Analysis provisions of Limitation Act, 1963 with respect to Insolvency and Bankruptcy Code, 2016

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“Decoding the Code”

Analysis provisions of Limitation Act, 1963 with respect to Insolvency and Bankruptcy Code, 2016 

(updated 14.02.2020)

Section 238A was inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, (w.e.f. 06.06.2018) on recommendation of Insolvency Laws Committee’s Report published in March, 2018. Prior to the section 238A, the issue of applicability of the Limitation Act to proceedings under the IBC was Initially dealt with by the NCLAT in the matter of Speculum Plast Private Limited v. PTC Techno Private Limited and in Neelkanth Township and Construction Pvt. Ltd. V. Urban Infrastructure Trustees Ltd wherein NCLAT held that the Limitation Act will not be applicable to proceedings under the IBC.

This part decodes the period of limitation with respect to Insolvency and Bankruptcy Code, 2016. Before analysing the Section 238A, we are listing here some basic provisions of the Limitation Act, 1963.

I. Some important provisions of the Limitation Act related to IBC

1. Period of limitation

Clause (j) of the Section 2 of the Limitation Act, 1963 defined that “period of limitation” means the period of limitation prescribed for any suit, appeal or application by the Schedule, and “prescribed period” means the period of limitation computed in accordance with the provisions of this Act.

2. Clause (l) of the Section 2 of the Limitation Act, 1963 defined that “suit” does not include an appeal or an application.

3. Expiry of prescribed period when court is closed

As per Section 4 of the Limitation Act, where the prescribed period for any suit, appeal or application expires on a day when the court is closed, the suit, appeal or application may be instituted, preferred or made on the day when the court re-opens. Further elaborate through explanation that a court shall be deemed to be closed on any day within the meaning of this section if during any part of its normal working hours it remains closed on that day.

4. Section 5 of the Limitation Act, 1963

Section 5 of the Limitation Act, 1963 dealt with the extension of the prescribed period in a certain case. It states that if the appellant or the applicant satisfies the court that he had a sufficient cause for not preferring the appeal or making the application within such period, then such an application or appeal shall be admitted after the prescribed period. The section reproduced here:

 “5. Extension of prescribed period in certain cases.

Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, (5 of 1908), may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period.

Explanation: The fact that the appellant or the applicant was misled by any order, practice or judgment of the High Court in ascertaining or computing the prescribed period may be sufficient cause within the meaning of this section.”

5. Period of limitation prescribed under Article 137 of Part II- PART II – ‘Other Applications’ of Third Division-Applications’ of Limitation Act, 1963

Article Description of application Period of limitation Time from which period begins to run
137.

Any other application for which no period of limitation is provided elsewhere in this divi­sion.

Three years

When the right to apply accrues.

Read more about Exclusion of time, Effect of acknowledgment in writing and more.

II. Analysis of the Section 238A of the Code

1. Legal text of the Section 238A

 238A. Limitation.–The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.

Hon’ble Supreme Court in the matter of B.K. Educational Services (P) Ltd. Vs. Parag Gupta & Associates held that the Limitation Act, 1963 is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “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 the application, the application would be barred under Article 137 of the Limitation Act, save and 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.

2. The Section is applicable retrospective i.e. since the inception of the Code

Hon’ble Supreme Court in the matter of B.K. Educational Services (P) Ltd. Vs. Parag Gupta & Associates clarified that the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code.

3. Limitation period start from the date of default

The Supreme Court in Gaurav Hargovindbhai Dave vs. Asset Reconstruction Company (India) Ltd. held that the proceedings under section 7 of the IBC are an application and not suits; thus they would fall within the residuary article 137 of the Limitation Act and the right to apply will arise from the date of default. It was again reiterated by the Supreme Court in Jignesh Shah vs. Union of India that the right to apply under the IBC will be from date of default and not from the date of enactment of the IBC i.e. 01.12.2016.

