Valid DRT Suit No Shield For Delay: NCLAT Clarifies Limits of Section 14 Limitation Act Exclusion

The Hon’ble NCLAT, Principal Bench, in its judgment dated October 07, 2025, addressed the critical issue of whether a Financial Creditor can bypass the three-year limitation period under the Insolvency and Bankruptcy Code, 2016 (IBC) by seeking an exclusion of time spent pursuing a parallel recovery suit under the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act).

The Appellant, United Bank of India (now Punjab National Bank), disbursed approximately INR 46.16 Crores to the Corporate Debtor in 2013. The account slipped into default on September 19, 2015. The Appellant initiated recovery proceedings before the DRT (OA No. 609 of 2016) in 2016, which remained pending. Subsequently, the Appellant filed a Section 7 application under the IBC on December 10, 2019.

The Adjudicating Authority (NCLT), Kolkata Bench, rejected the application on two grounds: (i) failure to prove disbursement, and (ii) the application was barred by limitation. The Appellant challenged this order before the NCLAT.

The Appellant argued that the NCLT erred in questioning the disbursement, as the debt was supported by an NeSL certificate and bank statements which were undisputed. Regarding limitation, the Appellant contended that they were entitled to the benefit of Section 14 of the Limitation Act due to the pending DRT proceedings. They relied heavily on the Supreme Court’s judgment in Sesh Nath Singh & Anr. vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. [(2021) 7 SCC 313] to argue for the exclusion of time.

While the NCLAT agreed with the Appellant on the issue of disbursement—noting that the undisputed NeSL certificate and bank statements were sufficient proof—it dismissed the appeal on the ground of limitation. The NCLAT observed the following:

1. Limitation Period Expired: The date of default was September 19, 2015, and the Section 7 application was filed on December 10, 2019, which is beyond the statutory three-year period. The NCLAT noted that minor deposits made in November and December 2016 were insufficient to bring the application within the limitation period.

2. Inapplicability of Sesh Nath Singh: The NCLAT distinguished the facts from Sesh Nath Singh. In that case, the Supreme Court allowed the exclusion of time under Section 14 because the prior SARFAESI proceedings were stayed by the High Court specifically on the ground that they were prima facie without jurisdiction.

3. No Defect of Jurisdiction in DRT Proceedings: The NCLAT held that Section 14 of the Limitation Act requires the prior proceeding to have failed due to a “defect of jurisdiction or cause of a like nature”. In the present case, the Appellant had filed a recovery suit (OA) before the DRT, which was a valid proceeding before a competent forum. It was not the Appellant’s case that the DRT lacked jurisdiction.

The NCLAT ruled that a validly instituted recovery suit before the DRT does not trigger the exclusion mechanism of Section 14 of the Limitation Act for the purpose of filing an IBC application. Since the DRT proceedings did not suffer from any jurisdictional defect, the time spent there could not be excluded, rendering the Section 7 application time-barred. The appeal was consequently dismissed.