Babulal Vardharji Gurjar vs Veer Gurjar Aluminium Industries … on 14 August, 2020


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Supreme Court of India

Babulal Vardharji Gurjar vs Veer Gurjar Aluminium Industries … on 14 August, 2020

Author: Dinesh Maheshwari

Bench: A.M. Khanwilkar, Dinesh Maheshwari, Sanjiv Khanna

                                                                                             REPORTABLE


                                         IN THE SUPREME COURT OF INDIA
                                          CIVIL APPELLATE JURISDICTION

                                          CIVIL APPEAL NO. 6347 OF 2019


                 BABULAL VARDHARJI GURJAR                                                 ……Appellant(s)


                             VS.


                 VEER GURJAR ALUMINIUM INDUSTRIES
                 PVT. LTD. & ANR.                                                         .…Respondent(s)

                                                          JUDGMENT

Dinesh Maheshwari, J.

Introductory with brief outline and issue involved

1. This appeal under Section 62 of the Insolvency and Bankruptcy

Code, 20161 is directed against the judgment and order dated 14.05.2019

passed by the National Company Law Appellate Tribunal, New Delhi 2 in

Company Appeal (AT) Insolvency No. 549 of 2018 whereby, the Appellate

Tribunal has rejected the contention that the application made by

respondent No. 2 under Section 7 of the Code, seeking initiation of

Corporate Insolvency Resolution Process3 in respect of the debtor

company (respondent No. 1 herein), is barred by limitation; and has
Signature Not Verified

Digitally signed by
DEEPAK SINGH
Date: 2020.08.14
14:33:27 IST
Reason:

1 Hereinafter also referred to as ‘the Code’ or ‘IBC’.
2 Hereinafter also referred to as ‘the Appellate Tribunal’ or ‘NCLAT’.
3 ‘CIRP’ for short.

1

declined to interfere with the order dated 09.08.2018, passed by the

National Company Law Tribunal, Mumbai Bench4 in CP(IB)-

488/I&BP/MB/2018, for commencement of CIRP as prayed for by the

respondent No. 2.

2. A brief introduction of the parties and the subject matter as also a

thumbnail sketch of the relevant orders passed in this matter and the

issue involved shall be apposite at the very outset.

2.1. The appellant Shri Babulal Vardhaji Gurjar has been the director

of the respondent No. 1 company viz., Veer Gurjar Aluminium Industries

Pvt. Ltd.5 On or about 21.03.2018, the respondent No. 2 JM Financial

Assets Reconstruction Company Pvt. Ltd.6, while stating its capacity as

the financial creditor, for being the assignee of the loans and advances

disbursed by creditor bank to the corporate debtor, filed the said

application under Section 7 of the Code before the Adjudicating Authority

and sought initiation of CIRP in respect of the respondent No. 1.

2.2. After having considered the submissions on behalf of the financial

creditor and the corporate debtor, the Adjudicating Authority, by its order

dated 09.08.2018, admitted the application so made by the financial

creditor and appointed an interim resolution professional 7. Consequent to

this order dated 09.08.2018, the corporate debtor (respondent No. 1) is

now represented by the interim resolution professional.

4 Hereinafter also referred to as ‘the Adjudicating Authority’ or ‘the Tribunal’ or ‘NCLT’.
5 Hereinafter also referred to as ‘the corporate debtor’.
6 Hereinafter also referred to as ‘the financial creditor’.
7 ‘IRP’ for short.

2
2.3. Being aggrieved by the aforesaid order dated 09.08.2018, the

appellant preferred an appeal before NCLAT and contended against

maintainability of the application moved by the respondent No. 2. The

appeal so filed by the appellant was summarily dismissed by the

Appellate Tribunal by its order dated 17.09.2018. However, the order so

passed by the Appellate Tribunal was not approved by this Court in the

judgment dated 26.02.2019, passed in Civil Appeal No. 10710 of 2018,

after finding that the issue relating to limitation, though raised, was not

decided by the Appellate Tribunal. Hence, the matter was remanded to

NCLAT for specifically dealing with the issue of limitation. After such

remand, the Appellate Tribunal, by its impugned order dated 14.05.2019,

has held that neither the application under Section 7 as made in this case

is barred by limitation nor the claim of the respondent No. 2 is so barred

and has, therefore, again dismissed the appeal. Being aggrieved, the

appellant has approached this Court over again by way of the instant

appeal.

3. In the impugned order dated 14.05.2019, the Appellate Tribunal

has observed that the Code having come into force on 01.12.2016, the

application made in the year 2018 is within limitation. The Appellate

Tribunal has assigned another reason that mortgage security having been

provided by the corporate debtor, the limitation period of twelve years is

available for the claim made by the financial creditor as per Article 61 (b)

3
of the Limitation Act, 19638-9 and hence, the application is within

limitation.

4. In this appeal, the order so passed by the Appellate Tribunal is in

challenge. The appellant would contend that limitation period for an

application under Section 7 of the Code is three years as per Article 137

of the Limitation Act, where the date of alleged “default” is the starting

point of limitation; and in the present case, such date of default being

specifically mentioned as 08.07.2011, the application filed by the

respondent No. 2 in the month of March 2018 is barred by limitation. On

the other hand, the respondents would argue that the liability in relation to

the debt in question having been consistently acknowledged by the

corporate debtor in its balance sheets and annual reports, fresh period of

limitation is available from the date of every such acknowledgment and

hence, the application is within time.

4.1. Thus, the basic issue involved in this matter is as to whether the

application made by respondent No. 2 under Section 7 of the Code is

within limitation.

5. On 09.08.2019, after having heard learned counsel for the

appellant and the respondent No. 2 preliminarily, we issued notice to the

8 Hereinafter, the Limitation Act, 1963 is also referred to as ‘the Limitation Act’.
9 Note: The Articles providing for different periods of limitation are contained in the Schedule to the
Limitation Act, 1963 that is divided in three major Divisions viz., First Division (relating to suits);
Second Division (relating to appeals); and Third Division (relating to applications). Each Division is
further divided in parts with reference to the subject matter. However, the Articles in the Schedule
are arranged ad seriatim. Hence, for brevity and continuity, the Articles are mentioned with
reference to ‘the Limitation Act’ only. The Schedule and particular Part/Division have been referred
wherever required contextually.

4
respondent No. 1 and by way of interim order, directed status quo in

regard to the proceedings in question.

The relevant factual and background aspects: Application by the
financial creditor

6. The substance of the relevant factual and background aspects, as

emanating from the contents of the application under Section 7 moved by

the respondent No. 2 and the observations made by NCLT and NCLAT in

the impugned orders as also those noticed from the submissions made by

the respective parties, could now be summarised as infra.

6.1. On or about 22.12.2007, the lender banks viz., Corporation Bank,

Indian Overseas Bank and Bank of India sanctioned and extended

various loans, advances and facilities to the corporate debtor viz., Veer

Gurjar Aluminium Industries Pvt. Ltd., who was engaged in manufacturing

of aluminium ingots from aluminium scrap. The corporate debtor executed

various security documents in favour of the lender banks in the years

2008 and 2009, including those of equitable mortgage against the

facilities so obtained. The Corporation Bank proceeded to

rephase/enhance the facilities to the corporate debtor from time to time

and lastly on 27.08.2010 wherefor, various additional security documents

were executed by the corporate debtor. It has been asserted by the

respondent No. 2 that the Corporation Bank had assigned to it the rights

in relations to debts of the corporate debtor by way of Assignment

Agreement dated 30.03.2013; and a deed of modification of charge over

the assets of the corporate debtor was also executed on 26.04.2013.

5
6.2. The corporate debtor having defaulted in payment of the amount

due against such loans, advances and facilities, its account with

Corporation Bank was classified as Non-Performing Asset 10 on

08.07.2011 and that with Indian Overseas Bank was classified as NPA on

05.08.2011. Then, on 15.11.2011, demand notice under Section 13(2) of

the Securitisation and Reconstruction of Financial Assets and

Enforcement of Securities Interest Act, 2002 11 was issued by Indian

Overseas Bank to the corporate debtor and its guarantors. These steps

were followed up with recovery proceedings against the corporate debtor

by the consortium of lenders and respondent No. 2 in OA No. 172/2013

before the Debts Recovery Tribunal, Aurangabad12 under Section 19 of

the Recovery of Debts Due to the Banks and Financial Institution Act,

199313.

6.3. Even when the aforesaid proceedings were pending before DRT,

on or about 21.03.2018, the respondent No. 2 moved an application

before the Adjudicating Authority under Section 7 of the Code, in Form 1

as provided in the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 201614, for initiation of CIRP in relation to the corporate

debtor while stating its own capacity as the financial creditor, for being the

assignee of loans and advances disbursed by Corporation Bank to the

10 ‘NPA’ for short.

11 Hereinafter also referred to as ‘the SARFAESI Act’.
12 ‘DRT’ for short.

13 Hereinafter also referred to as ‘the Act of 1993’.
14 Hereinafter also referred to as ‘the Rules of 2016’.

6
corporate debtor15. Several details and particulars stated in the said

application need not be recounted but, the particulars of amount claimed

to be in default and the date when such default occurred, as stated in

point No. 2 of Part III of the application, are relevant for the present

purpose and could be usefully extracted as under16:-

   “2      AMOUNT CLAIMED TO                   The aggregating amount of
           BE IN DEFAULT AND                   default      is   1,011,573,308
           THE DATE ON WHICH                   (Rupees One Hundred and
           THE        DEFAULT                  One Crore, Fifteen Lakh
           OCCURRED (ATTACH                    Seventy Three Thousand Three
           THE WORKINGS FOR                    hundred and Eight only) as on
           COMPUTATION     OF                  28-02-2018 including expenses
           AMOUNT AND DATES*                   with further interest @ 14.50%
           OF    DEFAULT    IN                 plus penal interest of 2% from
           TABULAR FORM)                       01-Mar-2018 till payment/or
                                               realization.
                                               Dates of default 8.7.2011 being
                                               the date of NPA
                                               The workings for computation
                                               of amount and days of default
                                               in tabular form is annexed
                                               hereto and marked as Exhibit
                                               B).
                                               The statement of Account along
                                               with Certificate under Bankers
                                               Book Evidence Act, 1891 is
                                               annexed hereto and marked as
                                               Exhibit B-1.”


6.4. It may also be usefully indicated that Part-V of the application,

drawn as per the format in Form 1, required the applicant to state the

“Particulars of Financial Debt [Documents, Records and Evidence of

15 Note: In its written submissions, the respondent No. 2 has mentioned the date of filing this
application as ‘28.02.2018’ but the copy of application placed on record as Annexure A-5 (pp. 135-

158) bears the date as ’21.03.2018’.

16 Note: this extraction is from the copy of application placed on record as Annexure A-5 (at p.
140-142). The expression “DATES” marked with * in the second column is reproduced as found
mentioned at p. 141 but, in the format appended to the Rules of 2016, this entry carries the
expression “DAYS”.

7
Default]”. The applicant stated the particulars of various securities held,

date of their creation etc., as also the particulars relating to the said O.A.

No. 172 of 2013 before DRT and notices issued thereunder. In Point No.

5 of the said Part-V of the application, the applicant was required to

attach “the latest and complete copy of the financial contract reflecting all

amendments and waivers to date”. In this regard, again, various

agreements for loan, promissory notes, tripartite agreements, consortium

agreements and supplemental agreements were mentioned by the

applicant. In Point No. 8, the applicant was required to give out other

documents “in order to prove the existence of financial debt, the amount

and date of default”. The contents on this Point No. 8 of Part-V of the

application could be reproduced as under:-

“8.LIST OF OTHER DOCUMENTS ATTACHED TO THIS
APPLICATION IN ORDER TO PROVE THE EXISTENCE OF
FINANCIAL DEBT, THE AMOUNT AND DATE OF DEFAULT
i. Registered notice dated 05.07.2011 issued by Indian
Overseas Bank to the corporate debtor to repay the overdue
amount. Hereto annexed and marked as Exhibit MM is the
copy of said registered notice.

ii. Demand notice dated 15.11.2011 issued under
section 13 (2) of the Securitisation Act by Indian Overseas
Bank being consortium leader. Hereto annexed and marked
as Exhibit NN is the copy of said Demand notice.

iii. Publication of Demand Notice issued in two
newspaper i.e Business Standard and Saamna under the
SARFEASI Act dated 28.12.2011. Hereto annexed and
marked Exhibit OO is the copy of said Paper Publication.
iii. (sic). Objection to the Demand Notice and the reply to
the said Objections by IOB dated 14.01.2012 and 21.01.2012
respectively. Hereto annexed and marked as Exhibit PP and
Exhibit QQ is the copy of said objection and reply letter.

v. Registered Assignment Agreement dated
30.03.2013 between Corporation Bank and (Financial
Creditor thereby Corporation Bank assigned the debt due
8
from Corporate debtor along with the underlying securities in
favour of the Financial Creditor/ Applicant. Hereto annexed
and marked as Exhibit RR is the copy of said Registered
Assignment Agreement dated 30.03.2013 between
Corporation Bank and Financial Creditor.”