Date of default will be the date of declaration of account as NPA and such date of default would not shift even if subsequent payment made by the Corporate Debtor – Jagdish Prasad Sarada Vs. Allahabad Bank – NCLAT New Delhi [2020] ibclaw.in 85 NCLAT

NCLAT considering the Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. [2020] ibclaw.in 16 SC and other relevant judgments held that the period of three years from the date of the Account of Corporate Debtor is classified as NPA then it becomes impermissible to proceed with Section 7 Application as observed in the para 11 of the Judgment. All these leads to reiterate that the provisions of The Limitation Act, 1963 vide Section 238A of the I&B Code, 2016 will be applicable to all NPA cases provided they meet the criteria of Article 137 of the Schedule to The Limitation Act, 1963. The extension for the period of Limitation can only be done by way of application of Section 5 of The Limitation Act, 1963, if any case for the condonation of delay is made out.

4. An Acknowledgement in writing within expiration of prescribed period will mark a new commencement period for limitation

If a Corporate Debtor writes to the Creditor requesting him to send his claim for verification and payment, it amounts to an acknowledgment. But if the Corporate Debtor merely says, without admitting liability, it would like to examine the claim or the accounts, it may not amount to acknowledgment.

In other words, a writing, to be treated as an acknowledgment of liability should consciously admit his liability to pay or admit his intention to pay the debt. Let us illustrate. If a creditor sends a demand notice demanding payment of Rs 1 lakh due under a promissory note executed by the debtor and the debtor sends a reply stating that he would pay the amount due, without mentioning the amount, it will still be an acknowledgment of liability. If a writing is relied on as an acknowledgment for extending the period of limitation in respect of the amount or right claimed in the suit, the acknowledgment should necessarily be in respect of the subject-matter of the suit. If a person executes a work and issues a demand letter making a claim for the amount due as per the final bill and the defendant agrees to verify the bill and pay the amount, the acknowledgment will save limitation for a suit for recovery of only such bill amount, but will not extend the limitation in regard to any fresh or additional claim for damages made in the suit, which was not a part of the bill or the demand letter. Again, we may illustrate. If a house is constructed under the item rate contract and the amount due in regard to work executed is Rs two lakhs and certain part-payments say aggregating to Rs 1,25,000 have been made and the contractor demands payment of the balance of Rs 75,000 due towards the bill and the employer acknowledges liability, that acknowledgment will be only in regard to the sum of Rs 75,000, which is due. If the contractor files a suit for recovery of the said Rs 75,000 due in regard to work done and also for recovery of Rs 50,000 as damages for breach by the employer and the said suit is filed beyond three years from completion of work and submission of the bill but within three years from the date of acknowledgment, the suit will be saved from bar of limitation only in regard to the liability that was acknowledged, namely, Rs 75,000 and not in regard to the fresh or additional claim of Rs 50,000 which was not the subject-matter of acknowledgment.(See full paragraph in below discussion)

Section 18 of the Limitation Act 1963, which deals with the effect of acknowledgement in writing is reproduced here:

18. Effect of acknowledgement in writing. (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed.

(2) Where the writing containing the acknowledgement is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence or its contents shall not be received.

Explanation. – For the purpose of this section, –

    1. an acknowledgement may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right,
    2. the word “signed” means signed either personally or by an agent duly authorised in this behalf, and
    3. an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.

Notes

Introduction. – The section correspondents to Section 19 of the repealed Act IX of 1908 in all respects. It lays down the law as to effect of acknowledgement in writing on the computation of the period of limitation for institution of a suit or making an application.

A limitation can be extended based on acknowledgement in writing, provided the said acknowledgement is made before the expiration of the prescribed period of limitation for a suit or application in respect of any property or right. An acknowledgement of liability in respect of such property or right has been made in writing, signed by the party, against whom such property or right is claimed, or by any person through whom he derives his title or liability, if the acknowledgement is made before the expiry of the period of limitation, then a fresh period of limitation shall be computed, from the time, when the acknowledgement was so signed.

1. Hon’ble Supreme  Court  in  case  of  C.  Budhraja  v.  Chairman, Orissa Mining Corpn. Ltd., (2008) 2 SCC 444: (2008) 1 SCC (Civ) 582 on page 456 has held that:

“20. Section 18 of the Limitation Act, 1963 deals with effect of acknowledgment in writing. Sub-section (1) thereof provides that where, before the expiration of the prescribed period for a suit or application in respect of any right, an acknowledgment of liability in respect of such right has been made in writing signed by the party against whom such right is claimed, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. The explanation to the section provides that an acknowledgment may be sufficient though it omits to specify the exact nature of the right or avers that the time for payment has not yet come or is accompanied by a refusal to pay, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the right. Interpreting Section 19 of the Limitation Act, 1908 (corresponding to Section 18 of the Limitation Act, 1963) this Court in Shapoor Freedom Mazda v. Durga  Prosad  Chamaria [AIR  1961  SC  1236]  held:  (AIR  p. 1238, paras 6-7).

