IBC and Limitation Law: Supreme Court Clarifies That Resolution Professional’s Admission of Claims Does Not Extend Limitation

Introduction

The Insolvency and Bankruptcy Code, 2016 (“IBC”) was enacted with the objective of ensuring timely resolution of stressed assets and preventing value erosion through prolonged insolvency proceedings. Equally important to this objective is the principle of certainty. Insolvency proceedings are not intended to become a mechanism for reviving stale or time-barred claims that would otherwise be unenforceable under ordinary law.

Over the years, the Supreme Court has repeatedly emphasised that the IBC is not a recovery legislation and that limitation principles continue to apply with full force to insolvency proceedings. However, one recurring issue has generated significant debate: can actions taken during a Corporate Insolvency Resolution Process (“CIRP”), particularly the admission of claims by a Resolution Professional (“RP”), constitute an acknowledgment of debt sufficient to extend limitation under Section 18 of the Limitation Act, 1963?

In a significant judgment involving claims originally advanced by Dewan Housing Finance Corporation Limited (“DHFL”), the Supreme Court has now settled this controversy. The Court has categorically held that admission of a claim by a Resolution Professional is merely an administrative act and cannot be treated as an acknowledgment of liability by the corporate debtor for the purposes of Section 18 of the Limitation Act.

The ruling reinforces the distinction between administrative functions performed during insolvency proceedings and legally effective acknowledgments capable of extending statutory limitation periods.

Limitation Under the Insolvency and Bankruptcy Code

The Supreme Court has consistently held that proceedings under Sections 7 and 9 of the IBC are governed by Article 137 of the Limitation Act, 1963.

The position was conclusively settled in B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates, where the Court held that:

• The Limitation Act applies to proceedings under the IBC;
• The limitation period is generally three years;
• Limitation begins from the date of default;
• Time-barred debts cannot ordinarily form the basis of insolvency proceedings.

This principle was subsequently reaffirmed in several landmark decisions including:

• Jignesh Shah v. Union of India;
• Sesh Nath Singh v. Baidyabati Sheoraphuli Cooperative Bank;
• Laxmi Pat Surana v. Union Bank of India.

The objective behind applying limitation principles to insolvency proceedings is straightforward: insolvency resolution is intended to address genuine financial distress, not resurrect claims that have become legally unenforceable through the passage of time.

Understanding Section 18 of the Limitation Act

Section 18 provides that a fresh limitation period may commence if there is an acknowledgment of liability before expiry of the original limitation period.

For an acknowledgment to be legally valid:

• It must be in writing;
• It must be signed by the debtor or an authorised representative;
• It must indicate the existence of a subsisting liability;
• It must be made before the original limitation period expires.

The provision is founded on the principle that where a debtor consciously recognises an existing obligation, the law may grant the creditor a fresh period to pursue legal remedies. However, not every reference to a debt constitutes an acknowledgment. The acknowledgment must reflect a conscious and voluntary admission of liability.

The Long-Standing Insolvency Law Debate

The interaction between Section 18 and the IBC has generated considerable litigation. Indian courts have recognised several situations where limitation may be extended, including:

• Balance sheets acknowledging liabilities;
• One-time settlement proposals;
• Restructuring agreements;
• Written admissions of debt;
• Revival letters.

However, uncertainty persisted regarding actions taken during insolvency proceedings. A key question emerged: Can a creditor rely upon the admission of its claim by an RP during CIRP as an acknowledgment of debt by the corporate debtor? Several tribunals had answered this question in the affirmative, creating significant uncertainty in insolvency jurisprudence.

Factual Background of the Case

The dispute arose from financial facilities originally granted by DHFL. The account was classified as a Non-Performing Asset (NPA) on 6 December 2016. Subsequently:

• DHFL itself entered insolvency proceedings;
• The debt was assigned to Omkara Asset Reconstruction Private Limited;
• The corporate debtor underwent separate CIRP proceedings initiated by another creditor;
• Omkara submitted its claim before the Resolution Professional;
• The claim was admitted and subsequently updated by the RP.

Following termination of the earlier CIRP proceedings, fresh applications under Section 7 of the IBC were filed in September 2024. The principal issue was whether those applications were within limitation.

NCLAT’s Approach

The National Company Law Appellate Tribunal (“NCLAT”) upheld the maintainability of the applications. According to the NCLAT:

• The Resolution Professional acts on behalf of the corporate debtor during CIRP;
• Admission of claims reflects acceptance of liability;
• Such admission constitutes acknowledgment under Section 18 of the Limitation Act;
• A fresh limitation period therefore commenced from the date of claim admission.