6.5. The application so made by respondent no. 2 came to be

registered as CP(IB)-488/I&BP/MB/2018 before the Adjudicating Authority

(NCLT). On being noticed, the corporate debtor submitted its reply in

opposition and raised various objections on the contents and frame of the

application. It was also contended that various proceedings had been

initiated with the sole aim of browbeating the corporate debtor and forcing

it to pay the unrealistic claim of the applicant. With specific reference to

the proceedings under the SARFAESI Act, it was contended that as per

the notice under Section 13 (2), the account of corporate debtor with

Indian Overseas Bank was classified as NPA on 05.08.2011 but, it was

not mentioned as to when the loan account with Corporation Bank was

classified as NPA. The corporate debtor also contended that its loan

account had not been properly maintained by the respective banks due to

the defect in accounting system and it was clear that the claim was

arbitrary, inflated and not recoverable. With reference to the proceedings

pending before DRT in OA No. 172/2013, it was also contended that IBC

would not apply to cases where the bank has approached DRT or has

adopted the proceeding under the SARFAESI Act and, for this reason, the

present proceedings were not maintainable before the Adjudicating

Authority.

9

6.6. The applicant financial creditor filed a rejoinder and refuted all the

objections of the corporate debtor while asserting, inter alia, that the

Corporation Bank declared the account of the corporate debtor as NPA on

08.07.2011 and this fact was mentioned in the demand notice issued

under Section 13(2) of SARFAESI Act, as sent by Indian Overseas Bank

on behalf of the consortium of banks.

Initiation order dated 09.08.2018

7. The Adjudicating Authority, in its order dated 09.08.2018, dealt

with the submissions of the parties and, while rejecting the objections of

corporate debtor in relation to the frame of application and the

correctness of loan accounts, held that the applicant was entitled to

initiate CIRP under Section 7 of the Code when there was a debt and

there was default; and that being a statutory remedy available to the

financial creditor, the corporate debtor cannot question its maintainability

only for the applicant having adopted other proceedings under other

enactments. As regards the question of debt and default, the NCLT, inter

alia, observed and held as under:-

“16. The Corporate Debtor contended that demand notice
issued under the SARFAESI Act, by Indian Overseas Bank
does not contain the date of NPA of the loan of Corporation
Bank. The petitioner in the rejoinder submitted that the date
of NPA of Corporation Bank was mentioned as 08.07.2011 in
the SARFAESI Notice. This Bench has gone through the
SARFAESI Notice and the date of NPA of Corporation Bank
is mentioned as 08.07.2011 at pg. no. 579. Hence this
contention of the Corporate Debtor fails. Further the
explanation to Section 7(1) of IB Code provides that a default
includes a default in respect of a financial debt owed not only

10
to the Applicant Financial Creditor but also to any other
Financial Creditor of the Corporate Debtor. In view of
admission of date of NPA of Indian Overseas Bank by the
Petitioner in the reply this case squarely falls under the ambit
of explanation to Section 7(1) of the Code which is a proof of
debt and default of debt due to another Financial Creditor.

This Petition can be admitted based on the reply filed by the
Corporate Debtor.”

7.1. The Adjudicating Authority also referred to the decision of this

Court in the case of Innoventive Industries Ltd. v. ICICI Bank: (2018) 1

SCC 407 as regards the scheme of the Code and the requirements of

Section 7 thereof and observed,-

“21…..The rational and reasoning which can be drawn from the
above lines of the citations clearly indicate mainly two aspects
and that is existence of debt and the default which the present
facts of the case clearly demonstrate. So any amount of
argument that deals with issues which are not pertinent and
trivial to the main issues concerned does not or cannot come in
the way of adjudication of the lis in favour of the Petitioners. The
present facts of the case are fully and comprehensively covered
by the wordings of the above citations.

22. The above discussion clearly shows that there is a debt
owed by the Corporate Debtor in favour of Corporation Bank
and subsequently on assignment of the debts by the said bank
to the Petitioner, the Corporate Debtor is liable to make the
payment to the Petitioner. Further there is ample proof to come
to the conclusion that the Corporate Debtor defaulted in making
payment to Corporation Bank and thereafter to the assignor, the
Petitioner herein.

23. This Adjudicating Authority, on perusal of the documents
filed by the Creditor, is of the view that the Corporate Debtor
defaulted in repaying the loan availed and also placed the name
of the Insolvency Resolution Professional to act as Interim
Resolution Professional and there being no disciplinary
proceedings pending against the proposed resolution
professional, therefore the Application under sub-section (2) of
section 7 is taken as complete….”

11
7.2. Accordingly, the Adjudicating Authority (NCLT) admitted the

application for consideration; passed necessary order of moratorium; and

appointed the interim resolution professional.

Previous round of proceedings in appeal

8. Aggrieved by the aforesaid order dated 09.08.2018, the appellant,

erstwhile director of the corporate debtor, approached the National

Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency)

No. 549 of 2018 under Section 61 of the Code, challenging admission of

the application made by the respondent No. 2.

8.1. The appeal so filed by the appellant was considered and

summarily dismissed by the Appellate Tribunal by way of its order dated

17.09.2018. The Appellate Tribunal took note of the contention urged on

behalf of the appellant that a petition under Section 19 of the Act of 1993

was pending before DRT wherein question had been raised as to whether

the amount was payable to the assignee or not. As regards this, the

Appellate Tribunal observed that initiation of CIRP cannot be annulled

merely for pendency of a petition under Section 19 of the Act of 1993; and

in terms of Section 14 of the Code, all such pending matters cannot

proceed during the period of moratorium.

8.2. It was also contended on behalf of the appellant that there was no

debt payable. After noticing this contention, the Appellate Tribunal called

upon the appellant to file an affidavit that no amount was received or the

amount received had already been paid and therefore, there was no debt

12
or default. In response, learned counsel for the appellant expressed

inability to file any such affidavit for the reason that the corporate debtor

had indeed availed the loan from the bank/s. After noticing this stand of

the appellant, the Appellate Tribunal felt disinclined to interfere with the

order passed by the Adjudicating Authority and hence, dismissed the

appeal while observing as under:-

“2. Learned counsel appearing on behalf of the Appellant
submitted that a petition under Section 19 of ‘The Recovery
of Debts Due to Banks and Financial Institutions Act, 1993’ is
pending before Debt Recovery Tribunal, Aurangabad.
Wherein question has been raised is whether the amount is
payable to the assignee or not.

3. However, the initiation of Corporate Insolvency Resolution
Process cannot be annulled merely on the ground of
pendency of a petition under Section 19 of ‘The Recovery of
Debts Due to Banks and Financial Institutions Act, 1993’. In
fact in terms of Section 14 of I&B Code all such pending
proceeding cannot proceed during the period of moratorium.

4. Learned counsel appearing on behalf of the Appellant
contended that there is no debt payable. However, when we
asked the counsel to file an addition affidavit signed by the
Appellant making specific statement that they have not
received any amount or amount received has already been
paid and therefore there is no debt or there is no default, it is
informed by the counsel for the Appellant that such affidavit
cannot be filed by the Appellant as the Corporate Debtor had
taken loan from the Bank.

5. In view of the aforesaid stand taken by Appellant, we are
not inclined to interfere with the impugned order dated 9th
August, 2018. In absence of any merit, the appeal is
dismissed. No costs.”

9. Aggrieved by the aforesaid order dated 17.09.2018, the appellant

approached this Court under Section 62 of the Code in Civil Appeal No.

10710 of 2018, which was considered and decided by way of the order

dated 26.02.2019.

13
9.1. In the order dated 26.02.2019, this Court took note of the fact that

in appeal before the Appellate Tribunal, one of the grounds agitated was

that the claim of the respondent was barred by time for, admittedly, the

default was committed on 08.07.2011 whereas the application was filed in

the month of March, 2018.

9.2. After noticing that the principal issue relating to limitation, though

raised by the appellant, was not even decided by the Appellate Tribunal;

and after referring to the decision in B.K. Educational Services Pvt. Ltd.

v. Paras Gupta & Associates: AIR 2018 SC 5601, wherein it was held

that the Limitation Act is applicable to application filed under Section 7 of

the Code, this Court remanded the matter to the Appellate Tribunal for

deciding the issue of limitation with respect to the application in question

in accordance with law while setting aside the impugned order dated

17.09.2018 and while granting liberty to the parties to submit additional

affidavit/s in support of their respective contentions. This Court observed

and ordered, inter alia, as under:-

“Although, we find that the ground articulated in the appeal
memo is vague, but, as the objection regarding limitation
goes to the root of the matter and touches upon the
jurisdiction of the National Company Law Tribunal to proceed
with the claim of the respondent; and since the recent
decision of this Court in B.K. Educational Services Pvt. Ltd.
Vs. Paras Gupta & Associates – AIR 2018 SC 5601 has held
that the question of limitation is applicable even the
applications filed under Section 7 of the I. & B. Code, it would
be just and necessary to answer the said objection
appropriately, in accordance with law.

Indisputably, neither the National Company Law Tribunal
nor the National Company Law Appellate Tribunal, in the
present case, has examined the said contention. Indeed,

14
according to the respondent, the plea of claim being barred
by limitation is unstatable and, to buttress this argument, the
respondent has relied upon the entries in the books of
account of the appellant and other related documents.
However, that is a matter which ought to be agitated before
the National Company Law Appellate Tribunal in the first
place.

Accordingly, we relegate the parties before the National
Company Law Appellate Tribunal for fresh consideration of
the objection raised by the appellant that the claim of the
respondent is barred by limitation…..”

The impugned order dated 14.05. 2019 by NCLAT after remand

10. In compliance of the aforesaid order of this Court dated

26.02.2019, the Appellate Tribunal (NCLAT) took up the said appeal for

consideration afresh and proceeded to dismiss the same by way of its

impugned order dated 14.05.2019 while holding that the application in

question is not barred by limitation.

10.1. In the introductory paragraphs 1 to 4 of the impugned order dated

14.05.2019, the Appellate Tribunal referred to the subject matter of appeal

as also the orders passed in the previous round of proceedings; and in

paragraphs 5 and 6, took note of the rival contentions. Thereafter, in

paragraphs 7 to 14, the Appellate Tribunal took note of the background

facts including those pertaining to the loans taken by the corporate debtor

and creation of securities by way of mortgage of immovable properties

and hypothecation of stock-in-trade and plant and machinery; the

assignment in favour of respondent No. 2 by the lender bank; the loan

having been shown by the corporate debtor in its annual reports;

pendency of the petition under Section 19 of the Act of 1993 for recovery

15
of the due amount of loan; and a letter dated 31.07.2018 said to have

been sent on behalf of the corporate debtor to the respondent No. 2 for

one time settlement17.

10.1.1. In paragraph 15 of the impugned order, the Appellate Tribunal

referred to the decision of this Court in the case of B. K. Educational

Services (supra) as also Section 238-A of the Code to notice that law of

limitation is applicable to the application under Section 7 of the Code.

However, in paragraph 16, the Appellate Tribunal made the observation

that ‘for filing the application under Section 7 of the I&B Code, Article 132

of Part 2 (other application) is applicable’; and proceeded to reproduce

the said Article 132 of the Limitation Act.18 Thereafter, in paragraphs 17 to

19, the Appellate Tribunal referred to the frame of Schedule to the

Limitation Act and its Divisions, dealing with suits, appeals and

applications respectively. Coming to the crux of the matter, in paragraph

20 of the impugned order, the Appellate Tribunal referred to Article 137

dealing with ‘OTHER APPLICATIONS’, as occurring in Part II of Third

Division of Schedule to the Limitation Act and reproduced the same while

observing that this Article 137 is applicable to the application/s under

Section 7 or Section 9 or Section 10 of the Code.

10.2. After the aforementioned observations and overview of the facts

and the law applicable, the Appellate Tribunal, in paragraph 21 of the
17 ‘OTS’ for short.

