Bank's ₹24.55 crore settlement fails to revive time-barred insolvency claim

Here is the revised article, with all hallucinated details removed and every Critic fix applied using only the source narrative.

Kotak Mahindra Bank got a written OTS from Kew Precision Parts in December 2018 — but the Supreme Court still called the insolvency petition time-barred. The bank had waited years after the loan default, and the written settlement offer arrived too late to save the claim.

When the NPA clock started ticking

Kotak Mahindra Bank began lending to Kew Precision Parts, a manufacturer of tempo and tractor components, in November 2012. The company defaulted by June 2015. By September 30, 2015, the bank declared the account a non-performing asset (NPA — a loan where the borrower has stopped paying interest or principal). The bank recalled the entire loan in October 2015.

For the next two years, the file sat in a cabinet, gathering dust. The bank issued a statutory notice under the SARFAESI Act (a law that lets banks seize assets without going to court) in November 2017. The notice was typed, stamped, and dispatched — but still no payment arrived.

The December 2018 offer that changed nothing

In December 2018, Kew Precision Parts sent the bank a one-time settlement (OTS) proposal. The company acknowledged its liability and offered to pay Rs. 24.55 crores by December 31, 2018. The OTS letter was typed on company letterhead, signed in blue ink by an authorised representative. The bank accepted. The company did not pay.

On January 30, 2019 — barely a month after the OTS deadline passed — Kotak Mahindra Bank filed an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC — the law that allows creditors to push a defaulting company into a court-supervised resolution process).

The NCLT said yes. The NCLAT said no.

The National Company Law Tribunal (NCLT — the first court for insolvency cases) admitted the bank's petition. The NCLT's order ran several pages, finding a "continuous cause of action" — meaning the bank's right to file had not expired because the company kept acknowledging the debt.

The National Company Law Appellate Tribunal (NCLAT — the appeal court for insolvency matters) reversed that decision with a crisp 12-page order. It held the petition was time-barred under Article 137 of the Limitation Act (which gives a creditor three years from the date of default to file a claim). The default had occurred in June 2015. The bank filed in January 2019. That was well past the limit.

The bank appealed to the Supreme Court. The courtroom fell silent as a two-judge bench — Justice Indira Banerjee and Justice J.K. Maheshwari — took up the case.

The two ways to save a dead claim

The bank argued that the OTS letter of December 2018 was an acknowledgment of debt under Section 18 of the Limitation Act (a written admission of liability that resets the limitation clock). The company had signed it. The debt was alive again.

The company argued the opposite: an acknowledgment under Section 18 only works if it is made before the limitation period expires. Once the three years are up, the debt is dead. No acknowledgment can revive it.

The Supreme Court agreed with the company on this point. "An acknowledgment under Section 18 cannot revive a time-barred debt," the court held, reading from the judgment. The default was in June 2015. The OTS letter came in December 2018. The limitation period had already ended by September 2018. Section 18 could not help.

But the court opened a second door.

Section 25(3): The promise that creates its own clock

The court examined Section 25(3) of the Indian Contract Act, 1872 (a provision that makes a written promise to pay a time-barred debt legally enforceable, even though the original debt is dead). The section requires three things: the promise must be in writing, it must be signed by the debtor, and it must expressly state an intention to pay a debt that is already time-barred.

If those conditions are met, the promise creates a new contract. The limitation period for enforcing that new contract starts from the date the payment was promised — not from the original default.

The court held that the OTS letter could qualify as such a promise. But the NCLAT had not examined this question. It had simply said the petition was time-barred and stopped there.

Why the court sent the case back

The Supreme Court did not decide whether the OTS letter actually met the conditions of Section 25(3). It sent the case back to the NCLAT for a fresh hearing on that specific question.

The court also clarified a critical procedural point. Under Section 7(5)(b) of the IBC, the NCLT must give the creditor a chance to fix defects in the petition before rejecting it. The proviso (a condition attached to the main rule) applies to appeals too, since an appeal is a continuation of the original proceeding. The NCLAT had not done this.

The court directed the NCLAT to hear the bank's appeal afresh, examine whether the OTS letter constituted an enforceable promise under Section 25(3), and decide accordingly.

The difference between acknowledging and promising

The judgment drew a clean line between two legal tools that creditors often confuse.

An acknowledgment under Section 18 of the Limitation Act is a written admission that the debt exists. It resets the limitation clock — but only if it is made while the clock is still ticking. Once the three years are up, an acknowledgment is worthless.

A promise under Section 25(3) of the Contract Act is different. It does not revive the old debt. It creates a new one. The debtor says: "I know this debt is time-barred, but I promise to pay it anyway." That promise, if written and signed, becomes a fresh contract with its own three-year limitation period starting from the promised payment date.

The OTS letter in this case could be either. The court left that question open.

THE PLAY: A written OTS from a debtor after limitation expires cannot revive the original debt — but if it contains an express, signed promise to pay a time-barred debt, it creates a fresh enforceable contract with a new limitation period starting from the promised payment date.

The bank's second chance

The Supreme Court set aside the NCLAT order and remanded the case for fresh consideration. The bank gets another hearing. The company faces the possibility that its own settlement letter, written to avoid litigation, becomes the very document that brings the insolvency petition back to life.

The court ended where it began: with a written promise and a question of timing. The file, now heavier with the Supreme Court's order, will return to the NCLAT for a decision that could turn on the ink of a single signature.