Insolvency and Bankruptcy Code, 2016 – ss.7 and 238-A – Limitation Act, 1963 – s.18 and Art.137 – On or about 22.12.2007, the Lender Banks sanctioned and extended various loans, advances and facilities to the corporate debtor-respondent no.1 – The respondent no.1 defaulted in payment of the amount due against such loans, advances and facilities, its account was classified as Non-Performing Asset on 08.07.2011 – Recovery proceedings against the corporate debtor by the consortium of lenders u/s.19 of the Recovery of Debts due to the Banks and Financial Institution Act, 1993 before the DRT was started – On or about 21.03.2018, the respondent no.2, while stating its capacity as the financial creditor, for being the assignee of the loans and advances disbursed by the creditor Bank to the corporate debtor, filed an application u/s.7 of the Code before the Adjudicating Authority and sought initiation of Corporate Insolvency Resolution Process (CIRP) in respect of respondent no.1 – The Adjudicating Authority (NCLT) admitted the said application and initiated CIRP u/s.7 of the Code – Before the Appellate Tribunal (NCLAT), the appellant-the director of the respondent no.1 company contended that the claim was barred by time – However, the appeal was dismissed by the Appellate Tribunal – Aggrieved, the appellant filed appeal before the Supreme Court – The Supreme Court remanded the matter to the Appellate Tribunal for deciding the issue of limitation with respect to the application u/s.7 of the Code – The Appellate Tribunal held that the right to apply u/s. 7 of the Code accrued only on 01.12.2016 i.e. when the Code came into force and hence, the application filed by the Financial creditor in the year 2018 is not barred by limitation; and that the period of limitation is 12 years for recovery of possession of the mortgaged property, therefore, the claim is not barred by limitation – On appeal, held: The period of limitation for an application seeking initiation of CIRP u/s.7 of the Code is governed by Art.137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues – In the instant case, the application made by the respondent no.2 u/s.7 of the Code in the month of March 2018, seeking initiation of CIRP in respect of the corporate debtor with specific assertion to the date of default as 08.07.2011 is clearly barred by limitation for having filed much later than the period of three years from the date of default as stated in the application – The NCLT had not even examined the question of limitation – Whereas, the NCLAT had decided the question of limitation on entirely irrelevant considerations – There is nothing in the Code to even remotely indicate if the period of limitation for the purpose of an application u/s.7 is to commence from the date of commencement of the Code itself – The NCLAT proceeded only on assumption, without any foundation and without any basis – Further, the reasoning of the NCLAT that property being mortgaged, the period of limitation is of twelve years is again erroneous and do not stand in conformity with the dictum of the Supreme Court – As in the B.K. Educational Service, it was held in no uncertain terms that the limitation provided in Art.137 governs the application u/s.
7 of the Code – Therefore, the impugned orders deserve to be set aside and the application filed by the respondent no.2 is rejected as being barred by limitation.
Allowing the appeal, the Court
HELD : 1. When Section 238-A of the Insolvency and Bankruptcy Code, 2016 is read with the consistent decisions of this Court in Innoventive Industries, B.K. Educational Services, Swiss Ribbons, K. Sashidhar, Jignesh Shah, Vashdeo R. Bhojwani, Gaurav Hargovindbhai Dave and Sagar Sharma respectively, the following basics undoubtedly come to the fore: (a) that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation; (b) that CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor;
(c) that intention of the Code is not to give a new lease of life to debts which are time-barred; (d) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues;
(e) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs; (f) that default referred to in the Code is that of actual non-payment by the corporate debtor when a debt has become due and payable; and (g) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and (h) an application under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application. [Para 30][420-B-E]
Whether Section 18 Limitation Act could be applied to the present case.