18 Such a reference by the Appellate Tribunal to Article 132 of the Limitation Act appears to be
entirely inapt because that relates to the application to High Court for certificate of fitness to appeal
to this Court and provides for the limitation of sixty days from the date of decree or order. Be that
as it may, the observation with extraction of Article 132 appears to be a matter of accidental slip;
and we would leave the said Paragraph 16 of the impugned order at that only.

16
impugned order, stated the first reason for its conclusion that the

application in question is not barred by limitation in the manner that the

right to apply under Section 7 of the Code accrued to the respondent

financial creditor only on 01.12.2016 when the Code came into existence.

The Appellate Tribunal said, –

“21. The I&B Code has come into existence on 1st
December, 2016 and thereafter the right to apply accrued to
respondent – ‘Financial Creditor’ under Section 7 of the I&B
code only on 1st December, 2016. The application having
filed in the year 2018, we hold that the application under
Section 7 is not barred by limitation.”

10.3. Thereafter, in paragraph 22, the Appellate Tribunal extracted the

relevant passages from the decision in Innoventive Industries (supra)

wherein this Court has explained as to how the CIRP is triggered in the

scheme of IBC; and has underscored the requirement of existence of

“default” on the part of the corporate debtor wherefor and whereby a

financial creditor could maintain an action under Section 7 of the Code as

also the essential elements of the process of such an action, including the

form and manner of moving the application in conformity with the Rules of

2016 and initial enquiry by the Adjudicating Authority on the question as to

whether a default has occurred. Then, in paragraph 23 of the impugned

order, the Appellate Tribunal also took note that in Innoventive

Industries, this Court has further held that during such consideration by

the Adjudicating Authority, the corporate debtor is entitled to point out that

default has not occurred in the sense that the “debt” is not due; and that a

debt ‘may not be due if it is not payable in law or in fact’.

17

10.4. Thereafter, in paragraph 24, the Appellate Tribunal, with reference

to its own decision in Company Appeal (AT) (Insolvency) No. 82 of

2018: Binani Industries Ltd. v. Bank of Baroda and Anr., observed that

the Code does not relate to litigation nor the proceedings were of suit or

money suit; and the period of limitation prescribed in First Division of the

Limitation Act is not applicable to the proceedings under the Code.

However, thereafter in paragraph 25 of the impugned order, the Appellate

Tribunal observed that though the law of limitation as prescribed in First

Division, Second Division and Part I of Third Division of the Schedule to

the Limitation Act is not applicable, the corporate debtor could take a plea

that “debt” is not due, as it is not payable in law being barred by limitation.

These paragraphs 24 and 25 of the impugned order read as under: –

“24. In ‘Binani Industries Ltd. vs. Bank of Baroda & Anr.’ –
Company Appeal (AT) (Insolvency) NO. 82 of 2018’ this
Appellate Tribunal held that ‘Insolvency & Bankruptcy Code’
does not relate to litigation nor it is a suit or money suit. In
that background the period of limitation prescribed in the First
Division is not applicable through I&B Code proceedings.

25. Though we have held that the law of limitation for filing a
suit (First Division) or Appeals (Second Division) or
application under Part I (Third division) are not applicable, the
‘Corporate Debtor’ can take a plea that ‘debt’ is not due, as it
is not payable in law being barred by limitation.”

10.5. After the aforementioned observations, the Appellate Tribunal

indicated the question to be examined in the matter in paragraph 26 and

proceeded to decide the same in the ensuing paragraphs. In paragraphs

27 and 28 of the impugned order, the Appellate Tribunal referred to the

undisputed fact that the financial creditor had already filed a petition

18
under Section 19 of the Act of 1993 that was pending; and also observed

that the appellant has suppressed the fact that on 31.07.2018, the

corporate debtor approached the financial creditor for one time

settlement. After these observations, the Appellate Tribunal referred to the

facts that nine properties of the corporate debtor had been mortgaged

with the financial creditor and that the financial creditor had adopted the

proceedings for enforcement of mortgage security and had recovered

possession pursuant to the order passed by DRT. Having thus referred to

the other proceedings and particularly the enforcement of mortgage

security, the Appellate Tribunal referred to the limitation period of twelve

years for recovery of possession of mortgaged property as per Article

61(b) of the Limitation Act in paragraphs 29 and 30 and concluded that

the property having been mortgaged, the claim is not barred by limitation

as the period of limitation is twelve years with regard to the mortgaged

property. These considerations, observations and findings led the

Appellate Tribunal to hold and conclude in paragraph 31 of the impugned

order that the application under Section 7 of the Code is not barred by

limitation. These paragraphs 26 to 31 of the impugned order read as

under:-

“26. In the present case, it is to be noticed whether the ‘debt’
is not payable in law by the ‘Corporate Debtor’ and/or the
‘default’ being barred by limitation.

27. We have noticed that immediately on ‘default’,
Respondent No. 2 – ‘Financial Creditor’ has already moved
before the DRT under Section 19 of the ‘The Recovery of
Debts Due to the Banks and Financial Institution Act, 1993’

19
and O.A. No. 172 of 2017 which is still pending. This fact has
also been accepted and pleaded by the Appellant.

28. The Appellant has suppressed the fact that recently the
‘Corporate Debtor’ by letter dated 31st July, 2018
approached Respondent No. 2 (Financial Creditor) for one
time settlement. There is a finding that there is a continuous
cause of action. The appellant has not disputed that 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 2 nd Respondent after the
order passed by the DRT, Aurangabad.

29. 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)].

30. 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’.

31. Therefore, we hold that the application under Section 7 is
not barred by limitation nor the claim of Respondent No. 2 is
barred by limitation. We reject the plea that no ‘debt’ is
payable by the ‘Corporate Debtor’ in the eyes of law. We find
no merit in this appeal. It is accordingly dismissed. No costs”

11. For what has been noticed hereinabove, it could be reasonably

deciphered that the Appellate Tribunal has rejected the plea of bar of

limitation essentially on two major considerations: One, that the right to

apply under Section 7 of the Code accrued to the respondent financial

creditor only on 01.12.2016 when the Code came into force 19; and

second, that the period of limitation for recovery of possession of the

19 Paragraph 21 of the impugned order ibid.

20
mortgaged property is twelve years20. Noticeably, though the Appellate

Tribunal has referred to the pendency of the application under Section 19

of the Act of 1993 as also the fact that corporate debtor had made a

prayer for OTS in the month of July, 2018 but, has not recorded any

specific finding about the effect of these factors.

Broad features of rival submissions

12. Assailing the orders so passed by NCLAT and asserting that the

application made by the respondent No. 2 is barred by limitation, the

erstwhile director of the corporate debtor has preferred this appeal which

has been duly opposed by the applicant financial creditor (respondent No.

2) as also the IRP for the corporate debtor (respondent No. 1). The broad

features and substance of the rival submissions could be noticed as infra.

The Appellant

13. The learned senior counsel for the appellant has contended that in

the impugned order dated 14.05.2019, the NCLAT has failed to apply the

law declared by this Court in a series of decisions to the effect that for an

application under Section 7 of the Code, Article 137 of Limitation Act is

applicable and not Article 61 (b); and the limitation for such an application is

three years from the date of the alleged default. According to the learned

senior counsel, neither Article 61 (b) of Limitation Act applies nor even

Section 18 thereof and, therefore, on the admitted date of default as stated

by the respondent No. 2, the application in question remains hopelessly

barred by limitation.

20 Paragraphs 29 and 30 of the impugned order ibid.

21
13.1. The learned senior counsel has elaborated on the submissions with

reference to the decision of this Court in the case of B.K. Educational

Services (supra) and has contended that therein, it is categorically held

that Article 137 of the Limitation Act applies to the application under Section

7 of the Code and hence, the limitation period is of three years, which is to

be counted from the date of default.

13.2. With reference to the process envisaged by the Code and the Rules

of 2016, where the financial creditor is required to mention the date of

default in the application and also to adduce evidence of default, the

learned senior counsel has argued that in the application under

consideration, which was filed on 21.03.2018, the respondent No. 2

mentioned the date of default as 08.07.2011 and, for the evidence of

default, only the documents pertaining to the NPA were attached i.e., until

the year 2011. Hence, according to the learned counsel, on the averments

as taken and evidence as adduced, the application so filed by the

respondent No. 2 is clearly barred by limitation and deserves to be rejected

outright.

13.3. The learned senior counsel has further referred to the decision in K.

Sashidhar v. Indian Overseas Bank: 2019 SCC Online SC 25721 and has

submitted that therein, this Court has reaffirmed the position that right to

sue under the Code accrues on the date when default occurs and if the

default had occurred three years prior to the date of filing of the application,

the same would not amount to debt due and payable under the Code. The
21 Now reported in (2019) 12 SCC 150

22
learned counsel has yet further submitted that in Civil Appeal No. 11020 of

2018: Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Ltd. &

Anr.22, where default had occurred in the year 2001 when the Recovery

Certificate was issued and the NCLT and NCLAT held that the claim was

not time-barred for the cause of action being a continuing one, this Court

has held that there was no doubt that the claim was due and payable, but

the same was barred by limitation as applicable under IBC. Proceeding

further, the learned senior counsel has referred to the decision rendered by

a three-Judge Bench of this Court in Civil Appeal No. 4952 of 2019:

Gaurav Hargovindbhai Dave v. Asset Reconstruction Company

(India) Ltd. & Anr.23 to submit that therein, it is specifically held that the

application under Section 7 of IBC would fall within the purview of Article

137 of the Limitation Act and the time of three years begins to run from the

date of default and no new life would be given to the time-barred debts. The

learned senior counsel has also referred to the order of NCLAT dated

02.05.2019 in Company Appeal (AT)(Insolvency) No. 655 of 2018, which

was in challenge before this Court in Gaurav Hargovindbhai Dave (supra),

to point out that NCLAT had taken the application under Section 7 of IBC to

be within limitation also because of OTS offers made by the corporate

debtor to the financial creditor and even this proposition did not meet with

approval of this Court. The learned counsel would submit that in Vashdeo

R.Bhojwani (supra), this Court has taken the date of default to be that of

22 Now reported in (2019) 9 SCC 158
23 Now reported in (2019) 10 SCC 572

23
issuance of Recovery Certificate and in Gaurav Hargovindbai Dave

(supra), this Court has taken the date of NPA to be the date of default; and

this Court has construed the date of default to be the one when the debt

became due and payable strictly as per Section 3(12) of IBC whereunder,

default means ‘non-payment of debt when whole or any part of instalment

of the amount of debt has become due and payable and is not paid by the

debtor or the corporate debtor, as the case may be.’

13.4. The learned senior counsel has further submitted that the

reasonings adopted by NCLAT stand thoroughly disapproved by this Court

in the decisions above-referred as also that in Civil Appeal No. 7673 of

2019: Sagar Sharma & Anr. v. Phoenix Arc Pvt. Ltd. & Anr. 24 and,

therefore, the impugned order cannot be sustained from any angle.

13.5. The learned senior counsel has yet further referred to the three-

Judge Bench decision in the case of Jignesh Shah and Anr. v. Union of

India and Anr. : 2019 SCC Online 125425 and has submitted that therein

too, this Court has analysed in detail the applicability of the Limitation Act to

the applications of winding up being transferred to NCLT and has held that

enforcement of IBC in 2016 will not give a new life to the time-barred debts;

and if the application is filed beyond three years from the date of default,

then the same will be barred by time.

13.6. The learned senior counsel has argued that the debt shown in the

balance sheet does not revive the limitation period of three years as

24 Now reported in (2019) 10 SCC 353
25 Now reported in (2019) 10 SCC 750

24
applicable to the IBC under Article 137 of the Limitation Act for the reasons

that the debt as shown in the balance sheet is not covered by Section 18 of

the Limitation Act; and even otherwise, Section 18 of the Limitation Act

cannot revive the “default” relevant for IBC and could only revive limitation

with respect to the cause of action. The learned senior counsel has

emphasised on the submissions that Section 18 of the Limitation Act could

revive limitation in some cases but not for every remedy which is separate

and distinct; and when limitation period of three years under Article 137 of

the Limitation Act, in relation to the application under Section 7 of the Code,

starts from the date of default, acknowledgment of the debt in the balance

sheet will not give any fresh date of default because default occurs only

once and cannot be continuing. The learned counsel has also submitted

that the NCLAT has wrongly relied on the alleged proposal for OTS which

was never filed before NCLT and also was denied by the appellant herein;

and in any case, the proposal for OTS, if at all made on 31.07.2018, cannot

revive the date of default as per declaration of NPA on 08.07.2011 nor does

it attract Section 18 of the Limitation Act.

