The corporate debtor had availed itself of various loan and credit facilities from UCO Bank and a consortium of banks, specifically to fund its Thermal Power Plant. Following defaults in repayment, the corporate debtor’s account was classified as a Non-Performing Asset (NPA) in November 2014. In February 2019, UCO Bank filed an application under Section 7 of the IBC to initiate CIRP against the debtor.

The corporate debtor challenged the application on several grounds, primarily focusing on the issues of limitation, competency of the bank to file the petition, and the existence of a debt.

The Adjudicating Authority determined that the General Manager of UCO Bank was authorized to file the application, thus rejecting the debtor’s objections on competency grounds.

The core contention revolved around whether a debt existed. The Adjudicating Authority scrutinized the loan agreements and financial statements, concluding that the corporate debtor had indeed defaulted on its obligations.

On the issue of limitation, the corporate debtor argued that the claim was time-barred since the application was filed beyond three years from the date of default. However, the Adjudicating Authority found that the corporate debtor had acknowledged its debt in its financial statements as of March 31, 2017. This acknowledgment extended the limitation period as per Section 18 of the Limitation Act, which allows a fresh period of limitation to commence upon such acknowledgment.

Dismissing the corporate debtor's appeal, the NCLAT affirmed the lower court's findings, emphasizing the importance of the balance sheet entries as acknowledgments of debt. The court noted that the statutory requirements for balance sheets do not necessitate the specific naming of every creditor, thus validating the entries that referenced outstanding loans.

Moreover, the proposal for a One-Time Settlement (OTS) issued by the corporate debtor further corroborated the acknowledgment of the existing debt. The NCLAT reiterated that such proposals can also serve as formal acknowledgments under the Limitation Act, reinforcing the jural relationship between the parties.

This case serves as a crucial reminder of how financial documentation and communication can impact legal proceedings under the IBC. It highlights that even a general acknowledgment of debt can significantly influence the outcome of insolvency cases. For financial creditors, maintaining accurate records and obtaining formal acknowledgments can be pivotal in ensuring timely and effective recovery actions. As the legal landscape surrounding insolvency evolves, the principles established in this case will likely serve as a reference point for future disputes.