6. … acknowledgment as prescribed by Section 19 merely renews debt; it does not create a new right of action. It is a mere acknowledgment of the liability in respect of the right in question; it need not be accompanied by a promise to pay either expressly or even by implication. The statement on which a plea of acknowledgment is based must relate to a present subsisting liability though the exact nature or the specific character of the said liability may not be indicated in words. Words used in the acknowledgment must, however, indicate the existence of jural relationship between the parties such as that of debtor and creditor, and it must appear that the statement is made with the intention to admit such jural relationship. Such intention can be inferred by implication from the nature of the admission, and need not be expressed in words. If the statement is fairly clear then the intention to admit jural relationship may be implied from it. The admission in question need not be express but must be made in circumstances and in words from which the court can reasonably infer that the person making the admission intended to refer to a subsisting liability as at the date of the statement. … Stated generally courts lean in favour of a liberal construction of such statements though it does not mean that where no admission is made one should be inferred, or where a statement was made clearly without intending to admit the existence of jural relationship such intention could be fastened on the maker of the statement by an involved or far-fetched process of reasoning. … In construing words used in the statements made in writing on which a plea of acknowledgment rests oral evidence has been expressly excluded but surrounding circumstances can always be considered.

7. … The effect of the words used in a particular document must inevitably depend upon the context in which the words are used and would always be conditioned by the tenor of the said document….”

21. It is now well settled that a writing to be an acknowledgment of liability must involve an admission of a subsisting jural relationship between the parties and a conscious affirmation of an intention of continuing such relationship in regard to an existing liability. The admission need not be in regard to any precise amount nor by expressed words. If a defendant writes to the plaintiff requesting him to send his claim for verification and payment, it amounts to an acknowledgment. But if the defendant merely says, without admitting liability, it would like to examine the claim or the accounts, it may not amount to acknowledgment. In other words, a writing, to be treated as an acknowledgment of liability should consciously admit his liability to pay or admit his intention to pay the debt. Let us illustrate. If a creditor sends a demand notice demanding payment of Rs 1 lakh due under a promissory note executed by the debtor and the debtor sends a reply stating that he would pay the amount due, without mentioning the amount, it will still be an acknowledgment of liability. If a writing is relied on as an acknowledgment for extending the period of limitation in respect of the amount or right claimed in the suit, the acknowledgment should necessarily be in respect of the subject-matter of the suit. If a person executes a work and issues a demand letter making a claim for the amount due as per the final bill and the defendant agrees to verify the bill and pay the amount, the acknowledgment will save limitation for a suit for recovery of only such bill amount, but will not extend the limitation in regard to any fresh or additional claim for damages made in the suit, which was not a part of the bill or the demand letter. Again, we may illustrate. If a house is constructed under the item rate contract and the amount due in regard to work executed is Rs two lakhs and certain part-payments say aggregating to Rs 1,25,000 have been made and the contractor demands payment of the balance of Rs 75,000 due towards the bill and the employer acknowledges liability, that acknowledgment will be only in regard to the sum of Rs 75,000, which is due. If the contractor files a suit for recovery of the said Rs 75,000 due in regard to work done and also for recovery of Rs 50,000 as damages for breach by the employer and the said suit is filed beyond three years from completion of work and submission of the bill but within three years from the date of acknowledgment, the suit will be saved from bar of limitation only in regard to the liability that was acknowledged, namely, Rs 75,000 and not in regard to the fresh or additional claim of Rs 50,000 which was not the subject-matter of acknowledgment. What can be acknowledged is a present subsisting An acknowledgment made with reference to a liability, cannot extend limitation for a time-barred liability or a claim that was not made at the time of acknowledgment or some other liability relating to other transactions. Any admission of jural relationship in regard to the ascertained sum due or a pending claim, cannot be an acknowledgment for a new additional claim for damages.”