13.7. As regards relevant considerations and approach, the learned

senior counsel for the appellant has submitted, with reference to paragraph

64 of the decision in Swiss Ribbons Private Limited and Anr. v. Union

of India and Ors.: (2019) 4 SCC 17, that the legislative policy has moved

from “cause of action” to determination of “default” and in the present case,

25
default having occurred when the account became NPA as on 08.07.2011,

the application remains barred by limitation.

Respondent No. 2

14. Per contra, the learned senior counsel appearing for the financial

creditor (respondent No. 2) has contended that this appeal is devoid of

substance and is liable to be dismissed on merits as also on conduct of the

appellant.

14.1. The learned senior counsel would maintain that the debt of the

corporate debtor, payable to the respondent No. 2, has neither been

disputed nor denied by the appellant; rather it is stated in ground P in the

memo of appeal (page 36 of paper-book) that the corporate debtor is and

has always been willing to settle the amount of outstanding loan in one time

settlement with the respondent No. 2. The learned counsel would submit

that the late attempt on the part of the appellant to dispute the OTS letter

issued by the respondent No. 1 is baseless and fallacious because such a

contention has been raised for the first time in this second round of appeal

in this Court; and that the appellant is rather guilty of taking false pleadings

and of perjury in his attempts to mislead.

14.2. While refuting the submissions made on behalf of the appellant, it

has been strenuously argued by the learned senior counsel for the

respondent No. 2 that the application under Section 7 of the Code is not

barred by limitation only because of initial date of default being mentioned

therein as 08.07.2011. The learned counsel would submit that the

26
contentions on behalf of the appellant are unsustainable since the debt in

question had been legally and unequivocally admitted to be due and

payable in writing by the respondent No. 1 all throughout from the year 2011

until 2017 in its balance sheets filed along with annual returns before the

Registrar of Companies; and the debt had been shown as the loan amount

outstanding to Corporation Bank, who had assigned the same to the

respondent No. 2.

14.3. While heavily relying on the observations in Jignesh Shah (supra),

learned senior counsel has contended that as per the law declared by this

Court, the provisions of Section 18 of the Limitation Act certainly extend the

period of limitation under the Code on any acknowledgment of debt by the

corporate debtor. The learned counsel has referred to the provisions of the

Companies Act, 201326, particularly Section 95 thereof, as also to the

observations of this Court in M/s. Mahabir Cold Storage v. CIT, Patna:

1991 Supp (1) SCC 402 to submit that the registers of a company are of

prima facie evidence; and the balance sheet disclosing loans and

borrowings and forming part of annual returns, indeed constitute the

admission and acknowledgment of the corporate debtor of its indebtedness.

Therefore, according to the learned counsel, the loan amount

acknowledged to be due and payable by the corporate debtor in the

balance sheets and annual reports, continuously from the year 2011 and

until the year 2017, becomes an admitted fact of evidence and thereby, the

26 Hereinafter also referred to as ‘the Companies Act’.

27
period of limitation is extended by dint of applicability of Section 18 of the

Limitation Act.

14.4. The learned senior counsel has re-emphasised on the submissions

that the suggestions of the appellant, that no extension of limitation period

under Section 18 of the Limitation Act is permissible in the Code because

date of default is sacrosanct and only three years period from that date is

permissible, remain untenable in law. The learned counsel has contended

that at the time of filing such application by the respondent No. 2, there was

no provision in the Code importing any defined period of limitation and

neither there was any mandatory legal requirement of stating in the

application format as to how the claim was within limitation nor there was

any statutory requirement to furnish any specific evidence thereof and

therefore, the Section 7 application as framed and filed by respondent No. 2

was well within the period of limitation.

14.5. As regards the requisite approach in applying the law of limitation to

the application under Section 7 of the Code, the learned senior counsel

has strenuously argued that the amendment applying the provisions of the

Limitation Act to the Code came into force with effect from 06.06.2018 but

only after filing of the application by respondent No. 2; and testing a post

facto applicable statutory provision of retrospective nature in a watertight

stringent manner would result in a fatal flaw in equity and the same may

also prejudice scores of legal recourse by many other banks and financial

institutions currently in Courts/Tribunals on mere technicality that was

28
unforeseen and unconceived in past and hence, the documents making out

a case for extension of limitation period could not be filed. Other way round,

according to the learned counsel, the unrestrained applicability of Section

238-A of the Code in an anomalous manner suggested on behalf of the

appellant would compel all the financial institutions to immediately proceed

and file the application under Section 7 before the expiry of three years

exactly from the date of default, in spite of the fact that any borrower, in

order to overcome its financial constraints to repay might be ready and

willing to comply with the requirements of Section 18 of the Limitation Act

for extension of period of limitation. The learned counsel has relied on the

decision of this Court in N.Balakrishnan v. Krishnamurthy : (1998) 7

SCC 123 to submit that the rules of limitation are not meant to destroy the

rights of the parties.

14.6. The learned senior counsel has, therefore, submitted that the

application filed by respondent No. 2 under Section 7 of the Code as

financial creditor is within the period of limitation as prescribed and as

extended legally by application of the relevant provisions of the Limitation

Act. Thus, according to the learned counsel, the application has rightly been

admitted by NCLT and the present appeal deserves to be dismissed.

Respondent No. 1

15. The learned counsel appearing for the IRP (respondent No. 1) has

more or less argued on the same lines and has submitted that the

29
application in question is well within the period of limitation when examined

in the light of the applicable provisions of the Code and the Limitation Act.

15.1. According to the learned counsel, the application filed by the

respondent No. 2 remains within limitation for the reasons: (a) that the

liability of loan is long standing and same is recorded in the balance sheets

of corporate debtor for the Financial Years 2011-12, 2012-13, 2013-14,

2014-15, 2015-16 and 2016-17; (b) that by way of letter dated 31.07.2018,

request for OTS was made on behalf of the corporate debtor; and (c) OA

No. 172/2013 was filed before DRT well within the stipulated time period

and the same is still pending. It has been contended that in view of these

indisputable facts, the claim of the financial creditor cannot be said to be

dead or stale claim and hence, is not barred by limitation, particularly when

the financial creditor has been availing of another civil remedy available to it

and had filed the application under Section 19 of the Act of 1993 well within

limitation.

15.2. The learned counsel has further contended that the impugned order

of NCLAT is correct on facts and is in consonance with the intent and spirit

of law laid down by this Court in B.K.Educational Services (supra) that the

claim of the creditor should not be a dead or a stale claim. The learned

counsel has further contended that mere date of default or date of

classification of an account as NPA does not put a full stop on ‘further cause

of action’ or ‘continuing cause of action’ available to the financial creditor.

The learned counsel would submit that on the settled principle of law, the

30
interpretation of statute should always be in furtherance to its objective and

to give effect to the intent of legislature; and if, for the sake of arguments,

the contention of the appellant is accepted that an application under Section

7 of IBC could be filed only within three years from the date of NPA, it would

frustrate the objective of IBC to restructure the stressed assets and ensure

maximisation of the value of stressed assets.

15.3. The learned counsel has again relied on Section 18 of the Limitation

Act and the aforesaid decisions in Jignesh Shah and Mahaveer Cold

Storage to submit that the contention of the appellant that cause of action

arose in 2011 and right to sue started ticking in the said year is baseless, as

the corporate debtor had continuously admitted its liability in its audited

balance sheets until the year 2017 and further admitted its liability with an

offer for OTS. Therefore, according to the learned counsel, the contention

that the debt is barred by limitation cannot be taken by the corporate debtor

in the given facts and circumstances besides that such a contention is

contrary to the undisputed facts and admission of liability.

15.4. The learned counsel for the respondent No. 1 has also attempted to

refer to the proceedings already undertaken in this matter pursuant to the

order of admission by NCLT, including the meetings of, and resolutions by,

CoC; and consequent moving of application by IRP before NCLT for

liquidation of the corporate debtor before passing of the interim order in this

appeal.

31

16. In distillation of what has been noticed hereinabove, it is apparent

that while not disputing the basics on the applicability of law of limitation to

the application in question, the main plank of submissions of the learned

counsel for respondents has been that the applicability of Section 18 of the

Limitation Act, providing for extension of the period of limitation upon

making of acknowledgment by the party against whom a right is claimed, is

not taken away and, for such acknowledgments (of liability) having been

consistently and continuously made in the balance sheets and annual

reports by the corporate debtor as also in its offer for OTS, the fresh period

of limitation would be available from the date of every such

acknowledgment. Hence, with heavy reliance on the principles relating to

“acknowledgment” under Section 18 of the Limitation Act, the learned

counsel for the respondents would assert that the application in question is

not barred by limitation. On the other hand, the gravamen of submissions

on behalf of the appellant has been that looking to the scheme of the Code

and the decisions of this Court, the application in question is governed by

Article 137 of the Limitation Act; that three years’ time period prescribed

therein commences from the date of default; and that acknowledgment of

debt in the balance sheet or annual report does not give any fresh period of

limitation because default occurs only once and does not furnish a

continuing right to apply.

16.1. Apart from the aforesaid, as noticed, the Appellate Tribunal has

concluded in favour of the respondents for different reasons viz., that the

32
right to apply under Section 7 of the Code accrued only on 01.12.2016

when the Code came into force and hence, the application filed by the

financial creditor in the year 2018 is not barred by limitation; and that the

period of limitation is twelve years for recovery of possession of the

mortgaged property and, therefore, the claim is not barred by limitation.

The relevant provisions of the Code and the Limitation Act

17. For determination of the core issue as to whether the application

made by respondent No. 2 before NCLAT under Section 7 of the Code is

within limitation and for dealing with the submissions made by the

respective learned counsel as also the reasonings adopted by the

Appellate Tribunal, at the first it would be appropriate to take note of the

relevant statutory provisions in the Insolvency and Bankruptcy Code,

2016 and the Limitation Act, 1963.

17.1. The expressions generally used in the Insolvency and Bankruptcy

Code, 2016 are defined in Section 3 thereof. The relevant definitions

occurring in Section 3 of the Code are as under: –

“3. Definitions. —In this Code, unless the context otherwise
requires,—
**** **** ****
(6) “claim” means—

(a) a right to payment, whether or not such right is reduced to
judgment, fixed, disputed, undisputed, legal, equitable,
secured or unsecured;

(b) right to remedy for breach of contract under any law for
the time being in force, if such breach gives rise to a right to
payment, whether or not such right is reduced to judgment,
fixed, matured, unmatured, disputed, undisputed, secured or
unsecured;

33

(8) “corporate debtor” means a corporate person who owes
a debt to any person;

**** **** ****
(10): “creditor” means any person to whom a debt is owed
and includes a financial creditor, an operational creditor, a
secured creditor, an unsecured creditor and a decree-holder;
(11) “debt” means a liability or obligation in respect of a claim
which is due from any person and includes a financial debt
and operational debt;

(12) “default” means non-payment of debt when whole or
any part or instalment of the amount of debt has become due
and payable and is not [paid] 27 by the debtor or the corporate
debtor, as the case may be;

**** **** ****
(30): “secured creditor” means a creditor in favour of whom
security interest is created;

**** **** ****”
17.2. Part II of the Code deals with insolvency resolution and liquidation

of corporate persons and the extent of application of this Part II is

specified in Section 4 that reads as under:-

“4. Application of this Part. – (1) This Part shall apply to
matters relating to the insolvency and liquidation of corporate
debtors where the minimum amount of the default is one lakh
rupees:

Provided that the Central Government may, by notification,
specify the minimum amount of default of higher value which
shall not be more than one crore rupees.”

17.3. The expressions employed in Part II of the Code are defined in

Section 5 thereof. The relevant definitions are as under:-

“5. Definitions.—In this Part, unless the context otherwise
requires,—
**** **** ****
(6) “dispute” includes a suit or arbitration proceedings
relating to—

(a) the existence of the amount of debt;

27 The expression in parenthesis was substituted for “repaid” by Amendment Act No. 26 of 2018
with retrospective effect from 06.06.2018.

