Section 7 IBC | Continuing Default Creates Fresh Cause of Action Under Section 22 Limitation Act; Winding-Up Pendency No Bar to Admission : NCLAT

The National Company Law Appellate Tribunal has dismissed an appeal challenging the admission of a corporate debtor into insolvency under Section 7 of the Insolvency and Bankruptcy Code, holding that the financial creditor's claim was not time-barred. The Tribunal affirmed that a continuing failure to hand over possession of a unit constitutes a continuing cause of action under Section 22 of the Limitation Act, and that acknowledgment of debt in a court-sanctioned revival scheme extends the limitation period under Section 18. The judgment also clarifies that pendency of winding-up proceedings under the Companies Act, 1956 does not bar independent Section 7 proceedings, following the Supreme Court's precedent in A. Navinchandra.

Background & Facts

The Dispute

The appellant, Sunil Kumar Dahiya, former director and promoter of Vigneshwara Developers Pvt. Ltd. (VDPL) and Vigneshwara Developwell Pvt. Ltd. (VDWPL), challenged the NCLT Principal Bench order dated 10.10.2019 admitting VDPL into corporate insolvency resolution process (CIRP) on a Section 7 application filed by financial creditor Lavkash Verma (Respondent No. 1). The appellant contended that a composite revival scheme pending before the Delhi High Court, which had reserved judgment on the second motion, rendered the Section 7 proceedings an impermissible parallel proceeding that undermined the IBC's revival objective.

Key Facts

• 11.08.2010: Developer-Anchor Unit Agreement executed between Lavkash Verma and VDPL for a commercial technology unit measuring 250 sq. ft. at a total consideration of ₹18 lakhs; payment made via Cheque Nos. 153886 and 153887 drawn on Bank of Baroda.
• 18.11.2013: Delhi High Court issued notice in a winding-up petition filed by M/s Intercontinental Consultant and Technocrats Pvt. Ltd. against VDPL.
• 22.07.2016: Delhi High Court appointed the Official Liquidator as Provisional Liquidator of VDPL in Company Petition No. 534/2015 (Naresh Ch. Gupta & Anr. vs. VDPL).
• During winding-up proceedings: Appellant and other ex-directors engaged in mediation before the Delhi High Court Mediation Centre with various unit buyers, culminating in a Composite Scheme for Compromise and Arrangement ("Revival Scheme") among VDPL, VDWPL, and their respective members and creditors.
• Revival Scheme support: 387 out of 466 allottee-creditors (81.52% by value) for VDPL; 843 out of 971 allottee-creditors (85.64% by value) for VDWPL.
• 12.10.2018: Delhi High Court passed First Motion order approving the Revival Scheme.
• 13.05.2019: Delhi High Court reserved orders on the Second Motion of the Revival Scheme.
• 24.04.2019: Respondent No. 1 filed Section 7 application before NCLT claiming ₹29.25 lakhs including 18% interest.
• 10.10.2019: NCLT admitted VDPL into CIRP (Impugned Order).
• 08.11.2019: Delhi High Court in W.P.(C) No. 11706/2019 kept the Impugned Order in abeyance, granted liberty to approach NCLAT within four weeks.
• 04.01.2023: Delhi High Court declared the Revival Scheme unworkable and set it aside in Company Petition No. 885/2015.
• 24.09.2025: Delhi High Court in Company Petition No. 534/2015 directed revival of IBC proceedings, observing it was "apposite and in public interest"; order attained finality unchallenged.

Procedural History

• 10.10.2019: NCLT Principal Bench passes Impugned Order admitting VDPL under Section 7 IBC (C.P. (IB) 1076(ND)/2019).
• 08.11.2019: Delhi High Court stays Impugned Order, grants liberty to approach NCLAT within four weeks (W.P.(C) No. 11706/2019).
• Pursuant to liberty: Appellant files Company Appeal (AT) (Insolvency) No. 1375 of 2019 before NCLAT.
• 17.11.2021: NCLAT adjourns appeal sine die pending Delhi High Court orders on revival scheme.
• 04.01.2023: Delhi High Court sets aside Revival Scheme as unworkable.
• 24.09.2025: Delhi High Court directs revival of IBC proceedings; order attains finality.
• 2025: Respondent No. 1 files I.A. No. 6700/2025 seeking recall of sine die adjournment order.
• 07.09.2026: NCLAT pronounces judgment dismissing the appeal.

The Parties' Positions

Appellant: The Section 7 application was time-barred under Article 137 of the Limitation Act (three years from default circa 2010); the Revival Scheme pending before Delhi High Court with reserved judgment on second motion should prevail; parallel proceedings defeat IBC's revival objective; reliance on B.K. Educational Services, Gaurav Hargovindbhai Dave, and Sagar Sharma.