2. In “Sampuran Singh and Ors. v. Niranjan Kaur and Ors.─ (1999) 2 SCC 679”, the Hon’ble Supreme Court observed that the acknowledgment, if any, has to be prior to the expiration of the prescribed period for filing the suit.

3. The Hon’ble Supreme Court in the matter of “ITC Limited Vs. Blue Coasts Hotel” [Civil Appeal Nos.   2928-2930 of 2018]–MANU/SC/0263/2018. Paragraph 35 of the said judgment reads as under:

Letter of Undertaking “Without Prejudice”

“35. Much was sought to be made of the words “without prejudice” in the letter containing the undertaking that if the debt was not paid, the creditor could take over the secured assets. The submission on behalf of the debtor that the letter of undertaking was given in the course of negotiations and cannot be held to be an evidence of the acknowledgement of liability of the debtor, apart from being untenable in law, reiterates the attempt to evade liability and must be rejected. The submission that the letter was written without prejudice to the legal rights and remedies available under any law and therefore the acknowledgement or the undertaking has no legal effect must likewise be rejected. This letter is reminiscent of a letter that fell for consideration in Spencer’s case as pointed out by Mr. Harish Salve, “as a rule the debtor who writes such letters has no intention to bind himself further than is bound already, no intention of paying so long as he can avoid payment, and nothing before his mind but a desire, somehow or other, to gain time and avert pressure.”

It was argued in a subsequent case that an acknowledgment made “without prejudice” in the case of negotiations cannot be used as evidence of anything expressly or impliedly admitted. The House of Lords observed as follows:

“But when a statement is used as acknowledgement for the purpose of s. 29 (5), it is not being used as evidence of anything. The statement is not an evidence of an acknowledgement. It is the acknowledgement.”

Therefore, the without prejudice rule could have no application. It said: “Here, the respondent, Mr. Rashid was not offering any concession. On the contrary, he was seeking one in respect of an undisputed debt. Neither an offer of payment nor actual payment.” We,  thus, find  that  the  mere  introduction  of  the words “without prejudice” have no significance and the debtor clearly acknowledged the debt even after action was initiated under the Act and even after payment of a smaller sum, the debtor has consistently refused to pay up.”

See other view here that a statement in a balance sheet of a company presented to a creditor- share holder of the company and duly signed by the directors constitutes an acknowledgement of the debt u/s 18 of the Limitation Act.

III. Judicial Pronouncements on Limitation under IBC

Articles 137 of Limitation Act will be apply in case of application filed under Section 7 of IBC and limitation period will be 3 years started when the right to apply accrues –  SC

The Apex Court in the matter of Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (India) Ltd & Anr held that what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being “an application” which is filed under Section 7, would fall only within the residuary article 137. As rightly pointed out by learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21.07.2011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr. Banerjee’s reliance on para 7 of B.K. Educational Services Private Limited (supra), suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred.

The bar of limitation of three years would be attracted from the date when the default occur and not from the filing of winding up petition- Jignesh Shah & Anr Vs.Union of India & Anr – Supreme Court

On 20.08.20019, a share purchase agreement was executed between MCX and IL&FS, whereby IL&FS agreed to purchase of 442 lakh equity shares of MCX-SX from MCX. La-Fin as a group company of MCX issued a letter of undertaking to IL&FS on 20.08.2009 to repurchase the shares of MCX-SX after a period of one year but before the a period of 3 years from the date of investment. IL&FS therefore, on August, 2012 issued a letter to exercised its option to sell its entire holding to MCX. it replied that it was no legal or contractual obligation to buy the aforesaid shares. IL&FS filed a suit in Bombay High Court for specific performance of the letter of  undertaking, Bombay High Court passed an injunction order restraining La-Fin from alienating its assets pending disposal of the suit. On 21.10.2016 IL&FS filed a winding up petition u/s 433 of Companies Act 1956 against La-FIn in the Bombay High Court. Due to introduction of IBC, 2016, case was transferred to NCLT as a application u/s 7 and the statutory form was filled up by IL&FS indicating that the date of default was 19.08.2012. The said application has been admitted with the observation that the bar of limitation would not be attracted as the Winding up Petition was filed within three years of  the date on which the Code came into force, viz., 01.12.2016.  The NCLAT also affirmed the order of  NCLT  and reject the application of appellant.