34

(b) the quality of goods or service; or

(c) the breach of a representation or warranty;

(7): “financial creditor” means any person to whom a
financial debt is owed and includes a person to whom such
debt has been legally assigned or transferred to;

**** **** ****”
17.4. The provisions relating to initiation of CIRP, with which we are

primarily concerned in this matter, are contained in Section 7 of the Code

and read as under:-

“7. Initiation of corporate insolvency resolution process
by financial creditor.— (1) A financial creditor either by itself
or jointly with [other financial creditors, or any other person
on behalf of the financial creditor, as may be notified by the
Central Government,]28 may file an application for initiating
corporate insolvency resolution process against a corporate
debtor before the Adjudicating Authority when a default has
occurred.

Explanation.— For the purposes of this sub-section, a default
includes a default in respect of a financial debt owed not only
to the applicant financial creditor but to any other financial
creditor of the corporate debtor.

(2) The financial creditor shall make an application under
sub-section (1) in such form and manner and accompanied
with such fee as may be prescribed.

(3) The financial creditor shall, along with the application
furnish—

(a) record of the default recorded with the information utility
or such other record or evidence of default as may be
specified;

(b) the name of the resolution professional proposed to act as
an interim resolution professional; and

(c) any other information as may be specified by the Board.
(4) The Adjudicating Authority shall, within fourteen days of
the receipt of the application under sub-section (2), ascertain
the existence of a default from the records of an information
utility or on the basis of other evidence furnished by the
financial creditor under sub-section (3).

(5) Where the Adjudicating Authority is satisfied that—

28 The expressions in parenthesis were substituted for “other financial creditors” by Amendment
Act
No. 26 of 2018 with retrospective effect from 06.06.2018.

35

(a) a default has occurred and the application under sub-

section (2) is complete, and there is no disciplinary
proceedings pending against the proposed resolution
professional, it may, by order, admit such application; or

(b) default has not occurred or the application under sub-
section (2) is incomplete or any disciplinary proceeding is
pending against the proposed resolution professional, it may,
by order, reject such application:

Provided that the Adjudicating Authority shall, before rejecting
the application under clause (b) of sub-section (5), give a
notice to the applicant to rectify the defect in his application
within seven days of receipt of such notice from the
Adjudicating Authority.

(6) The corporate insolvency resolution process shall
commence from the date of admission of the application
under sub-section (5).

(7) The Adjudicating Authority shall communicate—

(a) the order under clause (a) of sub-section (5) to the
financial creditor and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the
financial creditor, within seven days of admission or rejection
of such application, as the case may be.”

17.5. Section 238-A, inserted in the Code by way Amendment Act No.

26 of 2018, is deemed to have come into effect from 06.06.2018. This

Section 238-A, being directly relevant for the present purpose, could also

be usefully reproduced as under:-

“238-A. Limitation. – The provisions of the Limitation Act,
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.”

17.6. Section 18 of the Limitation Act, providing for the extension of period

of limitation on acknowledgment of the liability, which is strongly relied upon

by the respondents, reads as under:-

“18. Effect of acknowledgment in writing. —

36

(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 purposes 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.”

17.7. As regards the period of limitation for the application in question,

Article 137, as contained in Part II of Third Division of the Schedule to the

Limitation Act (relating to the applications not otherwise provided for),

shall have bearing in the matter and may be taken note of as under29:-
29 It may be usefully observed that the Appellate Tribunal has referred to Article 61(b) of the
Limitation Act that relates to suits on mortgages. As shall be noticed hereafter later, such a
reference does not fit in the issue at hand from any angle. However, we may extract Articles 61(b)
and 62 of the Limitation, just for the sake of reference, as under:-

“PART V – SUITS RELATING TO IMMOVABLE PROPERTY.

29 “Description of suit            29 Period of Limitation         29 Time from which
                                                                   period begins to run
29 61. By a mortgagor-                29 Twelve years              29 When the transfer
    *** *** ***                                                    becomes known       to the
                                                                   plaintiff.



                                             37
          “Description           of     Period               of     Time from
          application                                               which period
                                        limitation
                                                                    begins to run

          137.       Any    other                                   When the
                                  Three years
          application for which                                     right     to
          no period of limitation                                   apply
          is provided elsewhere                                     accrues.”
          in this division

The relevant basics of the Insolvency and Bankruptcy Code, 2016

18. Now, a brief insight into the expositions of this Court on the reasons,

purport, meaning and effect of the provisions of IBC and changes brought

about by it to the then existing law, particularly those having bearing on the

questions at hand, shall be useful.

18.1. As noticed from Preamble, the Code came to be enacted to

consolidate and amend the laws relating to reorganisation and insolvency

resolution of corporate persons and even of partnership firms and

individuals in a time bound manner; the objectives, inter alia, being for

When the money sued for becomes due.”

Twelve years

(b) to recover possession of immovable property mortgaged and afterwards transferred by the
mortgagee for a valuable consideration
*** *** ***

62.To enforce payment of money secured by a mortgage or otherwise charged upon
immovable property

38
maximisation of value of assets of such persons and balance of interest

of all the stakeholders.30

18.2. One of the earliest decisions, wherein this Court dealt with the

provisions of IBC in sufficient detail while explaining the raison d’être for this

enactment and a paradigm shift in law, had been in the case of

Innoventive Industries (supra) that was decided on 31.08.2017. Therein,

this Court, inter alia, pointed out that ‘one of the important objectives of the

Code is to bring the insolvency law in India under a single unified umbrella

with the object of speeding up of the insolvency process’.

18.2.1. In the case of Innoventive Industries, this Court was essentially

concerned with the question as to whether the proceedings under IBC could

be stalled where there was a moratorium to the company concerned under

the Maharashtra Relief Undertakings (Special Provisions) Act, 1958.

Amongst other aspects, this Court ruled, with reference to the non obstante

clause contained in Section 238 of the Code that the same being of

Parliamentary enactment, would prevail over the limited non obstante

clause of the State enactment; and thus, the Maharashtra Act cannot stand

in the way of Corporate Insolvency Resolution Process under the Code 31.
30 As observed by this Court in Civil Appeal Nos. 8512-8527 of 2019 etc.: Anuj Jain v. Axis
Bank Limited and Ors
., decided on 26.02.2020.

31 Section 238 of the Code reads as under: –

“238. Provisions of this Code to override other laws. —The provisions of
this Code shall have effect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or any instrument having
effect by virtue of any such law.”

39
During the course of an extensive examination of the relevant provisions,

this Court also analysed the scheme of Corporate Insolvency Resolution

Process under the Code and, in relation to the initiation of such CIRP by the

financial creditor, exposited as follows: –

“27. The scheme of the Code is to ensure that when a
default takes place, in the sense that a debt becomes
due and is not paid, the insolvency resolution process
begins. Default is defined in Section 3(12) in very wide terms
as meaning non-payment of a debt once it becomes due and
payable, which includes non-payment of even part thereof or
an instalment amount. For the meaning of “debt”, we have to
go to Section 3(11), which in turn tells us that a debt means a
liability of obligation in respect of a “claim” and for the
meaning of “claim”, we have to go back to Section 3(6) which
defines “claim” to mean a right to payment even if it is
disputed. The Code gets triggered the moment default is
of rupees one lakh or more (Section 4). The corporate
insolvency resolution process may be triggered by the
corporate debtor itself or a financial creditor or operational
creditor. A distinction is made by the Code between debts
owed to financial creditors and operational creditors. A
financial creditor has been defined under Section 5(7) as a
person to whom a financial debt is owed and a financial debt
is defined in Section 5(8) to mean a debt which is disbursed
against consideration for the time value of money. As
opposed to this, an operational creditor means a person to
whom an operational debt is owed and an operational debt
under Section 5(21) means a claim in respect of provision of
goods or services.

28. When it comes to a financial creditor triggering the
process, Section 7 becomes relevant. Under the Explanation
to Section 7(1), a default is in respect of a financial debt
owed to any financial creditor of the corporate debtor — it
need not be a debt owed to the applicant financial creditor.
Under Section 7(2), an application is to be made under sub-

section (1) in such form and manner as is prescribed, which
takes us to the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016. Under Rule 4, the
application is made by a financial creditor in Form 1

40
accompanied by documents and records required therein.

Form 1 is a detailed form in 5 parts, which requires
particulars of the applicant in Part I, particulars of the
corporate debtor in Part II, particulars of the proposed interim
resolution professional in Part III, particulars of the financial
debt in Part IV and documents, records and evidence of
default in Part V. Under Rule 4(3), the applicant is to dispatch
a copy of the application filed with the adjudicating authority
by registered post or speed post to the registered office of the
corporate debtor. The speed, within which the adjudicating
authority is to ascertain the existence of a default from the
records of the information utility or on the basis of evidence
furnished by the financial creditor, is important. This it must
do within 14 days of the receipt of the application. It is at the
stage of Section 7(5), where the adjudicating authority is
to be satisfied that a default has occurred, that the
corporate debtor is entitled to point out that a default has
not occurred in the sense that the “debt”, which may
also include a disputed claim, is not due. A debt may not
be due if it is not payable in law or in fact. The moment
the adjudicating authority is satisfied that a default has
occurred, the application must be admitted unless it is
incomplete, in which case it may give notice to the applicant
to rectify the defect within 7 days of receipt of a notice from
the adjudicating authority. Under sub-section (7), the
adjudicating authority shall then communicate the order
passed to the financial creditor and corporate debtor within 7
days of admission or rejection of such application, as the
case may be.”
(emphasis in bold supplied)

18.3. The other decision in which this Court again traversed through the

historical background and scheme of the Code had been in the wake of

challenge to the constitutional validity of various of its provisions in the

case of Swiss Ribbons (supra), decided on 25.01.2019.

18.3.1. In Swiss Ribbons, while upholding the constitutional validity of

IBC, this Court took note, inter alia, of the pre-existing state of law as also

the objects and reasons for enactment of the Code; and while observing

that the focus of the Code was to ensure revival and continuation of the

41
corporate debtor, where liquidation is to be availed of only as a last

resort, this Court pointed out that on its scheme and framework, the Code

was a beneficial legislation to put the corporate debtor on its feet, and not

a mere recovery legislation for the creditors. This Court said, –

“27. As is discernible, the Preamble gives an insight into
what is sought to be achieved by the Code. The Code is first
and foremost, a Code for reorganisation and insolvency
resolution of corporate debtors. Unless such reorganisation
is effected in a time-bound manner, the value of the assets of
such persons will deplete. Therefore, maximisation of value
of the assets of such persons so that they are efficiently run
as going concerns is another very important objective of the
Code. This, in turn, will promote entrepreneurship as the
persons in management of the corporate debtor are removed
and replaced by entrepreneurs. When, therefore, a resolution
plan takes off and the corporate debtor is brought back into
the economic mainstream, it is able to repay its debts, which,
in turn, enhances the viability of credit in the hands of banks
and financial institutions. Above all, ultimately, the interests of
all stakeholders are looked after as the corporate debtor itself
becomes a beneficiary of the resolution scheme—workers
are paid, the creditors in the long run will be repaid in full,
and shareholders/investors are able to maximise their
investment. Timely resolution of a corporate debtor who is in
the red, by an effective legal framework, would go a long way
to support the development of credit markets. Since more
investment can be made with funds that have come back into
the economy, business then eases up, which leads, overall,
to higher economic growth and development of the Indian
economy. What is interesting to note is that the Preamble
does not, in any manner, refer to liquidation, which is only
availed of as a last resort if there is either no resolution plan
or the resolution plans submitted are not up to the mark.
Even in liquidation, the liquidator can sell the business of the
corporate debtor as a going concern. (See ArcelorMittal32 at
para 83, fn 3).

