Time Spent Pursuing IBC Remedy Excluded for Recovery Suit Limitation, Rules Delhi High Court

New Delhi: In a significant ruling concerning the interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Limitation Act, 1963, the Delhi High Court has held that the period spent by a creditor in pursuing remedies before the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) under the IBC can be excluded when calculating the limitation period for filing a subsequent civil suit for recovery of the same debt.

Justice AnishDayal , presiding over the case of SEITZ GMBH vs. SIMRAN TECHNOLOGIES PVT LTD , allowed an application filed under Section 14 of the Limitation Act by the plaintiff, SEITZ GMBH , seeking to exclude the time spent in IBC proceedings against the defendant, SIMRAN TECHNOLOGIES PVT LTD.

The plaintiff, a supplier of goods, had filed a recovery suit for dues amounting to over Rs. 2.66 Crore against the defendant. The latest invoice date was December 2016. After issuing a demand notice under Section 8 of the IBC in January 2018, the plaintiff filed a Section 9 application before the NCLT on March 13, 2018. The NCLT dismissed the application on July 3, 2019, citing "pre-existing disputes" between the parties. The plaintiff's appeal to the NCLAT was also dismissed on November 26, 2019, on similar grounds. Subsequently, the plaintiff filed the civil recovery suit on December 31, 2021.

The core legal question before the High Court was whether the period from March 13, 2018, to November 26, 2019, representing the time spent litigating the IBC proceedings, could be excluded from the limitation period for the recovery suit under Section 14 of the Limitation Act.

Arguments Presented:

The plaintiff argued that the IBC proceedings were "civil proceedings" concerning the "same matter in issue" (recovery of outstanding dues) and were prosecuted with "due diligence" and "good faith". They contended that the NCLT/NCLAT, being quasi-judicial tribunals with the trappings of a court, fall within the ambit of Section 14, even though they are not civil courts in the traditional sense. Reliance was heavily placed on Supreme Court judgments in Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank Ltd. , M.P. Steel Corpn. v. CCE , and P. Sarathy v. State Bank of India , which have interpreted Section 14 liberally to include proceedings before quasi-judicial forums and where proceedings prove "abortive" even if not strictly due to a lack of jurisdiction.

The defendant countered that the application under Section 14 was untenable. They argued that the suit for invoices dating back to 2014-2016 was already time-barred. Further, they contended that Section 14 applies only when the prior proceeding fails due to a "defect of jurisdiction or other cause of a like nature," interpreting the latter phrase narrowly (ejusdem generis). The defendant asserted that the IBC proceedings were dismissed on their merits (existence of pre-existing dispute) and not due to a defect of jurisdiction, thus rendering Section 14 inapplicable. They also argued that the relief sought in an insolvency process is fundamentally different from a civil recovery suit.

Court's Analysis and Decision:

Justice Dayal carefully examined Section 14 of the Limitation Act and the relevant provisions of the IBC, noting that Section 238A of the IBC expressly applies the provisions of the Limitation Act to IBC proceedings.

Analyzing the precedents, the Court reaffirmed that the term "court" in Section 14 is not confined to civil courts and includes quasi-judicial tribunals ( P. Sarathy ). It further noted that Section 14 can apply to proceedings that prove "abortive" before such tribunals, particularly where no decision could be rendered on merits due to a defect of jurisdiction or otherwise , and where the litigant acted bona fide and diligently ( M.P. Steel Corpn. ).

Critically, the Court highlighted the Supreme Court's decision in Sesh Nath Singh , which specifically held that Section 14 applies to proceedings under the IBC, stating that while the IBC is not a substitute for debt collection in the traditional sense, its ultimate object for a creditor is debt realization. The Supreme Court in Sesh Nath Singh rejected a rigid interpretation of Section 14 in the context of IBC proceedings.

Applying these principles, Justice Dayal held that the IBC proceedings before the NCLT/NCLAT were indeed "civil proceedings" before quasi-judicial tribunals. He found that these proceedings were rendered "abortive" because the plaintiff could not cross the threshold of establishing the absence of a pre-existing dispute, which is a statutory requirement under Section 9 of the IBC for initiating insolvency. The dismissal based on a pre-existing dispute, while not a technical defect of jurisdiction stricto sensu , is a "cause of a like nature" that prevents the forum from "entertain[ing] it" in the manner sought by the applicant (initiation of CIRP based on that debt).

The Court found no reason to doubt the plaintiff's good faith or diligence in pursuing the IBC route, noting that operational creditors routinely file IBC applications when faced with defaults.

Conclusion:

Based on the factual circumstances and the position of law clarified by the Supreme Court, the High Court concluded that the conditions for applying Section 14 of the Limitation Act were met.

Consequently, the Court allowed the plaintiff's application, directing that the period from March 13, 2018, to November 26, 2019, shall be excluded when computing the limitation period for filing the present recovery suit.

This judgment reinforces the principle that time spent diligently pursuing a remedy in a forum that ultimately cannot grant the desired relief on grounds akin to jurisdictional impediments can be excluded under Section 14, ensuring that litigants acting in good faith are not penalized by technicalities of limitation. The case is now listed for further proceedings on May 27, 2025.