Hon’ble Supreme Court held that the bar of limitation of 3 years as prescribed under Article 137 would be attracted from the date when default occurred and not from the date of filing of  winding up petition. Since, the Winding up Petition filed on 21.10.2016 being beyond the period of three-years mentioned in Article 137 of the Limitation Act is time-barred, and cannot therefore be proceeded with any further. Accordingly, the impugned judgment of the NCLAT and the judgment of the NCLT is set aside.

The right to sue is triggered when recovery certificate was issued & then the bar of limitation will be started- SC

Hon’ble Supreme Court in the matter of Vashdeo R Bhojwani Abhyudaya Co-Operative Bank Ltd & Anr referring the B.K. Educational Services (P) Ltd, held that since the section 7 petition was filed by the Respondent No.1 on 21.07.2017 before the NCLT whereas when the Recovery Certificate dated 24.12.2001 was issued, this Certificate injured effectively and completely the appellant’s rights as a result of which limitation would have begun ticking. This being the case, and the claim in the present suit being time barred, there is no doubt that is due and payable in law.

The date of coming into force of the IBC Code does not & cannot form a trigger point of limitation for applications filed under the Code and if applications filed u/s 7, Article 137 of the Limitation Act alone will apply – SC

The Apex court in the matter of Sagar Sharma & Anr Vs. Phoenix Arc Pvt. Ltd. & Anr held that Article 141 of the Constitution of India mandates that our judgments are followed in letter and spirit. The date of coming into force of the IBC Code does not and cannot form a trigger point of limitation for applications filed under the Code. Equally, since “applications” are petitions which are filed under the Code, it is Article 137 of the Limitation Act which will apply to such applications. Accordingly, we set aside the judgment under appeal and direct that the matter be determined afresh. It will be open for both sides to argue the case on facts on the footing that Article 137 of the Limitation Act alone will apply.

Property having mortgaged, claim is not barred by limitation as the period of limitation is 12 years with regard to mortgaged property-Babulal Vardhaji Gurjar Vs. JM Financial Asset Reconstruction Co. Ltd.-NCLAT

The Appellant argued on the question of limitation and submitted that the ‘default’ having committed on 8th July, 2011 whereas the petition under Section 7 of the I&B Code having filed in March, 2018, the application is not maintainable being barred by limitation. 9 properties i.e. land and building have been mortgaged by the Corporate Debtor with Respondent No. 2 – Financial Creditor. Respondent No. 2 also preferred a criminal proceeding on 27th June, 2017 as the enforcement mortgage of which possession was taken by 2nd Respondent after the order passed by the DRT, Aurangabad. NCLAT referring the Part V (First Division) of Limitation Act relates to ‘Suits relating to immovable property’ to recover possession of the property mortgaged and afterwards transferred by the mortgagee for a valuable consideration. The period of limitation is 12 years since the transfer becomes known to the plaintiff [Article 61(b)]. In view of the aforesaid position of law, the property having mortgaged, we also hold that the claim is not barred by limitation as the period of limitation is 12 years with regard to mortgaged property and in terms of Section 5 (7) read with Section 5(8) as the property is mortgaged, Respondent No. 2 also comes within the meaning of ‘Financial Creditor’.

If the Appellant had moved before an appropriate forum for appropriate relief in time, in accordance with law, it can’t be said that the claim is barred by limitation – Sanghvi Movers Ltd. Vs. M/s. Tech Sharp Engineers Pvt. Ltd. – NCLAT

The Appellant issued a statutory notice under Sections 433 and 434 of the Companies Act, 1956 on 24th May, 2014 to the ‘Corporate Debtor’ calling upon to pay a sum of Rs.38,84,709/- together with interest. The amount having not paid, the Appellant filed a winding up petition/ Company Petition before the Hon’ble High Court of Judicature at Madras on 4th July, 2015 which was registered and numbered. NCLAT held that it will be evident that the winding up petition was filed before the Hon’ble High Court of Judicature at Madras which had not reached finality and in the meantime, as the ‘I&B Code’ came into force, the demand notice under Section 8(1) was issued on 14th November, 2017 for payment of outstanding amount along with the interest. Thus, as we find that there is continuous cause of action the claim is within the period of limitation. The Appellant had moved before an appropriate forum for appropriate relief in time, in accordance with law and so we hold that the claim of the Appellant is not barred by limitation as the petition under Section 433 & 434 of the Companies Act, 1956 become infructuous, by operation of law.

