Un-encashed cheque cannot amount to an acknowledgement of liability in terms of Section 18 of the Limitation Act, 1963

Cause Title : M/s. Primee Silicones (Chennai) Pvt. Ltd. vs M/s. UCAL Fuel Systems Ltd., Company Appeal (AT) (CH) (Ins.) No. 299 of 2021, National Company Law Appellate Tribunal At Chennai

Date of Judgment/Order : 17/02/2023

Corum : Justice M. Venugopal, Member (Judicial) & Ms. Shreesha Merla, Member (Technical)

Citied: 

1. Karamadai Naicken Vs. R. Raju Pillai & Anr., AIR 1949 Mad 401
2. Asset Reconstruction Company India Limited Vs. Bishal Jaiswal and Anr., (2020) 16 SCC 366
3. Bharat Skins Corporation Vs. Taneja Skins Corporation Private Limited, (2012) 186 DLT 290
4. Wilsons Jacobs Vs. Lucid Prints & Ors., 2018 SCC OnLine BOM 1998

Background

Appeal was filed against the order of the NCLT dismissing an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, as barred by Limitation.

The Appellant had argued that the Corporate Debtor has not disputed the receipt of goods or raised any disputes prior to the receipt of  Statutory Notice dated 07.02.2020, but their only contention is that some of the invoices are dated prior to 2017 and are hence time barred which according to the Appellant was incorrect as the account was a running account. It is the case of the Appellant that even if the Accounts are not construed to be a ‘running Account’, the email sent by the Corporate Debtor on 23.10.2018, asking the Appellant to reconcile the Accounts and share of payment advice mentioning Invoice Number very specifically and also mentioning the details of the cheque dated 13.03.2017 drawn on Bank of India for Rs.3 Lakhs/- would show that the Respondent Company had admitted the liability. Further, the earliest unpaid invoice is dated 29.04.2015, for which the Limitation of three years, expires on 28.04.2018, but the cheque payment alleged by the Corporate Debtor is dated 13.03.2017 which construes an intention to pay and therefore the Application is well within the period of Limitation.

The Corporate Debtor/Respondent argued that the Application was clearly ‘barred by Limitation’ and that the Account cannot be termed as a ‘running Account’ as the ingredients of a ‘running Account’ would include:

• the value of the goods supplied to be debited in the Debit Column;
• when amounts are paid by the ‘buyer’ to the ‘seller’, they are entered in the Credit Column; and
• the difference is continuously maintained in the column for balance.

The Corporate Debtor also argued that the email communications relied upon by the Appellant does not construe acknowledgement of debt, but only contain a payment advice from the Respondent. Further, the cheque which was issued by the Respondent in respect of these amounts was not even cleared by the Bank.

Judgment

On the issue of 'running account', the Appellate Tribunal after referring to Bharat Skins (supra) and Wilsons Jacobs (supra) held that from the aforenoted Judgements it is clear that for an Account to be termed a running Account it must be demonstrated that there are Debits and Credits entries going on simultaneously or on a regular basis and the balances are struck with some periodicity. Non-payment of invoices and payment without specifying a particular invoice does not make the transaction a running Account. 

As for the email,  it is clear that the subject of the email was payment advice and the cheque was dated 13.03.2017 and the payments were towards the specific invoices the amount is for Rs.3 Lakhs/- which was was never realised and the amount was not paid. This cheque was meant for invoices dated 25.05.2015 to 25.09.2015, as can be seen from the aforenoted Statement of Account. 

In the instant case, the contention of the Learned Counsel for the Appellant that the email dated 29.05.2019 should be construed as acknowledgement is also not within 3 Years of the dates of invoices. It is also a settled proposition of law that a cheque which has not been encashed cannot amount to an acknowledgement of liability in terms of Section 18 of the Limitation Act, 1963. This Tribunal is of the considered view that the emails relied upon by the Appellant do not strictly construe an acknowledgement of liability as provided for under Section 18 of the Limitation Act, 1963. Though it is mentioned by the Appellant in the Notes of Submissions that these amounts have been acknowledged in the Balance Sheets, the same has neither been produced before the Adjudicating Authority or before this Tribunal. This Pleading is not even a part of the grounds of Appeal or pleaded before the Adjudicating Authority.