This reasoning effectively allowed procedural steps undertaken during CIRP to extend the limitation period.

Supreme Court’s Analysis

The Supreme Court rejected the NCLAT’s reasoning and drew a clear distinction between claim verification and acknowledgment of liability. The Court observed that:

Resolution Professionals Perform Administrative Functions

The role of an RP is governed by the statutory framework of the IBC. The RP’s responsibilities include:

• Receiving claims;
• Collating claims;
• Verifying claims;
• Maintaining records;
• Facilitating the resolution process.

These functions are administrative in nature. The RP does not act as an adjudicatory authority and does not determine legal liability.

Admission of a Claim Does Not Amount to Acceptance of Liability

The Court emphasised that admission of a claim merely indicates that the claim has been recorded for purposes of CIRP. It does not constitute:

• A determination of liability;
• A judicial finding;
• An acknowledgment by the corporate debtor.

Most importantly, it does not reflect the conscious intention required for a valid acknowledgment under Section 18.

Acknowledgment Must Originate from the Debtor

The Supreme Court reiterated that an acknowledgment capable of extending limitation must originate from:

• The debtor; or
• A duly authorised representative acting on behalf of the debtor.

The Resolution Professional functions under a statutory mandate and cannot be equated with the debtor for purposes of Section 18.

Limitation Calculation in the Present Case

Applying settled principles, the Court held that:

• Default occurred on 6 December 2016;
• Article 137 provided a three-year limitation period;
• Certain exclusions were available, including periods covered by COVID-19 extensions and earlier insolvency proceedings;
• Even after granting such exclusions, limitation expired before the filing of the Section 7 applications in September 2024.

The Court further noted that the claim admission relied upon by the creditor occurred after expiry of the original limitation period. Consequently, even if it were treated as an acknowledgment which it was not, could not revive an already time-barred claim. This observation is consistent with established jurisprudence that Section 18 can extend limitation but cannot resurrect a dead claim.

Why the Judgment Matters

The decision is significant for several reasons.

• Preserving the Limited Role of Resolution Professionals: The judgment reinforces that Resolution Professionals are facilitators of the insolvency process rather than adjudicators of rights. Treating claim admission as acknowledgment would have distorted the statutory role assigned to RPs under the IBC.
• Preventing Revival of Time-Barred Claims: The ruling prevents creditors from relying on procedural events during CIRP to revive claims that have already become unenforceable. This preserves certainty in commercial relationships and protects debtors from indefinite exposure.
• Strengthening Limitation Discipline Under IBC: The Supreme Court has consistently emphasised that insolvency proceedings must remain subject to limitation principles. The present judgment continues that trend and reinforces the importance of acting within prescribed statutory timelines.
• Clarifying Section 18 Jurisprudence: The ruling contributes to the growing body of case law clarifying what constitutes a valid acknowledgment under Section 18. It confirms that procedural recognition of a claim is fundamentally different from a conscious acknowledgment of liability.

Practical Implications for Creditors

The judgment carries important lessons for financial creditors, asset reconstruction companies, and insolvency professionals. Creditors should:

• Independently monitor limitation periods;
• Obtain valid acknowledgments before expiry of limitation;
• Avoid relying on CIRP-related procedural developments to extend limitation;
• Carefully evaluate debt assignment transactions involving older defaults;
• Initiate insolvency proceedings promptly where defaults occur.

Failure to do so may result in otherwise valid claims becoming unenforceable.

Conclusion

The Supreme Court’s decision marks an important development in the intersection between insolvency law and limitation jurisprudence. By holding that admission of a claim by a Resolution Professional does not constitute acknowledgment of debt under Section 18 of the Limitation Act, the Court has reinforced the distinction between administrative functions within CIRP and legally effective admissions capable of extending limitation.

The judgment strengthens certainty within the insolvency framework, preserves the limited statutory role of Resolution Professionals, and prevents the indirect revival of time-barred claims through procedural mechanisms. Most importantly, it reaffirms a principle that has become central to modern insolvency jurisprudence: the IBC is a resolution mechanism, not a tool for circumventing limitation law.

For creditors, the message is clear that limitation periods remain critical, and reliance on insolvency processes cannot substitute for timely enforcement of legal rights.

Last Updated on 20 June, 2026