Application is maintainable within three years from the date when the right to apply accrues i.e. from 01.12.2016(Limitation Act) – M/s GupShup Technology India Pvt. Ltd. Vs.M/s Interpid Online Retail Pvt. Ltd. – NCLAT

NCLAT referring the Article 137 of Part II of Third Division of Limitation Act, 1963 held that from the aforesaid provision of the Limitation Act, it is clear that the application is maintainable within three years from the date when the right to apply accrues. Since, the Insolvency and Bankruptcy Code, 2016 has come into effect since 1st December, 2016, we hold that the application is not barred by limitation.

Financial Creditor has right to get immovable property mortgaged & thereafter may transfer the mortgage assets for a valuable consideration for which 12 years of limitation has been prescribed for filing a suit relating to immovable property under Article 61 of Part V of the First Division of the Schedule of Limitation Act – Sagar Sharma & Another Vs.Phoenix ARC Private Limited – NCLAT

The next question is whether the claim of the Appellant is barred by the limitation. If it is barred by limitation then the ‘Corporate Debtor’ has right to take plea that the ‘debt’ is not payable. In the present case, we find that the immovable property of the ‘Corporate Debtor’ was mortgaged in favour of the ‘Financial Creditor’ by ‘Deed of Mortgage’ and a further charge was made on 27th November, 2009 by the ‘Corporate Debtor’ in favour of ‘IDFC Ltd.’. Thereafter by ‘assignment agreement’ debt payable by ‘Corporate Debtor’ to IDFC was assigned on 11th September, 2014.

The ‘Financial Creditor’ has right to get immovable property mortgaged and thereafter may transfer the mortgage assets for a valuable consideration for which 12 years of limitation has been prescribed for filing a suit relating to immovable property under Article 61 of Part V of the First Division of the Schedule of Limitation Act. Therefore, we hold that the claim of the 1st Respondent is not barred by limitation.

Question of limitation has to be looked into from the angle whether the debt is payable in law or in fact. Although the proceeding under IBC is an Application, question for consideration is whether the debt is payable in law. The yardstick is to see whether there is continuous cause of action for the debt claimed. – Mr. Basab Biraja Paul Vs. Edelweiss Asset Reconstruction Company Limited – NCLAT

NCLAT held that it would be strange to say that if you prosecute relief in wrong Court, it would save limitation but if you prosecute relief in right Court, you cannot resort to additional relief which becomes available later. In our view, when the Financial Creditor was pursuing its remedies in proper forum, there was continuous cause of action existing and it cannot be said that the debt became time barred. The IBC was enforced in 2016 and the additional remedy became available. Financial Creditor resorted additionally to it and the Application was filed under Section 7. It could not be said to be time barred.

 

If a Bank had taken action u/s 13(4) of the SARAFAESI Act and the matter is pending before the DRT, there being 12 years of limitation prescribed for enforcement of payment of money secured by a mortgage- Sh. B. Prashanth Hegde Vs. State Bank of India – NCLAT

Question before NCLAT it is to be determined, as to whether the application under Section 7 of the I&B Code was barred by limitation and, if not, whether the claim of the Banks was barred by limitation to hold that there is no debt payable in the eyes of law?

NCLAT held that for computing the period of limitation of an application under Section 7, one should refer to Article 137 of Part II of Third Division of the Schedule of Limitation Act, 1963, the right to apply under Section 7 of the Code, accrued to the Bank only since 1st December, 2016, i.e., when I&B Code came into force. From the aforesaid provision, we find that the application under Section 7 is not barred by limitation. To find out, as to whether the claim is barred by limitation or not, one should refer to Articles 61 & 62 of Part-V of First Division. It relates to mortgage of property (Article 61) and enforcement of payment of money secured by a mortgage (Article 62), apart from the fact that the Bank had taken action under Section 13(4) of the SARAFAESI Act and the matter is pending before the DRT since 2015-16, there being 12 years of limitation prescribed for enforcement of payment of money secured by a mortgage, we hold that the claim of the none of the Consortium Banks are barred by limitation and, therefore, the Corporate Debtor cannot claim that the debt is not payable in the eyes of law.(Author own view that this is disputed decision with SC verdict).