28. It can thus be seen that the primary focus of the
legislation is to ensure revival and continuation of the

32 ArcelorMittal India (P) Ltd. v. Satish Kumar Gupta & Ors: (2019) 2 SCC 1

42
corporate debtor by protecting the corporate debtor
from its own management and from a corporate death by
liquidation. The Code is thus a beneficial legislation
which puts the corporate debtor back on its feet, not
being a mere recovery legislation for creditors. The
interests of the corporate debtor have, therefore, been
bifurcated and separated from that of its promoters/those
who are in management. Thus, the resolution process is
not adversarial to the corporate debtor but, in fact,
protective of its interests. The moratorium imposed by
Section 14 is in the interest of the corporate debtor itself,
thereby preserving the assets of the corporate debtor during
the resolution process. The timelines within which the
resolution process is to take place again protects the
corporate debtor’s assets from further dilution, and also
protects all its creditors and workers by seeing that the
resolution process goes through as fast as possible so that
another management can, through its entrepreneurial skills,
resuscitate the corporate debtor to achieve all these ends.”
(emphasis in bold supplied)

18.3.2. In Swiss Ribbons, this Court again explained the connotations as

also contours of the provisions relating to initiation of CIRP by the financial

creditor in the following passage:-

“64. The trigger for a financial creditor’s application is non-
payment of dues when they arise under loan agreements. It
is for this reason that Section 433(e) of the Companies Act,
1956 has been repealed by the Code and a change in
approach has been brought about. Legislative policy now
is to move away from the concept of “inability to pay
debts” to “determination of default”. The said shift
enables the financial creditor to prove, based upon solid
documentary evidence, that there was an obligation to pay
the debt and that the debtor has failed in such obligation….”
(emphasis in bold supplied)

19. The expositions abovementioned make it clear that the Insolvency

and Bankruptcy Code, 2016 has been enacted to consolidate and amend

the laws relating to reorganisation and insolvency resolution of corporate

persons and other entrepreneurs in a time bound manner so as to ensure

43
maximisation of value of assets of such persons and to balance the interest

of all the stakeholders. As regards corporate debtor, the primary focus of

the Code is to ensure its revival and continuation by protecting it from its

own management and, as far as feasible, to save it from liquidation. As

tersely put by this Court in Swiss Ribbons (supra), the Code is thus a

beneficial legislation which puts the corporate debtor back on its feet, not

being a mere recovery legislation for creditors.

19.1. When the Corporate Insolvency Resolution Process is understood

on the anvil of the aforementioned fundamentals on the spirit and intent of

IBC, it is also evident that such a process is not intended to be adversarial

to the corporate debtor but is essentially to protect its interests.

19.2. In relation to a financial creditor, the trigger for CIRP is default by the

corporate debtor of rupees one lakh or more against the debt/s. When

seeking initiation of CIRP qua a corporate debtor, the financial creditor is

required to make the application in conformity with the requirements of

Section 7 of the Code while divulging the necessary information and

evidence, as required by the Rules of 2016. After completion of all other

requirements, for admitting such an application of the financial creditor, the

Adjudicating Authority has to be satisfied, as per sub-section (5) of Section

7 of the Code, that “default” has occurred and, in this process of

consideration by the Adjudicating Authority, the corporate debtor is entitled

to point out that default has not occurred in the sense that the “debt”, which

may also include a disputed claim, is not due. A debt may not be due if it is

44
not payable in law or in fact. As observed by this Court, the legislative policy

now is to move away from the concept of “inability to pay debts” to

“determination of default”.

Operation of law of limitation over IBC proceedings

20. Having taken note of the rudiments that the Code is a beneficial

legislation intended to put the corporate debtor on its feet and it is not a

mere money recovery legislation for the creditors; and having also noticed

that CIRP is not intended to be adversarial to the corporate debtor but is

essentially to protect its interests and that CIRP has its genesis in default on

the part of the corporate debtor, we may now examine the operation of law

of limitation over the proceedings under the Code.

21. Section 238-A, providing that the provisions of the Limitation Act,

1963 shall, as far as may be, apply to the proceedings or appeals, inter alia,

before the Adjudicating Authority (NCLT) or the Appellate Tribunal (NCLAT),

was not available in the Code when this Court delivered the decision in

Innoventive Industries (supra) on 31.08.2017. However, this Court

explained the scheme of the Code and nuances of CIRP by the financial

creditor under Section 7, particularly as to when the process of insolvency

resolution begins, the trigger moment being the default of rupees one lakh

or more; and the requirement on the Adjudicating Authority to reach to the

satisfaction that the required default has occurred. It appears that even

when the applicable principles in relation to CIRP by the financial creditor

were explained by this Court in Innoventive Industries (supra), the

45
question of applicability of the Limitation Act to the Code remained a matter

of debate in various decisions of NCLT and NCLAT. Such a debate and the

doubts generated thereby were dealt with by the Insolvency Law Committee

who, in its report made in the month of March, 2018, recommended for

introduction of the requisite provision in the Code so as to leave no room of

doubt that the Limitation Act indeed applies to the proceedings under the

Code. This ultimately led to the insertion of the said Section 238-A into the

Code with retrospective effect from 06.06.2018. However, the validity of this

Section 238-A was also questioned before this Court and this culminated

into the elaborate decision of this Court in the case of B.K. Educational

Services (supra) that was rendered on 11.10.2018.

22. In B.K. Educational Services (supra), while upholding the validity

of Section 238-A of the Code, this Court took note of the said report of the

Insolvency Law Committee and observed as under:-

“11. Having heard the learned counsel for both sides, it is
important to first set out the reason for the introduction of
Section 238-A into the Code. This is to be found in the Report
of the Insolvency Law Committee of March 2018, as follows:

“28. APPLICATION OF LIMITATION ACT, 1963
28.1. The question of applicability of the Limitation Act, 1963
(the Limitation Act) to the Code has been deliberated upon in
several judgments of NCLT and 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. 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. This
requires being read with the definition of “debt” and “claim” in
the Code. Further, debts in winding-up proceedings cannot
46
be time-barred, 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 laches’. 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
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.”
(emphasis in original and supplied)

12. The Report of the Committee would indicate that it has
applied its mind to judgments of NCLT and 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.”
(emphasis in bold supplied)

22.1. Further, in B.K. Educational Services, this Court extensively

dealt with the issues as to whether the Code being exhaustive in nature,

would result in overriding the Limitation Act and as to whether the object

of the legislature was to apply the limitation prescribed under the Code

47
retrospectively. This Court, relying on a plethora of judgments and the

said Insolvency Law Committee Report of March, 2018 stated the views

in no uncertain terms that,-

“34……. 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 the
Code. The Code cannot be triggered in the year 2017 for a
debt which was time-barred, say, in 1990, as that would lead
to the absurd and extreme consequence of the Code being
triggered by a stale or dead claim, leading to the drastic
consequence of instant removal of the present Board of
Directors of the corporate debtor permanently, and which
may ultimately lead to liquidation and, therefore, corporate
death. This being the case, the expression “debt due” in the
definition Sections of the Code would obviously only refer to
debts that are “due and payable” in law, i.e., the debts that
are not time-barred. That this is the case has already been
held by us in the Innoventive Industries Ltd. (supra)…..

**** **** ****

36. The definition of “default” in Section 3(12) uses the
expression “due and payable” followed by the expression
“and is not paid by the debtor or the corporate debtor…”.
“Due and payable” in Section 3(12), therefore, only refers to
the whole or part of a debt, which when referring to the date
on which it becomes “due and payable”, is not in fact paid by
the corporate debtor. The context of this provision is therefore
actual non-payment by the corporate debtor when a debt has
become due and payable.

**** **** ****

42. It is thus clear that since the Limitation Act 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.

(emphasis in bold supplied)

48

23. After the aforesaid decisions dated 31.08.2017 in Innoventive

Industries and dated 11.10.2018 in B.K. Educational Services, this Court

again examined the overall scheme and spirit of the provisions of IBC in the

case of Swiss Ribbons (supra) on 25.01.2019. The relevant enunciations

in Swiss Ribbons have already been noticed hereinbefore.

24. Thereafter, the case of K. Sashidhar (supra) was decided on

05.02.2019. Therein, the principal issue related with the dispensation

governing the process of approval or rejection of resolution plan by the

Committee of Creditors33 but, having regard to the variety of contentions

urged, this Court took note of the decisions elaborately dealing with the

legislative history of the Code including that in Innoventive Industries

(supra). During the course of submissions, the said decision in B.K.

Educational Services was also cited and hence, the same was referred to

and the ratio therein was explained in the following passage:

“78. As regards the decision in B.K. Educational, the Court
was called upon to consider the question as to whether the
Limitation Act, 1963 will apply to applications that are made
under Section 7 and/or Section 9 of the Code on and from its
commencement on 1-12-2016 till 6-6-2018. That question
was examined in the context of Section 238-A inserted in the
I&B Code by the self-same Amendment Act of 2018. The
Court after adverting to the contents of the report of the
Insolvency Law Committee of March 2018 and other
provisions of the Code and other enactments, opined
that Section 238-A was clarificatory in nature and being a
procedural law, came to hold that it had retrospective
effect. The Court held that taking any other view would

33 ‘CoC’ for short.

49

result in an incongruous situation as the provisions of
the Limitation Act would apply in some set of cases to be
decided by the same Tribunal and not in other set of
cases. Besides, the Court adverted to the principle that
right to sue accrues on the date when default occurs and
if the default occurred even three years prior to the date
of filing of the application, the same cannot be treated as
“debt that is due and payable” or “debt” due.”
(emphasis in bold supplied)

25. As noticed, the abovementioned decision in K. Sashidhar was

rendered on 05.02.2019 wherein, the principles in B.K. Educational

Services were undoubtedly restated by this Court. However, thereafter, the

case of Jignesh Shah (supra) came to be decided by a three-Judge Bench

of this Court on 25.05.2019. A particular passage in this three-Judge Bench

decision in Jignesh Shah (as occurring in paragraph 21, SCC p. 770) has

been relied upon by both the parties to assert that the law so declared by

this Court supports their case.

25.1 In order to comprehend the meaning and import of the referred

observations in paragraph 21 of Jignesh Shah, the text thereof is required

to be read in its context. Therefore, it shall be worthwhile to take note of the

relevant factual and background aspects of the case of Jignesh Shah.

Therein, IL&FS Financial Services Ltd. (‘IL&FS’) had filed a winding up

petition against La-Fin Financial Services Pvt. Ltd. (‘La-Fin’) which was

transferred to National Company Law Tribunal, Mumbai Branch and then,

was heard as Section 7 application under the Code. The background had

been that on 20.08.2009, a share-purchase agreement was executed,

whereby IL&FS agreed to purchase 442 lakhs equity shares of MCX Stock

50
Exchange Limited (‘MCX-SX’) from Multi-Commodity Exchange India

Limited (‘MCX’). Pursuant to this agreement, La-Fin, as a group company of

MCX, issued a letter of undertaking to IL&FS on 20.08.2009 stating that La-

Fin or its appointed nominees would offer to purchase from IL&FS the

shares of MCX-SX after a period of one year, but before three years, from

the date of investment. Thereafter, on 03.08.2012, IL&FS proposed to sell

its entire holding of shares in MCX-SX and called upon La-Fin to purchase

these shares in terms of the undertaking. On 16.08.2012, La-Fin replied

with denial of any legal or contractual obligation to buy the aforesaid

shares. Ultimately, on 19.06.2013, IL&FS filed Suit No. 449 of 2013 in the

Bombay High Court for specific performance of the letter of undertaking by

La-Fin or, in the alternative, for damages while stating that the cause of

action arose on 16.08.2012 when La-Fin refused to honour its obligation.

Interim injunction was granted in the said suit on 13.10.2014. Thereafter, on

03.11.2015, a statutory notice under Sections 433 and 434 of the

Companies Act, 1956 was issued by IL&FS to La-Fin while referring to the

attachment of the properties of La-Fin by Economic Offences Wing of the

Mumbai Police and stating that La-Fin was obviously in no financial position

to pay the amount it owed to IL&FS. This notice was followed up by the

winding up petition that was filed on 21.10.2016 by IL&FS against La-Fin in

the Bombay High Court under Section 433(e) of the Companies Act, 1956.

As noticed, this company petition was transferred to NCLT and was heard

as an application under Section 7 of the Code. This transferred petition was

51
admitted by NCLT while forming the opinion that as per the share-purchase

agreement and the letter of understanding, a financial debt had been

incurred by La-Fin. The appeal filed by the appellant Jignesh Shah was also

dismissed by NCLAT. Hence, the orders passed by NCLT and NCLAT were

challenged in this Court. A writ petition was also filed challenging the

constitutionality of certain provisions of the Code. This has been the

backdrop in which, the statutory bar of limitation against the petition filed by

IL&FS was argued before this Court with reference to Section 238-A of the

Code and the decision in B.K. Educational Services (supra).

25.2. This Court accepted the contentions urged on behalf of the

appellants and while reproducing the relevant passages from B.K.

