1. Financial creditor filed Section 7 IBC petition — NCLT admission reversed by NCLAT on limitation grounds — DRT recovery certificate and balance confirmations provided. (Para 1 , 3 , 4 , 6 )
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2022 Supreme(SC) 1012
SUPREME COURT OF INDIA
S.ABDUL NAZEER, V. RAMASUBRAMANIAN, JJ.
Punjab National Bank – Appellant
Versus
Mr. Vijay Sitaram Dandnaik & Anr. - Respondents
Civil Appeal No.2277 of 2021
Decided on : 30-08-2022
Important Points
The main legal point established in the judgment is the interpretation of the limitation period for filing an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, and the applicability of the Limitation Act, 1963 to the proceedings under the IBC.
Subject
Insolvency and Bankruptcy - Limitation Period for IBC Proceedings
Act Referred
COMPANIES ACT: S.408, S.424, S.433
INSOLVENCY AND BANKRUPTCY CODE: S.7, S.3(12), S.9, S.238(a), S.5(7), S.6, S.14(1)(a)
LIMITATION ACT: S.18, Art.137, Art.62
RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT: S.19(22)
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT: S.13(2)
INSOLVENCY AND BANKRUPTCY CODE: S.7, S.3(12), S.9, S.238(a), S.5(7), S.6, S.14(1)(a)
LIMITATION ACT: S.18, Art.137, Art.62
RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT: S.19(22)
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT: S.13(2)
Headnote
IBC - Admission of petition under Section 7 - 7 of the IBC - Summary of Acts and Sections: The court discussed the applicability of the Insolvency and Bankruptcy Code, 2016 (IBC) and the Limitation Act, 1963. It highlighted the interpretation of Section 7(1) of the IBC, the explanation of 'default', and the insertion of Section 238A in the IBC. The court also referenced previous decisions such as B.K. Educational Services, Jignesh Shah, Babulal Vardharji Gurjar, and Vashdeo R. Bhojwani to establish the principles governing the limitation period for filing an application under Section 7 of the IBC.
Fact of the Case:
The appellant, Punjab National Bank, filed a petition under Section 7 of the IBC against M/s Jailaxmi Sugar Products Pvt. Limited, the Corporate Debtor, claiming default in repayment and seeking recovery of the outstanding amount. The NCLAT set aside the order of admission by NCLT on the ground of limitation, leading to the present appeal.
Finding of the Court:
The court found that the NCLAT failed to consider important aspects of the case, including the applicability of the law of limitation to the proceedings under the IBC. It clarified the interpretation of 'default' under Section 7(1) of the IBC and the applicability of the Limitation Act, 1963 to applications filed under Sections 7/9 of the IBC.
Issues: The key issues revolved around the interpretation of 'default' under Section 7(1) of the IBC, the applicability of the Limitation Act, 1963 to proceedings under the IBC, and the timeline for filing an application under Section 7 of the IBC.
Ratio Decidendi: The court established that the period of limitation for filing an application under Section 7 of the IBC is governed by Article 137 of the Limitation Act, and the right to apply accrues on the date when default occurs. It also clarified the principles governing the applicability of Section 18 of the Limitation Act to the IBC proceedings.
Final Decision: The court allowed the appeal, setting aside the impugned order of the NCLAT dated 02.03.2021.
Legal Category Hierarchy
- insolvency and bankruptcy law
- practice and procedure
- banking law
Advocates:
Advocate Appeared:
For the Appellant : Mr. Dhruv Mehta, Ms. Kusum Lata, Mr. Mahesh K. Chaudhary, Adv., Mr. Sushmita Chaudhary, Adv., Ms. Sushma Das, Adv.
For the Respondent: Mr. Rahul Totala, Mr. Rohit Anil Rathi, AOR
Advocate Appeared:
For the Appellant : Mr. Dhruv Mehta, Ms. Kusum Lata, Mr. Mahesh K. Chaudhary, Adv., Mr. Sushmita Chaudhary, Adv., Ms. Sushma Das, Adv.
