Basics of Limitation under IBC
The Hon'ble Supreme Court opined that when Section 238A of the Code is read with the various consistent decisions of the Court, the following basic undoubtedly emerges:
- 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;
- that CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor;
- that intention of the Code is not to give a new lease of life to debts which are time-barred;
- 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;
- 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;
- 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
- 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
- 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.
Babulal Vardharji Gurjar vs. Veer Gurjar Aluminium Industries Pvt. Ltd. and Ors. (14.08.2020 - SC) : MANU/SC/0589/2020
Whether application u/s 7 of Insolvency and Bankruptcy Code, 2016 governed by Article 137 of Limitation Act?
Supreme Court has held that applications under Section 7 of Insolvency and Bankruptcy Code (IBC) are governed by Article 137 of the Limitation Act for computation of limitation period.
Gaurav Hargovindbhai Dave vs. Asset Reconstruction Company (India) Ltd. and Ors. (18.09.2019 - SC) : MANU/SC/1301/2019
Does the Limitation Act apply to proceedings initiated under the Insolvency and Bankruptcy Code, 2016?
Proceedings under the IBC cannot be initiated in cases of time-barred claims. Thus, the provisions of the Limitation Act, 1963 are applicable to proceedings under Sections 7 and 9 of the IBC. This has been held by a division bench of the Supreme Court which has even accorded retrospective effect to this limitation from the commencement of the IBC and not from the date of insertion of Section 238A to the IBC which provides for a limitation period. The Supreme Court has expounded the following points -
An application filed after the IBC came into force in 2016 cannot revive a debt which is no longer due as it is time- barred.
The amendment of s. 238A would not serve its object unless it is construed as being retrospective. Otherwise, applications seeking to resurrect time-barred claims would have to be allowed, not being governed by the law of limitation.
It is clear from a reference to the Insolvency Law Committee Report of March, 2018, that the legislature did not contemplate enabling a creditor who has allowed the period of limitation to set in to allow such delayed claims through the mechanism of IBC.
Section 433 of the Companies Act, 2013 which makes the provisions of Limitation Act applicable to proceedings or appeals before the NCLT or NCLAT, was applicable from the very inception of IBC.
The expression "debt due" in the definition sections of IBC has already been interpreted by the Hon'ble Supreme Court to mean debts that are "due and payable" in law, i.e., the debts that are not time-barred. In this regard, the Hon'ble Supreme Court has referred to its judgment in Innoventive Industries Ltd. v. ICICI Bank & Anr., (2018) 1 SCC 407 wherein it had held that "a debt may not be due if it is not payable in law or in fact".
Since the Limitation Act is applicable to applications filed under Sections 7 and 9 of IBC from the inception of IBC, Article 137 of the Limitation Act gets attracted. Article 137 of the Limitation Act provides the period of limitation in case of "any other application for which no period of limitation is provided elsewhere" as three years from the time when the right to apply accrues. "The right to sue", therefore, accrues when a default occurs.
If the default has occurred over three years prior to the date of filing of application under IBC, the application would be barred under Article 137 of the Limitation Act, except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.
B.K. Educational Services Private Limited v Parag Gupta and Associates, Civil Appeal No. 23988 of 2017 MANU/SC/1160/2018
WHETHER THE LIMITATION ACT, 1963 APPLY TO THE APPLICATION FOR CIRP UNDER THE IBC?
The Appellate Tribunal had already held that the provisions of Limitation Act, 1963 are not applicable to the application for CIRP under the IBC, further, even then if the period as claimed is excluded for the purpose of condonation of delay, this appeal was not allowed since, as per Rule 5, the Appellant was required to serve notice u/s 8(1) of the IBC and to submit all information in terms of Form 5(AAA), but none was done by the Appellant. Thus, the Appellate Tribunal chose not to interfere with the order of the AA.
Sriram Compounds Pvt. Ltd. vs. Shiva Drums Pvt. Ltd. and Ors. (05.03.2018 - NCLAT) : MANU/NL/0031/2018
WHETHER THE LIMITATION ACT, 1963 WILL APPLY TO APPLICATIONS THAT ARE MADE UNDER SECTION 7 OR SECTION 9 OF THE IBC FROM ITS COMMENCEMENT?
The Supreme Court held that the Limitation Act is applicable to applications filed under Sections 7 and 9 of the IBC from the inception of the Code.
B.K. Educational Services Private Limited vs. Parag Gupta and Associates (11.10.2018 - SC) : MANU/SC/1160/2018
Whether Section 60(6) of the IBC gives a new lease of life to a proceeding brought at the request of a corporate debtor on the basis of a moratorium imposed under Section 14 of the IBC?
The Supreme Court observed that if a moratorium order is issued in Part II, irrespective of the limitation period under the Limitation Act the period during which the moratorium was in effect shall be excluded. There is no bar to the Corporate Debtor taking advantage of the same and pursuing claims/ rights of the CD against third parties. As a result, Section 60(6) of the IBC contemplates the exclusion of the entire period during which the moratorium was in effect in relation to a procedure mentioned therein at the hands of the corporate debtor.
New Delhi Municipal Council vs. Minosha India Limited (27.04.2022 - SC): MANU/SC/0576/2022
