCLAT ordered it to reconsider on September 28, 2022. The NCLT reviewed the application but dismissed it again. Aggrieved by this, the appellant filed an appeal with the NCLAT.

The Appellant contended that the delay in filing the claim was due to the earlier management of Three C Green Developers Pvt. Ltd., as the claim was not filed by the former management and directors of the company, who wilfully neglected to lodge their claims with the IRP.

The Appellant further claimed that, as the appointed RP of the company, he was authorised by the CoC to file the claim, which he did on April 6, 2022.

The Respondent argued that the Appellant's claim was highly belated, filed 14 months after the CoC approved the Corporate Debtor's Resolution Plan. The Respondent stressed that no claims can be admitted after the CoC approves the Resolution Plan.

The NCLAT dismissed the appeal, noting that Section 17 of the Limitation Act does not allow for late filing of claims based on fraud that occurred in the creditor company, not in the corporate debtor company.

Section 17(1)(a) of the Limitation Act states that the period of limitation for filing a suit or application based on fraud by the defendant or respondent or their agent does not begin to run until the plaintiff or applicant discovers the fraud. However, the NCLAT has also held that the benefit of Section 17 of the Limitation Act is not available when the fraud was played in the creditor company, not in the company of the corporate debtor.