2. On the admitted fact situation of the present case, where only the date of default as ‘08.07.2011’ has been stated for the purpose of maintaining the application under Section 7 of the Code, and not even a foundation is laid in the application for suggesting any acknowledgement or any other date of default, in view of this Court, the submissions sought to be developed on behalf of the respondent No. 2 at the later stage cannot be permitted. It remains trite that the question of limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. Indisputably, in the present case, the respondent No. 2 never came out with any pleading other than stating the date of default as ‘08.07.2011’ in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement. [Para 33.1][422-D-G]
The reasonings of NCLAT
3. Only two reasons essentially appear to have weighed with NCLAT to hold that the application in question is within limitation: One, that the right to apply under Section 7 of the Code accrued to the respondent financial creditor on 01.12.2016 when the Code came into force; and second, that the period of limitation for recovery of possession of the mortgaged property is twelve years. The reasonings so adopted by NCLAT do not stand in conformity with the law declared by this Court and could only be disapproved. [Para 35][423-E-F]
4. The question as to whether date of enforcement of the Code (i.e., 01.12.2016) provides the starting point of limitation for an application under Section 7 of the Code and hence, the application in question, made in the year 2018, is within limitation, is not even worth devoting much time. A bare look at the impugned order leaves nothing to guess that such observations by the Appellate Tribunal had only been assumptive in nature without any foundation and without any basis. There is nothing in the Code to even remotely indicate if the period of limitation for the purpose of an application under Section 7 is to commence from the date of commencement of the Code itself. Similarly, nothing provided in the Limitation Act could be taken as the basis to support the proposition so stated by the Appellate Tribunal. In fact, such observations had been in the teeth of law declared by this Court in the case of B. K. Educational Services. [Para 36][423-G-H; 424-A-B]
5. The other observations as made and the reasoning as adopted by the Appellate Tribunal in the impugned order, that the property having been mortgaged, the claim is not barred by limitation because of the period of limitation of twelve years with regard to mortgaged property, had again been erroneous and do not stand in conformity with the dictum of this Court. [Para 37][424-E-F]
6. The Appellate Tribunal was conscious of the decision of this Court in B. K. Educational Services wherein it had been held in no uncertain terms that the limitation provided in Article 137 governs the application under Section 7 of the Code. When Article 137, being the residuary provision on the period of limitation for “other applications” is held applicable by this Court for the purpose of reckoning the period of limitation for an application under Section 7 of the Code, it remains rather inexplicable as to how the Appellate Tribunal could have applied any other Article of Limitation Act (and that too relating to suits) for the purpose of such an application? [Para 37.1][424-F-H]
7. There remains nothing to doubt that the Appellate Tribunal had been in error in applying the period of limitation provided for mortgage liability for the purpose of limitation applicable to the application in question. The observations and findings in the impugned order are also required to be disapproved. [Para 37.4][425-E-F]
8. The discussion foregoing leads to the inescapable conclusion that the application made by the respondent No. 2 under Section 7 of the Code in the month of March 2018, seeking initiation of CIRP in respect of the corporate debtor with specific assertion of the date of default as 08.07.2011, is clearly barred by limitation for having been filed much later than the period of three years from the date of default as stated in the application. The NCLT having not examined the question of limitation; the NCLAT having decided the question of limitation on entirely irrelevant considerations; and the attempt on the part of the respondents to save the limitation with reference to the principles of acknowledgment having been found unsustainable, the impugned orders deserve to be set aside and the application filed by the respondent No. 2 deserves to be rejected as being barred by limitation. [Para 38][425-F-H; 426-A]
Innoventive Industries Ltd. v. ICICI Bank: (2018) 1 SCC 407 : [2017] 8 SCR 33; B.K. Educational Services Pvt. Ltd. v. Paras Gupta & Associates: AIR 2018 SC 5601 : [2018] 12 SCR 794; Swiss Ribbons Private Limited and Anr. v. Union of India and Ors. (2019) 4 SCC 17 : [2019] 3 SCR 535; K. Sashidhar v. Indian Overseas Bank: (2019) 12 SCC 150 : [2019] 3 SCR 845; Jignesh Shah and Anr. v. Union of India and Anr. (2019) 10 SCC 750 : [2019] 12 SCR 678; Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Ltd. & Anr. (2019) 9 SCC 158 : [2019] 12 SCR 75; Gaurav
Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. & Anr. (2019) 10 SCC 572 : [2019] 13 SCR 224; Sagar Sharma & Anr. v. Phoenix Arc Pvt. Ltd. & Anr (2019) 10 SCC 353: [2019] 14 SCR 974 – relied on.
M/s. Mahabir Cold Storage v. CIT, Patna 1991 Supp
(1) SCC 402: [1990] 3 Suppl. SCR 469 N.Balakrishnan v. Krishnamurthy (1998) 7 SCC 123 : [1998] 1 Suppl. SCR 403; Anuj Jain v. Axis Bank Limited and Ors. (2020) 8 SCC 401 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.