Respondent No. 1: Default first occurred in 2015 (monthly assured return); cause of action admitted by appellant as 10.08.2015; continuing default in handing over possession extends limitation afresh under Section 22 Limitation Act; Section 446 Companies Act, 1956 barred proceedings during winding-up (22.07.2016 to 30.01.2019); Revival Scheme (March 2018) acknowledged debt at S. No. 1067, extending limitation under Section 18 Limitation Act; Delhi High Court's 24.09.2025 order directing IBC revival attained finality.

Relief Sought

Appellant sought setting aside of the Impugned Order dated 10.10.2019 on grounds of limitation and impermissible parallel proceedings. Respondent No. 1 sought dismissal of the appeal and confirmation of the Section 7 admission.

The Legal Issue

The central questions were: (1) Whether the Section 7 application filed in April 2019 was barred by limitation given the alleged default in 2010 or 2015; (2) Whether the pendency of a revival scheme before the Delhi High Court with reserved judgment on the second motion precluded parallel Section 7 proceedings; (3) Whether the acknowledgment of debt in the revival scheme and the statutory stay under Section 446 of the Companies Act, 1956 during winding-up proceedings extended the limitation period; and (4) Whether the Delhi High Court's subsequent order directing revival of IBC proceedings barred the appellant from challenging the initiation of insolvency proceedings.

Arguments Presented

For the Appellant

The appellant contended that the cause of action arose in or around 2010, making the Section 7 petition filed in 2019 time-barred under Article 137 of the Limitation Act (three-year period). Counsel relied on B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates (2018 SCC OnLine SC 1921), Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. (CA No. 4952/2019, decided 18.09.2019), and Sagar Sharma & Anr. v. Phoenix ARC Private Limited (CA No. 7673/2019, decided 30.09.2019) to argue that limitation for Section 7 claims is governed by Article 137. The appellant emphasized that the Delhi High Court had reserved judgment on the Second Motion of the Revival Scheme on 13.05.2019, and that initiating CIRP while a court-approved revival scheme with 81.52% creditor support was pending defeated the IBC's core objective of revival, citing Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407 and Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17. The appellant also argued that Jaipur Metals and Electricals was distinguishable as no revival scheme was pending there.

For the Respondent

Respondent No. 1 submitted that the Developer-Anchor Unit Agreement was executed on 11.08.2010, with the first default occurring in 2015 when monthly assured returns were not paid. The appellant's own List of Dates admitted the cause of action arose on 10.08.2015. The default was continuing in nature as possession of the unit was never handed over, attracting Section 22 of the Limitation Act where limitation runs afresh with each successive default. The winding-up petition admitted on 22.07.2016 triggered Section 446 of the Companies Act, 1956, barring coercive proceedings and causing limitation to cease running until 30.01.2019 when Section 465 of the Companies Act, 2013 repealed Section 446. The Revival Scheme filed in March 2018 expressly acknowledged Respondent No. 1's claim at S. No. 1067, constituting acknowledgment under Section 18 of the Limitation Act. Even if acknowledgment occurred after the three-year period, Section 25(3) of the Contract Act provides a fresh cause of action, per Kotak Mahindra Bank Ltd. v. Kew Precision Parts Pvt. Ltd. (2022) 9 SCC 364. Reliance was placed on Shailendra Agarwal v. Asit Upadhyaya (2025 SCC OnLine NCLAT 785) and Navin M. Raheja v. Vipul Jain (2026 SCC OnLine NCLAT) for the continuing breach principle. The Delhi High Court's order dated 24.09.2025 directing revival of IBC proceedings had attained finality unchallenged, and the Supreme Court in A. Navinchandra held that pendency of winding-up proceedings is no bar to Section 7 or Section 9 IBC proceedings.

The Court's Analysis

The Tribunal examined the factual matrix and noted that the Revival Scheme, though approved on First Motion on 12.10.2018, was subsequently declared unworkable and set aside by the Delhi High Court on 04.01.2023. The High Court found that despite three years, the ex-directors/propounders had not worked out pre-requisites for implementation: statutory authorities were unpaid, landowners' claims unsettled, and land could not be handed over as the propounders were in judicial custody. On 24.09.2025, the High Court explicitly directed that "proceedings under the IBC be revived" in public interest given the large number of investors, and granted liberty to take appropriate steps before the NCLT. This order attained finality unchallenged.

