Insolvency and Bankruptcy Code, 2016 – ss. 6, 8, 9, 62, 238A,
252 – Sick Industrial Companies (Special Provisions) Act, 1985 – ss. 16, 17, 22, 25 – Limitation Act, 1963 – s.5,14 and Art. 137 – Insolvency and Bankruptcy (Application to Adjudicating Authority), Rules 2016 – r. 5, Form no. 3 – Appellant and respondent entered into a Gas Sales Agreement (GSA) whereunder the appellant was having the obligation to supply natural gas – Thereafter, the respondent made default in the payment of the invoices – Respondent approached BIFR and it was declared a ‘sick unit’ – Appellant sought the permission of the BIFR for initiating proceedings against the respondent for recovery of outstanding dues – Shortly thereafter, the SICA was repealed w.e.f 01.12.2016 by coming into force of IBC – Upon BIFR becoming functus officio, appellant issued demand notice u/s.8 of IBC – Respondent declined the liability to pay the amount demanded – Appellant filed an application u/s. 9 of the IBC before NCLT seeking initiation of CIRP in its capacity as operational creditor of the respondent – The said application was dismissed by the NCLT on the grounds of being barred by limitation and existence of a ‘pre-existing dispute’ between the appellant and the respondent – The appeal against the decision of NCLT was also dismissed by NCLAT – Issues before the Supreme Court: Whether in computation of the period of limitation in regard to an application filed u/s. 9, IBC the period during which the operational creditor’s right to proceed against or sue the corporate debtor that remain suspended by virtue of s.22 (1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided u/s.22
(5) of SICA and Whether the respondent has raised a dispute which is describable as ‘pre-existing dispute’ between itself and the appellant warranting dismissal of application u/s. 9 of the IBC at the threshold – Held: When the limitation period for initiating CIRP u/s. 9, IBC is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor, is three years as provided by s.137 of the Limitation Act, 1963 and the same would commence from the date of default and is extendable only by application of s.5 of the Limitation Act, 1963 it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay – In the absence of provisions for exclusion of period in respect of an application u/s. 9, IBC, despite the combined reading of s.238A, IBC and the provisions under the Limitation Act what is legally available to such a party is to assign the same as a sufficient cause for condoning the delay u/s. 5 of the Limitation Act – As far as ‘pre-existing dispute is concerned’, considering the nature of the dispute of the respondent as referred hereinbefore in respect of the claim made by the appellant, there is no reason to disagree with the concurrent findings of the Tribunals that there existed a ‘preexisting dispute’ between the parties before the receipt of demand notice u/s. 8, IBC – The dismissal of the application u/s. 9, IBC on the ground of ‘pre-existing dispute’ cannot be held to be patently illegal or perverse.
Dismissing the appeal, the Court
HELD: 1. With respect to Section 7, IBC will proprio vigore apply to Section 9, IBC. In short, as relates an application under Section 9, IBC the date of coming into force of IBC, viz, 01.12.2016 would not form the trigger point of limitation and the period of limitation for an application for initiating of CIRP under Section 9, IBC would be three years from the date when the right to apply accrues as provided by Article 137 of the Limitation Act and further that the right to apply under the IBC would accrue on the date when default occurs and it is extendable only by application of Section 5 of the Limitation Act. [Para 23][209-E-F]
2. When the limitation period for initiating CIRP under Section 9, IBC is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor, is three years as provided by Section 137 of the Limitation Act, 1963 and the same would commence from the date of default and is extendable only by application of Section
5 of the Limitation Act, 1963 it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation. As relates Section 5 of the Limitation Act showing ‘sufficient cause’ is the only criterion for condoning delay. ‘Sufficient Cause’ is the cause for which a party could not be blamed. There is a legal bar for initiation of proceedings against an industrial company by virtue of Section 22 (1), SICA and obviously, when a party was thus legally disabled from resorting to legal proceeding for recovering the outstanding dues without the permission of BIFR and even on application permission therefor was not given the period of suspension of excludable in legal proceedings is computing the period of limitation for the enforcement of such right in terms of Section 22(5), SICA. In the absence of provisions for exclusion of such period in respect of an application under Section 9, IBC, despite the combined reading of Section 238A, IBC and the provisions under the Limitation Act what is legally available to such a party is to assign the same as a sufficient cause for condoning the delay under Section 5 of the Limitation Act. In such eventuality, in accordance with the factual position obtained in any particular case viz., the period of delay and the period covered by suspension of right under Section
22 (1), SICA etc., the question of condonation of delay has to be considered lest it will result in injustice as the party was statutorily prevented from initiating action against the industrial company concerned. [Paras 24, 25][209-H; 210-A-F]
3. The existence of a ‘pre-existing dispute’ should entail dismissal of an application filed under Section 9 IBC at the threshold. Therefore, the question is whether the respondent had raised a dispute describable as a ‘pre- existing dispute’ so as to entail dismissal of application of the appellant under Section 9, IBC. In the contextual situation it is only apposite to be remindful of the observation in Mobilox Innovations (P) Ltd. that in doing the act of separating the grain from chaff the Court need not to be satisfied that the defence is likely to succeed. It is enough that a dispute exists between the parties and in other words, what is to be seen is whether there was a plausible contention requiring investigation for the purpose of adjudication. Taking note of the nature of the dispute of the respondent as referred hereinbefore in respect of the claim made by the appellant, there is no reason to disagree with the concurrent findings of the Tribunals that there existed a ‘pre-existing dispute’ between the parties before the receipt of demand notice under Section 8, IBC. In other words, the dismissal of the application under Section 9, IBC on the ground of ‘pre-existing dispute’ cannot be held to be patently illegal or perverse. [Paras 32, 38][213-A-B; 217-E-G]
Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC 353; B.K. Educational Services Private Limited v. Parag Gupta and Associates (2019) 11 SCC
633 : [2018] 12 SCR 794; Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited and Anr. (2020) 15 SCC 1; Macquarie Bank Limited v. Shilpi Cable Technologies Limited (2018) 2 SCC 674 : [2017]
13 SCR 751 – relied on.
Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC
322 : [2006] 8 Suppl. SCR 178; Kailash Nath Agarwal and Ors. v. Pradeshiya Industrial & Investment
Corporation of U.P. Ltd. and Anr. (2003) 4 SCC 305 : [2003] 1 SCR 1159; KSL & Industries Ltd. v. M/s. Arihant Threads Ltd. (2015) 1 SCC 166 : [2014] 14 SCR 1097; Innoventive Industries Ltd. v. ICICI Bank and Anr. (2018) 1 SCC 407 : [2017] 8 SCR 33 –
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.
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