Jurisdiction to decide whether the application u/s 9 is time barred by limitation or not, it is within the domain of the Adjudicating Authority and not NCLAT-State Bank of India vs Sical Logistics Ltd.-NCLAT

SBI claimed to be an Operational Creditor and moved an application u/s 9 Code against M/s. Sical Logistics Ltd.- (Corporate Debtor). The Adjudicating Authority (NCLT) taking into consideration the fact that the date of default was 10.04.2008, rejected the application u/s 9 being barred by limitation. NCLAT rejected such submission and held that such submission cannot be accepted as it is within the domain of the Adjudicating Authority (Court of Competent Jurisdiction) to decide whether the application is barred by limitation or not.

 

An Acknowledgement in writing within expiration of prescribed period will mark a new commencement period for limitation to base a claim & the same will not create a new contract-Vivek Jha vs Daimler Financial Services India Private Ltd. & Anr.-NCLAT

NCLAT held that in Law, an ‘Acknowledgement’ in writing within expiration of prescribed period will mark a new commencement period for limitation to base a claim and the same will not create a new contract. In fact, it only extends the limitation period. Suffice it for this Tribunal to make a pertinent mention that if a suit is filed within three years from the last acknowledgement the same is not barred by limitation as per decision Union of India Vs. M.C. Pandey AIR 2009 NOC Page 494 (UTR). Further, an ‘Acknowledgement’ must be made before the expiration of the limitation period as per Section 18 of the Limitation Act, 1963. An ‘Acknowledgement’ of Liability not only saves limitation period but also confers on an individual a ‘cause of action’ to him, to lay his claim.

Section 18 of the Limitation Act, 1963 reproduced here:

“18. Effect of acknowledgment in writing.

 (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.

Explanation : For the purpose, of this section,—

(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;

(b) the word “signed” means signed either personally or by an agent duly authorised in this behalf; and

(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.”

The period from date of notice u/s 13(2) of SARFEASI Act to date of order passed by the court will be excluded for filing application u/s 7-Sesh Nath Singh Vs. Baidyabati Sheoraphuli Cooperative Bank Ltd-NCLAT

Appellants issue that the account of Corporate Debtor was declared NPA on 31.03.2013 whereas the application u/s 7 of IBC has been filed on 27.08.2018 i.e. after about 5 years and 5 months from the date of accrual of cause of action. NCLAT held that the Respondent is entitled for the exclusion of time period from date of notice under Section 13(2) of SARFEASI Act to when the Kolkata High Court has passed the order against the Respondent under Section 14(2) of Limitation Act i.e. the period of 3 years and 6 months. After exclusion of this period the application filed under Section 7 of I&B Code is within limitation period. In such circumstances the application under Section 7 is within limitation and there is no force in the argument that the application is time barred.

If Corporate Debtor has written the letter for due debt, the period of limitation stands shifted to the date on which the Corporate Debtor agreed to pay-Anubhav Anilkumar Agarwal vs Bank of India – NCLAT

Bank of India moved an Application under Section 7 of the ICode, pursuant to which, by impugned order dated 26th  November, 2019 the Adjudicating Authority (NCLT), Mumbai Bench initiated CIRP against RNA Corp. Pvt. Ltd. (Corporate Debtor), who was the Guarantor. The Appellant has challenged the impugned order on main ground that the Application under Section 7 of the Code was barred by limitation.

In the present case, the Corporate Debtor by its letter dated 18.03.2016/20.03.2019 has specifically stated that it will make an effort in reducing their outstanding dues and raise other funding to save their Bank account from getting NPA. The last three paragraphs of the aforesaid letter show that to save the Bank Account from getting NPA and citing the good reputation and goodwill, the ‘Corporate Debtor’ agreed to pay the amount and acknowledged the dues.

In view of the letter dated 18th March, 2016 written to the Bank, NCLAT has held that the period of limitation stands shifted to the date on which the Corporate Debtor agreed to pay and thus,  held that the Application under Section 7 of the Code was not barred by limitation.