Educational Services, held that the bar of limitation was operating over the

application filed by IL&FS in the following words:-

“12. This judgment clinches the issue in favour of the
Petitioner/Appellant. With the introduction of Section 238A
into the Code, the provisions of the Limitation Act apply to
applications made under the Code. Winding up petitions filed
before the Code came into force are now converted into
petitions filed under the Code. What has, therefore, to be
decided is whether the Winding up Petition, on the date that it
was filed, is barred by lapse of time. If such petition is found
to be time-barred, then Section 238A of the Code will not give
a new lease of life to such a time-barred petition. On the
facts of this case, it is clear that as the Winding up
Petition was filed beyond three years from August, 2012
which is when, even according to IL & FS, default in
repayment had occurred, it is barred by time.”
(emphasis in bold supplied)

25.3. Though with the aforesaid finding, the matter stood concluded that

the petition filed by IL&FS was barred by limitation but thereafter, the Court

52
also proceeded to examine another line of submissions of the parties as

regards effect of the suit for recovery over the proceedings under Section

433 of the Companies Act, 1956, where it was argued on behalf of the

appellants that existence of such a suit cannot be construed as having

either revived the period of limitation or having extended it, insofar as

concerning the proceeding for winding up. This Court accepted the said

contention of the appellants and in that context, made the observations that

are relied upon by the parties and read as under:-

“21. The aforesaid judgments correctly hold that a suit for
recovery based upon a cause of action that is within limitation
cannot in any manner impact the separate and independent
remedy of a winding-up proceeding. In law, when time begins
to run, it can only be extended in the manner provided in the
Limitation Act. For example, an acknowledgment of liability
under Section 18 of the Limitation Act would certainly extend
the limitation period, but a suit for recovery, which is a
separate and independent proceeding distinct from the
remedy of winding up would, in no manner, impact the
limitation within which the winding-up proceeding is to be
filed, by somehow keeping the debt alive for the purpose of
the winding-up proceeding.”
25.4. Moreover, after reading the provisions contained in Sections 433(e)

and 434 of the Companies Act, 1956, for winding up in case of company

being unable to pay its debts, this Court made yet further observations in

Jignesh Shah (supra) that the trigger for limitation in such an action occurs

when a default takes place after which the debt remains outstanding; and

that date alone is relevant for reckoning the period of limitation. After

reproducing Section 433(e) and 434 of the Companies Act, 1956, this Court

said,-

53

“28. A reading of the aforesaid provisions would show that the
starting point of the period of limitation is when the company
is unable to pay its debts, and that Section 434 is a deeming
provision which refers to three situations in which a Company
shall be deemed to be “unable to pay its debts” Under
Section 433(e). In the first situation, if a demand is made by
the creditor to whom the company is indebted in a sum
exceeding one lakh then due, requiring the company to pay
the sum so due, and the company has for three weeks
thereafter “neglected to pay the sum”, or to secure or
compound for it to the reasonable satisfaction of the creditor.
“Neglected to pay” would arise only on default to pay the sum
due, which would clearly be a fixed date depending on the
facts of each case. Equally in the second situation, if
execution or other process is issued on a decree or order of
any Court or Tribunal in favour of a creditor of the company,
and is returned unsatisfied in whole or in part, default on the
part of the debtor company occurs. This again is clearly a
fixed date depending on the facts of each case. And in the
third situation, it is necessary to prove to the “satisfaction of
the Tribunal” that the company is unable to pay its debts.
Here again, the trigger point is the date on which default is
committed, on account of which the Company is unable to
pay its debts. This again is a fixed date that can be proved on
the facts of each case. Thus, Section 433(e) read with
Section 434 of the Companies Act, 1956 would show that
the trigger point for the purpose of limitation for filing of
a winding up petition Under Section 433(e) would be the
date of default in payment of the debt in any of the three
situations mentioned in Section 434.”
(emphasis in bold supplied)

26. Before examining the purport, effect and impact of the principles

emanating from the aforesaid decision in Jignesh Shah, it is rather

expedient to take note of the enunciations in a few later decisions of this

Court, on the very same issue concerning the operation of law of limitation

in regard to the application under Section 7 of the Code, which have been

cited in the present appeal.

54

27. One such decision had been in the case of Vashdeo R. Bhojwani

(supra) that was rendered on 02.09.2019. In that case, a default of Rs. 6.7

crores was found against the corporate debtor whose account was declared

NPA by the lender bank on 23.12.1999 and ultimately, a recovery certificate

dated 24.12.2001 was issued for this amount. Later on, the financial

creditor filed an application under Section 7 of the Code before the

Adjudicating Authority on 21.07.2017 claiming that the said amount together

with interest, which kept ticking from 1998, was payable to it as assignee.

The application under Section 7 was admitted on 05.03.2018 by the

Adjudicating Authority stating that ‘as the default continued, no period of

limitation would attach and the petition would, therefore, have to be

admitted’. The Appellate Tribunal dismissed the appeal against the

aforesaid order of admission while stating that ‘since the cause of action in

the present case was continuing, no limitation period would attach’; and

while further holding that the recovery certificate of 2001 plainly showed

that there was a default and there was no statable defence. After taking

note of the relevant facts and the foundation of the orders passed by the

Adjudicating Authority and the Appellate Tribunal, this Court disapproved

the same while finding that the case was covered by the decision in B.K.

Educational Services (supra) and while reiterating the passage above-

noted. To get out of the rigour of the ratio of B.K. Educational Services, a

reference was made to the provisions of the Limitation Act providing for

fresh period of limitation in the case of continuing cause of action and it

55
appears that Section 23 of the old Limitation Act of 1908 was referred to 34.

This Court rejected such contention while observing as under:

“4. In order to get out of the clutches of para 27, it is urged
that Section 23 of the Limitation Act would apply as a result of
which limitation would be saved in the present case. This
contention is effectively answered by a judgment of three
learned Judges of this Court in Balakrishna Savalram Pujari
and Others vs. Shree Dhyaneshwar Maharaj Sansthan &
Others
, [1959] Supp. (2) SCR 476. In this case, this Court held
as follows:

“ … In dealing with this argument it is necessary to
bear in mind that Section 23 refers not to a
continuing right but to a continuing wrong. It is the
very essence of a continuing wrong that it is an act
which creates a continuing source of injury and
renders the doer of the act responsible and liable for
the continuance of the said injury. If the wrongful act
causes an injury which is complete, there is no
continuing wrong even though the damage resulting
from the act may continue. If, however, a wrongful
act is of such a character that the injury caused by it
itself continues then the act constitutes a continuing
wrong. In this connection it is necessary to draw a
distinction between the injury caused by the wrongful
act and what may be described as the effect of the
said injury. It is only in regard to acts which can be
properly characterised as continuing wrongs that

34 We have indicated the provision contained in Limitation Act, 1908 for the reason that in the
cited decision, Section 23 has been referred and the decision of this Court reported in [1959]
Supp. (2) SCR 476 has been cited. The corresponding provision, as regards continuing cause of
action for specific category of cases is now contained in Section 22 of the Limitation Act, 1963
which is akin to the earlier Section 23 of the Limitation Act,1908 but with slight modifications. For
the sake of reference, these provisions are extracted as under:

Section 23 of the Limitation Act, 1908
“Continuing breaches and wrongs.-In the case of a continuing breach of
contract and in the case of a continuing wrong independent of contract, a fresh
period of limitation begins to run at every moment of the time during which the
breach or the wrong, as the case may be, continues.”

Section 22 of the Limitation Act, 1963
“Continuing breaches and torts.-In the case of a continuing breach of
contract or in the case of a continuing tort, a fresh period of limitation begins to
run at every moment of the time during which the breach or the tort, as the case
may be, continues.”

56
Section 23 can be invoked. Thus considered it is
difficult to hold that the trustees’ act in denying
altogether the alleged rights of the Guravs as
hereditary worshippers and in claiming and obtaining
possession from them by their suit in 1922 was a
continuing wrong. The decree obtained by the
trustees in the said litigation had injured effectively
and completely the appellants’ rights though the
damage caused by the said decree subsequently
continued.”
Following this judgment, it is clear that 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.

5. 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.
We allow the appeal and set aside the orders of NCLT and
NCLAT. There will be no order as to costs.”
(emphasis in bold supplied)

28. A few days after the decision in Vashdeo R. Bhojwani, a three-

Judge Bench of this Court had another occasion to apply and explain the

ratio in B.K. Educational Services. That was in the case of Gaurav

Hargovindbhai Dave (supra), decided on 18.09.2019. Therein, the

financial creditor had stated in the relevant column of Form No. 1 of the

application under Section 7 of the Code the date of default to be the date of

NPA i.e., 21.07.2011. The application under Section 7 was filed on

03.10.2017. The Adjudicating Authority applied Article 62 of the Limitation

Act and reached to the conclusion that since the limitation period was

twelve years from the date on which money sued has become due, the

claim was within limitation and hence, admitted the application. The NCLAT

applied another reasoning that the time of limitation would begin to run only

from 01.12.2016, the date on which the Code was brought into force. This

57
Court took note of the contentions of both the parties and while accepting

the submissions that time began to run on 21.07.2011 (the date of NPA),

held that the application filed under Section 7 was time-barred. The relevant

passages of the said decision in Gaurav Hargovindbhai Dave (supra)

could be usefully reproduced as under:-

“4. Mr Aditya Parolia, learned counsel appearing on behalf of
the appellant has argued that Article 137 being a residuary
article would apply on the facts of this case, and as right to
sue accrued only on and from 21.07.2011, three years having
elapsed since then in 2014, the Section 7 application filed in
2017 is clearly out of time. He has also referred to our
judgment in B.K. Educational Services Private Limited v.
Parag Gupta and Associates
, 2018 SCC OnLine SC 1921 in
order to buttress his argument that it is Article 137 of the
Limitation Act which will apply to the facts of this case.

5. Mr Debal Banerjee, learned Senior Counsel, appearing on
behalf of the respondents, countered this by stressing, in
particular, para 7 of B.K. Educational Services Private
Limited (supra) and reiterated the finding of the NCLT that it
would be Article 62 of the Limitation Act that would be
attracted to the facts of this case. He further argued that,
being a commercial Code, a commercial interpretation has to
be given so as to make the Code workable.

6. Having heard the learned counsel for both sides, 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.

7. This being the case, we fail to see how this para could
possibly help the case of the respondents. Further, it is not
for us to interpret, commercially or otherwise, articles of the

58
Limitation Act when it is clear that a particular article gets
attracted. It is well settled that there is no equity about
limitation – judgments have stated that often time periods
provided by the Limitation Act can be arbitrary in nature.

8. This being the case, the appeal is allowed and the
judgments of the NCLT and NCLAT are set aside.”
(emphasis in bold supplied)

29. Close on the heels of Gaurav Hargovindbhai Dave (supra), this

Court dealt with similar issue yet again in the case of Sagar Sharma

(supra), decided on 30.09.2019. Therein, apart from disapproving the

proposition that the date of commencement of the Code could be the

starting point of limitation (as noticed hereinabove), this Court again pointed

out the fallacy in applying the period of limitation related to mortgage liability

to the application under Section 7 of the Code and said, –

“2…..However, we find in the impugned judgment that Article
62 (erroneously stated to be
Article 61) was stated to be
attracted to the facts of the present case, considering that
there was a deed of mortgage which was executed between
the parties in this case. We may point out that an
application under Section 7 of the Code does not purport
to be an application to enforce any mortgage liability. It is
an application made by a financial creditor stating that a
default, as defined under the Code, has been made, which
default amounts to Rs 1,00,000 (Rupees one lakh) or more
which then triggers the application of the Code on settled
principles that have been laid down by several judgments of
this Court.”
(emphasis in bold supplied)

30. When Section 238-A of the Code is read with the above-noted

consistent decisions of this Court in Innoventive Industries, B.K.

Educational Services, Swiss Ribbons, K. Sashidhar, Jignesh Shah,

Vashdeo R. Bhojwani, Gaurav Hargovindbhai Dave and Sagar Sharma

59
respectively, the following basics undoubtedly come to the fore: (a) 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; (b) that CIRP is not

intended to be adversarial to the corporate debtor but is aimed at protecting

the interests of the corporate debtor; (c) that intention of the Code is not to

give a new lease of life to debts which are time-barred; (d) 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; (e) 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; (f) 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 (g) 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 (h) 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.

Whether Section 18 Limitation Act could be applied to the present

case

31. While the aforesaid principles remain crystal clear with the

consistent decisions of this Court, the only area of dispute, around which

60
the contentions of learned counsel for the parties have revolved in the

present case, is about applicability of Section 18 of the Limitation Act and

effect of the observations occurring in paragraph 21 of the decision in

Jignesh Shah (supra).