On the limitation issue, the Tribunal accepted Respondent No. 1's contention that this was a case of continuing breach. Citing Shailendra Agarwal, the Tribunal held that Section 22 of the Limitation Act provides that in a continuing breach, limitation runs afresh with each successive instance of default. The corporate debtor's failure to hand over possession of the flats and its continuing default in refunding amounts to allottees constituted a continuous cause of action. The acknowledgment of debt in the Revival Scheme (March 2018) further extended limitation under Section 18 of the Limitation Act. The Tribunal noted that even an acknowledgment after the expiry of the limitation period gives rise to a fresh period of limitation under Section 25(3) of the Contract Act, as affirmed in Kotak Mahindra Bank.

The Tribunal also underscored that Section 446 of the Companies Act, 1956 operated as a statutory bar on initiation of proceedings during the pendency of the winding-up petition (22.07.2016 to 30.01.2019), during which period limitation ceased to run. The Section 7 petition was filed on 24.04.2019, well within the extended limitation period.

Critically, the Tribunal endorsed the Delhi High Court's reliance on A. Navinchandra, holding that the pendency of admitted winding-up proceedings is not a bar to proceedings under Section 7 or Section 9 of the IBC. Section 7 is an independent proceeding to be tried on its own merits, and the discretionary proviso to Section 434(1)(c) of the 2013 Act cannot prevail over the NCLT's jurisdiction under the IBC once Section 7 parameters are met. The Tribunal found that the appellant was attempting to mislead the Tribunal and had no locus to file the appeal, as the very foundation of the appeal - the Revival Scheme - had failed and the High Court had directed IBC revival.

"In these circumstances, and in view of the large number of investors involved, it would be apposite and in public interest that proceedings under the IBC be revived."

The Verdict

The NCLAT dismissed Company Appeal (AT) (Insolvency) No. 1375 of 2019. All related interlocutory applications were disposed of. No order as to costs was made. The Tribunal upheld the NCLT's order dated 10.10.2019 admitting Vigneshwara Developers Pvt. Ltd. into CIRP under Section 7 of the IBC, holding that the financial creditor's claim of ₹29.25 lakhs (including 18% interest) for a 250 sq. ft. unit was not time-barred. The continuing default in handing over possession since 2015, the statutory stay under Section 446 Companies Act, 1956 (22.07.2016 to 30.01.2019), and the acknowledgment of debt in the Revival Scheme (March 2018) collectively ensured the Section 7 petition filed on 24.04.2019 was within limitation. The Delhi High Court's order dated 24.09.2025 directing revival of IBC proceedings had attained finality and barred any challenge to the initiation of insolvency proceedings.

What This Means For Similar Cases

Continuing Default Creates Fresh Limitation Period

• Section 22 of the Limitation Act applies squarely to real estate allotment disputes where the developer fails to hand over possession: each day of continued non-delivery constitutes a fresh cause of action.
• Practitioners filing Section 7 applications for homebuyers or unit allottees should plead continuing default explicitly, referencing the date of promised delivery and the ongoing failure to hand over possession.
• The Shailendra Agarwal and Navin M. Raheja precedents establish that RERA refund orders, project registration cancellations, and balance sheet acknowledgments reaffirm the subsistence of debt and ongoing breach.

Acknowledgment in Court-Sanctioned Schemes Extends Limitation

• Section 18 of the Limitation Act is triggered when a corporate debtor's promoters include a creditor's claim in a compromise scheme filed before a court, even if the scheme is later set aside as unworkable.
• The March 2018 Revival Scheme's inclusion of Respondent No. 1's claim at S. No. 1067 constituted a binding acknowledgment, extending limitation irrespective of the scheme's eventual failure.
• Even post-limitation acknowledgments create a fresh cause of action under Section 25(3) of the Contract Act (Kotak Mahindra Bank principle).

Winding-Up Pendency Does Not Bar Section 7 Proceedings

• Section 446 of the Companies Act, 1956 (now repealed) operated as a statutory stay on proceedings during winding-up, but this stay also tolled the limitation period.
• The Supreme Court's A. Navinchandra principle, endorsed by the Delhi High Court and now the NCLAT, establishes that Section 7 IBC proceedings are independent and not barred by pending winding-up proceedings under the old Act.
• Once Section 446 was repealed on 30.01.2019, the limitation clock restarted, and the Section 7 petition filed on 24.04.2019 was timely.

Finality of High Court Directions on IBC Revival

• When a High Court directing revival of IBC proceedings under its supervisory jurisdiction passes an order that attains finality unchallenged, it operates as a bar to subsequent challenges to the initiation of CIRP.
• Promoters/ex-directors who consent to such orders before the High Court cannot later challenge the NCLT's admission order on the same grounds.
• The appellant's concession during final arguments that the appeal rested solely on limitation, combined with the High Court's final order, was fatal to the appeal.