Whether the order of Decree passed by the Debts Recovery Tribunal can be taken into consideration to hold that application u/s 7 of the Code is within period of three years as prescribed under Article 137 of Limitation Act, 1963? –Sh G Eswara Rao vs Stressed Assets Stabilisation Fund – NCLAT

NCLAT set aside the order of NCLT and has held that in the present case, the Corporate Debtor defaulted to pay prior to 2004, due to which O.A. No.193 of 2004 was filed by Respondent (Financial Creditor). A Decree passed by the Debts Recovery Tribunal or any suit cannot shift forward the date of default. On the other hand, the judgment and Decree passed by Debts Recovery Tribunal on 17.08.2018, only suggests that debt become due and payable. It does not shifting forward the date of default as Decree has to be executed within a specified period.  It is not  that  after  passing  of  judgment  or  Decree,  the  default  takes  place immediately, as recovery is permissible, all the debts in terms of judgment and Decree dated 17.08.2018 with pendent lite and future interest at the rate of 12% per annum could have been executed only through an execution case. As noticed above, in absence of any acknowledgement under Section 18 of the Limitation Act, 1963, the date of default/ NPA was prior to 2004 and does not shift forward, therefore, the period of limitation for moving application under Section 7 of the Code was for three years, if counted, to be completed in the year 2007. As date of passing of Decree is not the date of default, NCLAT has held that the application under Section 7 of the I&B Code was barred by limitation, though the claim may not be barred.

 

IV. Reason of introduce the Section 238A into the Code

The Report of the Insolvency Laws Committee would indicate that it has applied its mind to judgments of the NCLT and the NCLAT. It has also applied its mind to the aspect that the law is a complete Code and the fact that the intention of such a Code could not have been to give a new lease of life to debts which are time-barred.

Recommendation of the Insolvency Laws Committee

 “28. APPLICATION OF LIMITATION ACT, 1963

 28.1 The question of applicability of the Limitation Act, 1963 (“Limitation Act”) to the Code has been deliberated upon in several judgments of the NCLT and the NCLAT. The existing jurisprudence on this subject indicates that if a law is a complete code, then an express or necessary exclusion of the Limitation Act should be respected (Ravula Subba Rao and another v. The Commissioner of Income Tax, Madras, (1956) S.C.R. 577). In light of the confusion in this regard, the Committee deliberated on the issue and unanimously agreed that the intent of the Code could not have been to give a new lease of life to debts which are time-barred. It is settled law that when a debt is barred by time, the right to a remedy is time-barred (Punjab National Bank and others v. Surendra Prasad Sinha AIR 1992 SC 1815). This requires being read with the definition of ‘debt’ and ‘claim’ in the Code. Further, debts in winding up proceedings cannot be time-barred, (Interactive Media and Communication Solution Private Limited v Go Airlines, 199 (2013) DLT267) and there appears to be no rationale to exclude the extension of this principle of law to the Code.

28.2 Further, non-application of the law on limitation creates the following problems: first, it re-opens the right of financial and operational creditors holding time-barred debts under the Limitation Act to file for CIRP, the trigger for which is default on a debt above INR one lakh. The purpose of the law of limitation is “to prevent disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party’s own inaction, negligence or latches”( Rajinder Singh v. Santa Singh, AIR 1973 SC 2537). Though the Code is not a debt recovery law, the trigger being ‘default in payment of debt’ renders the exclusion of the law of limitation counter-intuitive. Second, it re-opens the right of claimants (pursuant to issuance of a public notice) to file time-barred claims with the IRP/RP, which may potentially be a part of the resolution plan. Such a resolution plan restructuring time-barred debts and claims may not be in compliance with the existing laws for the time being in force as per section 30(4) of the Code.

28.3 Given that the intent was not to package the Code as a fresh opportunity for creditors and claimants who did not exercise their remedy under existing laws within the prescribed limitation period, the Committee thought it fit to insert a specific section applying the Limitation Act to the Code. The relevant entry under the Limitation Act may be on a case to case basis. It was further noted that the Limitation Act may not apply to applications of corporate applicants, as these are initiated by the applicant for its own debts for the purpose of CIRP and are not in the form of a creditor’s remedy.”

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