For the Respondent: Mr. Rahul Totala, Mr. Rohit Anil Rathi, AOR
Table of Contents
2. Maintainability of Section 7 IBC application — Whether claim was barred by limitation — Effect of subsequent acknowledgments of liability. (Para 4 , 5 , 6 )
3. Analysis of Limitation Act applicability to IBC — Effect of DRT recovery certificates — Validity of acknowledgments under Section 18 of Limitation Act. (Para 6 , 7 , 8 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 )
4. Recovery certificates issued by DRT and subsequent acknowledgments of liability extend the limitation period for initiating CIRP under Section 7 IBC. (Para 14 , 15 , 16 , 17 )
5. Appeal allowed — NCLAT order setting aside the admission of the Section 7 IBC petition set aside. (Para 24 )
6. Does the Limitation Act, 1963 apply to proceedings under the Insolvency and Bankruptcy Code, 2016?
Yes, Section 238A of the IBC and the Companies Act, 2013 establish that the Limitation Act applies. Article 137 of the Limitation Act prescribes a three-year period from the date when the right to apply accrues for applications where no other period is provided. (Para 8 , 10 )
7. What is the trigger for the limitation period in a Section 7 IBC application?
The trigger is the occurrence of a default, defined as the actual non-payment of a debt when the whole or any part of the amount has become due and payable. (Para 7 , 11 )
8. How does a recovery certificate from the Debt Recovery Tribunal (DRT) affect the limitation for initiating CIRP?
A recovery certificate issued by the DRT serves as a point from which a new limitation period begins, allowing a financial creditor to initiate CIRP within three years from the date of the certificate's issuance. (Para 13 , 16 , 17 )
9. Can an acknowledgment of liability extend the limitation period for filing a Section 7 IBC petition?
Yes, under Section 18 of the Limitation Act, an acknowledgment of liability in writing—including entries in a company's balance sheet—can extend the limitation period. (Para 10 , 14 , 15 )
ORDER :
1. The order of admission of their petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short “IBC”) passed by the National Company Law Tribunal (for short “NCLT”), having been reversed by the National Company Law Appellate Tribunal (for short “NCLAT”) on the ground that the application was barred by limitation, the Financial Creditor-Punjab National Bank has come up with the above appeal.
2. We have heard Shri Dhruv Mehta, learned senior counsel appearing for the appellant and Shri Rahul Totala, learned counsel appearing for the respondents.
3. The appellant herein filed a petition under Section 7 IBC against M/s Jailaxmi Sugar Products Pvt. Limited, the Corporate Debtor, who is the second respondent herein claiming, inter alia, (i) that vide sanction letters dated 07.05.2010 and 28.09.2010, a term loan was sanctioned to the second respondent herein; (ii) that by a letter dated 17.09.2011, restructuring of the existing term loans and fresh sanction of term loan was granted to the Corporate Debtor; (iii) that the Corporate Debtor defaulted in repayment and became a NPA on 31.03.2013; (iv) that the appellant issued a demand notice dated 30.04.2013 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (v) that the Corporate Debtor also executed Balance and Security Confirmation letters dated 03.07.2014 and 17.06.2017; (vi) that the appellant, along with the Union Bank of India also filed an application in O.A. No.185 of 2014 on the file of the DRT, Pune for the issue of a certificate of recovery; (vii) that the original application was allowed by DRT, Pune by an order dated 01.11.2016, directing the Corporate Debtor and others including respondent No.1 herein to jointly and severally pay to the appellant herein, a sum of around Rs.45 cores together with interest @16.25% per annum (apart from the amount payable to Union Bank of India); (viii) that the total amount outstanding from the Corporate Debtor as on 13.08.2019 was Rs.108,34,33,364.19; and (ix) that in a parallel proceeding, the High Court of Judicature at Bombay had passed an order dated 04.01.2018 directing the winding up of the Corporate Debtor.
4. By an order dated 06.11.2019, NCLT admitted the petition of the appellant herein, filed under Section 7 IBC. Challenging the order of admission, the first respondent herein, who claims to be a 50% shareholder, promoter, director and creditor of the Corporate-Debtor filed an appeal before NCLAT. By the order dated 02.03.2021 impugned in this appeal, the NCLAT set aside the order of the NCLT on the ground that the claim of the appellant-Financial Creditor was barred by limitation. Aggrieved by the said order, the Financial Creditor is on appeal before us.
5. Before the NCLAT, the first respondent raised a preliminary objection that in the light of the order of winding up passed by the High Court of Judicature at Bombay, an application under Section 7 IBC was not maintainable. But the said contention raised by the first respondent was rejected by NCLAT on the basis of the decision of this Court in Jaipur Metals and Electricals Employees Organization vs. Jaipur Metals and Electricals Ltd. & Ors., (2019) 4 SCC 227.
6. After overruling the objection relating to maintainability raised on the basis of the order of winding up, NCLAT took up for consideration the question of limitation. NCLAT opined that the decision of this Court in Babulal Vardharji Gurjar vs. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr., (2020) 15 SCC 1, clinched the issue on the question of limitation and that the application under Section 7, filed on 10.10.2019 was beyond a period of three years from the date of default (NPA) namely 31.03.2013. The Balance and Security Confirmation Letter dated 17.06.2017 was held by NCLAT to have been given after the expiry of three years from the date of default and as a consequence, Section 18 of the Limitation Act was also he