32. We have noticed all the relevant and material observations and

enunciations in the case of Jignesh Shah hereinbefore. Prima facie, it

appears that illustrative reference to Section 18 of the Limitation Act, in

paragraph 21 of the decision in Jignesh Shah, had only been in relation to

the suit or other proceedings, wherever it could apply and where the period

of limitation could get extended because of acknowledgment of liability.

Noticeably, in contradistinction to the proceeding of a suit, this Court

observed that a suit for recovery, which is a separate and independent

proceeding distinct from the remedy of winding up would, in no manner,

impact the limitation within which the winding up proceeding is to be filed 35.

It is difficult to read the observations in the aforesaid paragraph 21 of

Jignesh Shah to mean that the ratio of B.K. Educational Services has, in

any manner, been altered by this Court. As noticed, in B.K. Educational

Services, it has clearly been held that the limitation period for application

under Section 7 of the Code is three years as provided by Article 137 of the

Limitation Act, which commences from the date of default and is extendable

only by application of Section 5 of Limitation Act, if any case for

35 What has been observed in relation to the proceeding for winding up, perforce, applies to the
application seeking initiation of CIRP under IBC.

61
condonation of delay is made out. The findings in paragraph 12 in Jignesh

Shah makes it clear that the Court indeed applied the principles so stated in

B.K. Educational Services, and held that the winding up petition filed

beyond three years from the date of default was barred by time.

32.1. Even in the later decisions, this Court has consistently applied the

declaration of law in B.K. Educational Services (supra). As noticed, in the

case of Vashdeo R. Bhojwani (supra), this Court rejected the contention

suggesting continuing cause of action for the purpose of application under

Section 7 of the Code while holding that the limitation started ticking from

the date of issuance of recovery certificate dated 24.12.2001. Again, in the

case of Gaurav Hargovindbhai Dave (supra), where the date of default

was stated in the application under Section 7 of the Code to be the date of

NPA i.e., 21.07.2011, this Court held that the limitation began to run from

the date of NPA and hence, the application filed under Section 7 of the

Code on 03.10.2017 was barred by limitation.

32.2. In view of the above, we are not inclined to accept the arguments

built up by the respondents with reference to one part of observations

occurring in paragraph 21 of the decision in Jignesh Shah (supra).

33. Apart from the above and even if it be assumed that the principles

relating to acknowledgement as per Section 18 of the Limitation Act are

applicable for extension of time for the purpose of the application under

Section 7 of the Code, in our view, neither the said provision and principles

come in operation in the present case nor they enure to the benefit of

62
respondent No. 2 for the fundamental reason that in the application made

before NCLT, the respondent No. 2 specifically stated the date of default as

‘8.7.2011 being the date of NPA’. It remains indisputable that neither any

other date of default has been stated in the application nor any suggestion

about any acknowledgement has been made. As noticed, even in Part-V of

the application, the respondent No. 2 was required to state the particulars of

financial debt with documents and evidence on record. In the variety of

descriptions which could have been given by the applicant in the said Part-

V of the application and even in residuary Point No. 8 therein, nothing was

at all stated at any place about the so called acknowledgment or any other

date of default.

33.1. Therefore, on the admitted fact situation of the present case, where

only the date of default as ‘08.07.2011’ has been stated for the purpose of

maintaining the application under Section 7 of the Code, and not even a

foundation is laid in the application for suggesting any acknowledgement or

any other date of default, in our view, the submissions sought to be

developed on behalf of the respondent No. 2 at the later stage cannot be

permitted. It remains trite that the question of limitation is essentially a

mixed question of law and facts and when a party seeks application of any

particular provision for extension or enlargement of the period of limitation,

the relevant facts are required to be pleaded and requisite evidence is

required to be adduced. Indisputably, in the present case, the respondent

No. 2 never came out with any pleading other than stating the date of

63
default as ‘08.07.2011’ in the application. That being the position, no case

for extension of period of limitation is available to be examined. In other

words, even if Section 18 of the Limitation Act and principles thereof were

applicable, the same would not apply to the application under consideration

in the present case, looking to the very averment regarding default therein

and for want of any other averment in regard to acknowledgement. In this

view of the matter, reliance on the decision in Mahaveer Cold Storage Pvt.

Ltd. does not advance the cause of the respondent No. 2.

34. The submissions made on behalf of respondents that the rules of

limitation are not meant to destroy the rights of the parties and reference to

the decision in N. Balakrishnan (supra) are also misplaced. Application of

the rules of limitation to CIRP (by virtue of Section 238-A of the Code read

with the above-referred consistent decisions of this Court) does not, in any

manner, deal with any of the rights of respondent No. 2; it only bars

recourse to the particular remedy of initiation of CIRP under the Code.

Equally, the other submissions made on behalf of the respondents about

any stringent application of the law of limitation which was introduced to the

Code only after filing of the application by respondent No. 2; or about the so

called prejudice likely to be caused to other banks and financial institutions

are also of no substance, particularly in the light of the principles laid down

and consistently followed by this Court right from the decision in B.K.

Educational Services (supra). These contentions have only been noted to

be rejected. Needless to add that when the application made by the

64
respondent No. 2 for CIRP is barred by limitation, no proceedings

undertaken therein after the order of admission could be of any effect. All

such proceedings remain non-est and could only be annulled.

The reasonings of NCLAT

35. The foregoing discussion practically concludes the principal part of

contentions urged in this matter but, to put the record straight, we may also

deal with the reasonings adopted by NCLAT in the impugned order dated

14.05.2019. As noticed hereinbefore, though NCLAT has referred to the

pendency of the application under Section 19 of the Act of 1993 as also the

fact that corporate debtor had made a prayer for OTS in the month of July,

2018 but, has not recorded any specific finding about the effect of these

factors. Only two reasons essentially appear to have weighed with NCLAT

to hold that the application in question is within limitation: One, that the right

to apply under Section 7 of the Code accrued to the respondent financial

creditor on 01.12.2016 when the Code came into force; and second, that

the period of limitation for recovery of possession of the mortgaged property

is twelve years. The reasonings so adopted by NCLAT do not stand in

conformity with the law declared by this Court and could only be

disapproved.

36. The question as to whether date of enforcement of the Code (i.e.,

01.12.2016) provides the starting point of limitation for an application under

Section 7 of the Code and hence, the application in question, made in the

year 2018, is within limitation, is not even worth devoting much time. A bare

65
look at paragraph 21 of the impugned order leaves nothing to guess that

such observations by the Appellate Tribunal had only been assumptive in

nature without any foundation and without any basis. There is nothing in the

Code to even remotely indicate if the period of limitation for the purpose of

an application under Section 7 is to commence from the date of

commencement of the Code itself. Similarly, nothing provided in the

Limitation Act could be taken as the basis to support the proposition so

stated by the Appellate Tribunal. In fact, such observations had been in the

teeth of law declared by this Court in the case of B. K. Educational

Services (supra).

36.1. It appears that at the given point of time, NCLAT had been readily

adopting such a proposition in other cases too, so as to treat similar

applications within limitation. This approach of NCLAT was specifically

disapproved by this Court in Sagar Sharma (supra) where, after observing

that in B. K. Educational Services (supra) it had already been made clear

that the date of the Code’s coming into force on 01.12.2016 was wholly

irrelevant to the triggering of any limitation period for the purposes of the

Code, this Court said,-

“3. 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 IB 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.”

66

37. The other observations as made and the reasoning as adopted by

the Appellate Tribunal in paragraphs 29 and 30 of the impugned order, that

the property having been mortgaged, the claim is not barred by limitation

because of the period of limitation of twelve years with regard to mortgaged

property, had again been erroneous and do not stand in conformity with the

dictum of this Court.

37.1. The Appellate Tribunal was conscious of the decision of this Court in

B. K. Educational Services (supra) wherein it had been held in no

uncertain terms that the limitation provided in Article 137 governs the

application under Section 7 of the Code. When Article 137, being the

residuary provision on the period of limitation for “other applications” is held

applicable by this Court for the purpose of reckoning the period of limitation

for an application under Section 7 of the Code, it remains rather

inexplicable as to how the Appellate Tribunal could have applied any other

Article of Limitation Act (and that too relating to suits) for the purpose of

such an application?

37.2. In the totality of circumstances, we are also constrained to refer to

paragraph 24 of the very same order wherein, the Appellate Tribunal has

noticed its own decision in the case of Binani Industries, holding that the

period of limitation prescribed in the First Division of the Schedule to the

Limitation Act (providing limitation period for suits) is not applicable to the

proceedings under the Code. However, the observations and findings in the

67
later part of the impugned order are contrary even to those occurring in the

said paragraph 24 of the very same order.

37.3 It again appears that in other cases too, similar reasoning prevailed

with the Adjudicating Authorities as also the Appellate Tribunal, where the

Articles of the Limitation Act relating to the suits concerning mortgaged

property (and thereby the period of limitation of twelve years) were sought

to be applied to hold that similar applications under Section 7 of the Code

were not barred by limitation. Such propositions were specifically

disapproved by a three-Judge Bench of this Court in the case of Gaurav

Hargovindbhai Dave (supra) decided on 18.09.2019. As noticed

hereinbefore, in Gaurav Hargovindbhai Dave (supra) this Court

disapproved the approach of Adjudicating Authority in applying Article 62 of

the Limitation Act to such an application under Section 7 of the Code with

the observations that Article 62 is out of way, for it applies only to suits; and

application under Section 7 falls within the ambit of residuary Article 137. In

Sagar Sharma (supra), this Court again pointed out the fallacy in applying

the period of limitation related to mortgage liability for the purpose of

application under Section 7 of the Code.

37.4. In view of the above, there remains nothing to doubt that the

Appellate Tribunal had been in error in applying the period of limitation

provided for mortgage liability for the purpose of limitation applicable to the

application in question. The observations and findings in paragraphs 29 and

30 of the impugned order are also required to be disapproved.

68
Summation

38. The discussion foregoing leads to the inescapable conclusion that

the application made by the respondent No. 2 under Section 7 of the

Code in the month of March 2018, seeking initiation of CIRP in respect of

the corporate debtor with specific assertion of the date of default as

08.07.2011, is clearly barred by limitation for having been filed much later

than the period of three years from the date of default as stated in the

application. The NCLT having not examined the question of limitation; the

NCLAT having decided the question of limitation on entirely irrelevant

considerations; and the attempt on the part of the respondents to save

the limitation with reference to the principles of acknowledgment having

been found unsustainable, the impugned orders deserve to be set aside

and the application filed by the respondent No. 2 deserves to be rejected

as being barred by limitation.

Other proceedings not to be affected

39. Before concluding on this matter, we would hasten to observe

that admittedly, at the time of moving of the application under Section 7 of

the Code by the respondent No. 2, a petition under Section 19 of the Act

of 1993 was pending before DRT against the corporate debtor. In view of

admission of the application under Section 7 of the Code by NCLT, the

69
said petition under Section 19 of the Act of 1993 (and any other pending

matter against the corporate debtor) could not have proceeded during the

period of moratorium in terms of Section 14 of the Code. Now, by virtue of

this judgment, the said application under Section 7 of the Code shall

stand rejected for being barred by limitation and all the proceedings

thereunder shall stand annulled. As a necessary consequence, the

moratorium in terms of Section 14 of the Code shall get lifted and,

therefore, those stalled proceedings should now be taken up and dealt

with by the respective Courts/Tribunals/Authorities, of course, strictly in

accordance with law. In the interest of justice, we also make it clear that

the observations in this judgment are relevant only in regard to the issue

determined that the application under Section 7 of the Code is barred by

limitation and not beyond. In other words, nothing in this judgment shall

have bearing on any other proceeding that shall be dealt with on its own

merits and in accordance with law.

Conclusion

40. In view of the above, this appeal is allowed to the extent

indicated and with the observations foregoing. The impugned orders

dated 14.05.2019 as passed by the National Company Law Appellate

Tribunal, New Delhi in Company Appeal (AT) Insolvency No. 549 of 2018

and dated 09.08.2018 as passed by the National Company Law Tribunal,

Mumbai Bench in CP(IB)-488/I&BP/MB/2018 are set aside; and the

application made by the respondent No. 2 under Section 7 of the Code,

70
seeking initiation of Corporate Insolvency Resolution Process in respect

of respondent No. 1 is rejected for being barred by limitation.

Consequently, all the proceedings undertaken in the said application

under Section 7 of the Code, including appointment of IRP, stand

annulled. No costs.

………………..………….J.

(A.M.KHANWILKAR)

……..……………….…….J.

(DINESH MAHESHWARI)

New Delhi,
Dated: 14th August, 2020.

71



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