Phoenix Asset Management Ltd. (Phoenix) is an asset reconstruction company registered under the applicable laws of India. It acquired, by way of an assignment agreement, the outstanding receivables owed by Meridian Hospi

Phoenix Asset Management Ltd. (Phoenix) is an asset reconstruction company registered under the applicable laws of India. It acquired, by way of an assignment agreement, the outstanding receivables owed by Meridian Hospitality Ltd. (Meridian), a company engaged in the hotel and hospitality business from a consortium of four public sector banks. The assignment took place in January 2009. Meridian had originally borrowed ₹ 180 crores from the consortium in March 2003 under a term loan agreement. The funds were used for the renovation and expansion of its flagship hotel property. Repayments were irregular from the outset, and by November 2008, the consortium banks collectively classified Meridian's loan account as a Non-Performing Asset (NPA). Shortly thereafter, the consortium assigned all outstanding receivables to Phoenix. The shareholding of Meridian was held equally by two promoter entities, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd. each holding a 50% stake. Mr. Rajiv Bhatia served as the Chairman and Managing Director of Meridian as well as of both promoter companies. In March 2010, well within three years of the NPA declaration, Meridian wrote to Phoenix proposing a one-time settlement of the outstanding dues. In this letter, Meridian acknowledged that the aggregate outstanding liability, inclusive of principal and interest, stood at ₹ 195 crore as on 31 December 2009. It offered an upfront payment of ₹ 15 crores and committed to clearing the balance in instalments over 18 months. A formal Settlement Agreement was executed between the parties on 15 April 2010. Under this agreement, Meridian acknowledged its total liability of ₹ 195 crores, agreed to pay interest at 20% per annum compounded monthly, made an upfront payment of ₹ 15 crores, and committed to clearing the balance by 30 September 2011. Between 2010 and 2013, Meridian made further part payments totalling approximately ₹ 48 crores through various demand drafts and cheques. However, Meridian repeatedly sought extensions of time to pay the balance. In June 2012, it acknowledged an outstanding liability of ₹ 241 crore (principal and interest combined) and sought extension until March 2013. In September 2013, Phoenix revoked the Settlement Agreement after Meridian defaulted once again. From the financial year 2009-10 onwards, Meridian's audited annual financial statements consistently reflected the amounts owed to Phoenix as a liability. However, beginning from the financial statements for the year 2014-15, the notes to the accounts contained a qualification. While the principal amount owed to Phoenix was shown as a liability in the balance sheet, the notes stated that the Settlement Agreement had been revoked by Phoenix and that Meridian had been legally advised the applicable interest rate could not exceed 13% per annum, not the 20% claimed by Phoenix. The notes further stated that the question of the correct rate of interest was pending adjudication before the Debt Recovery Tribunal (DRT). Phoenix issued a notice under the SARFAESI Act in October 2013 and took symbolic possession of the hotel property in February 2014. Phoenix also invoked the personal guarantee of Mr. Rajiv Bhatia in May 2015. On 10 April 2018, Phoenix filed an application under Section 7(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Meridian. In its application, Phoenix claimed a principal amount of ₹ 42 crore and interest of ₹ 178 crores calculated at 20% per annum, bringing the total claim to approximately ₹ 220 crores. Meridian filed a miscellaneous application before the NCLT seeking dismissal of the petition on the ground that it was barred by limitation. Meridian argued that the NPA was declared in November 2008, that the limitation period of three years expired in November 2011, and that the IBC application filed in April 2018 was hopelessly late by nearly seven years. Meridian further contended that the financial statements contained a clear dispute as to the rate of interest and could not, therefore, be read as an unequivocal acknowledgment of liability sufficient to extend limitation. Phoenix countered that its application was well within time. It relied on the audited balance sheet of Meridian for the financial year 2014-15, signed by Meridian's directors on 12 September 2015, which reflected Phoenix as a creditor and acknowledged Meridian's outstanding financial liability. Phoenix argued that this acknowledgment, made before the original limitation period had expired, created a fresh three-year limitation period running from 12 September 2015 to 12 September 2018. Since the application was filed on 10 April 2018, it was within this extended period. Phoenix also argued that regardless of the caveats in the notes to accounts concerning the interest rate, the balance sheet clearly showed the jural relationship of debtor and creditor between Meridian and Phoenix, and the existence of financial liability. A dispute about the rate of interest was a dispute about quantum, not about the existence of the debt itself. Moreover, even if the parts payments made by Meridian were to be considered, they would first be appropriated towards interest and then towards principal, meaning a substantial principal remained outstanding. The promoter companies, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd., separately filed an appeal challenging the admission of the CIRP, arguing there was no subsisting financial debt and that the application was time-barred. The NCLT rejected Meridian's limitation objection and admitted the application, appointing an Interim Resolution Professional. The matter was then appealed to the NCLAT, which set aside the NCLT's order, holding that the financial statements with caveated notes could not amount to an unequivocal acknowledgment under Section 18 of the Limitation Act and that the application was therefore barred by limitation. Phoenix has now filed an appeal before the Supreme Court of India challenging the NCLAT's order. Meridian argues that the IBC application is barred by limitation because the NPA was declared in November 2008 and the application was filed only in April 2018, nearly ten years later. Is this argument correct? What is the prescribed period of limitation for a Section 7 IBC application, and from which date does it begin to run?