Sesh Nath Singh vs Baidyabati Sheoraphuli Co … on 22 March, 2021


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Supreme Court of India

Sesh Nath Singh vs Baidyabati Sheoraphuli Co … on 22 March, 2021

Author: Hon’Ble Ms. Banerjee

Bench: Hon’Ble Ms. Banerjee, Krishna Murari

                                                                                                       1


                                                                                        REPORTABLE
                                        IN THE SUPREME COURT OF INDIA
                                         CIVIL APPELLATE JURISDICTION

                                         CIVIL APPEAL NO. 9198 OF 2019



                         SESH NATH SINGH & ANR.                                        …..Appellant(s)


                                                           versus


                         BAIDYABATI SHEORAPHULI CO-OPERATIVE
                         BANK LTD AND ANR.                                         …..Respondent(s)




                                                    JUDGMENT

Indira Banerjee, J.

This appeal under Section 62 of the Insolvency and

Bankruptcy Code 2016, hereinafter referred to as the ‘IBC’, is against

a judgment and order dated 22 nd November 2019, passed by the

National Company Law Appellate Tribunal (NCLAT), dismissing

Company Appeal (AT) (Insolvency) No.672 of 2019, filed by the

Appellants, challenging an order dated 25th April 2019, of the National

Signature Not Verified Company Law Tribunal (NCLT), Kolkata Bench, admitting the
Digitally signed by
Rachna
Date: 2021.03.23
13:14:44 IST
Reason:

application filed by the Respondent No.1 as Financial Creditor, under

Section 7 of the IBC being CP(IB) No.1202/KB/2018, thereby initiating
2
the Corporate Insolvency Resolution Process (CIRP) against the

Corporate Debtor, Debi Fabtech Private Ltd.

2. The Corporate Debtor was inter alia engaged in the business

of export of textile and garments. On or about 8 th February 2012, the

Corporate Debtor requested the Financial Creditor for cash credit

facility of Rs.1,00,00,000/- (Rupees One Crore).

3. By a letter of sanction dated 15th February, 2012, the Financial

Creditor granted Cash Credit Facility of Rs.1,00,00,000/- to the

Corporate Debtor, after which a Cash Credit Account No.482 was

opened in the name of the Corporate Debtor. The Corporate Debtor

duly executed a hypothecation agreement with the Financial Creditor

on 17th February, 2012.

4. According to the Financial Creditor, in May 2012 itself the

Corporate Debtor defaulted in repayment of its debt to the Financial

Creditor, in terms of cash credit facility granted by the Financial

Creditor to the Corporate Debtor. The said Cash Credit Account

No.482 became irregular. The Financial Creditor declared the said

Account of the Corporate Debtor a Non Performing Asset (NPA) on 31 st

March 2013.

5. On or about 18th January 2014, the Financial Creditor issued

notice to the Corporate Debtor under Section 13(2) of the
3
Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 hereinafter referred to, in

short as the ‘SARFAESI Act’, calling upon the Corporate Debtor to

discharge in full, its outstanding liability of Rs.1,07,88,536.00

inclusive of interest as on 28.09.2013 to the Financial Creditor within

sixty days from the date of notice, failing which action would be taken

under Section 13(4) of the said Act.

6. The Corporate Debtor made a representation dated 3.3.2014

to the Financial Creditor under Section 13(3A) of the SARFAESI Act

objecting to the notice under Section 13(2) of the SARFAESI Act.

7. By a letter dated 15th July 2014, the Financial Creditor rejected

the aforesaid representation of the Corporate Debtor and once again

requested Corporate Debtor to clear the outstanding amount of

Rs.1,07,88,536.00 as claimed in the notice dated 18 th January 2014

under Section 13(2) of the SARFAESI Act, within 15 days from the

date of receipt of the said letter, with further interest and other

charges till date of payment and to regularize the Cash Credit

Account No.482 in order to avail better services from the Financial

Creditor.

8. On 13th December 2014, the Financial Creditor issued a notice

being Ref No. HC/1180/14-15 dated 13.12.2014 to the Corporate

Debtor under Section 13(4)(a) of the SARFAESI Act, calling upon the
4
Corporate Debtor to handover peaceful possession of the secured

immovable assets as detailed in the schedule, failing which the

Financial Creditor would be forced to seek the assistance of the

District Magistrate, Hooghly for taking possession of the aforesaid

secured assets.

9. On or about 19th December 2014, the Corporate Debtor filed

writ application in the Calcutta High Court under Article 226 of the

Constitution of India being W.P. No.33799 (W) of 2014 inter alia

challenging the said notices issued by the Financial Creditor under

Section 13(2) and 13(4) of the SARFAESI Act.

10. While the said writ petition was pending in the High Court, the

Authorized Officer of the Financial Creditor issued a notice dated 24 th

December 2014, notifying the Corporate Debtor, the guarantors and

the public in general, that the Authorized Officer of the Financial

Creditor had taken possession of the secured assets of the Corporate

Debtor, as specified in the Schedule to the said notice, on 24 th

December 2014, under Section 13(4) of the SARFAESI Act.

11. On 11th May 2017, the District Magistrate Hooghly issued an

order under the SARFAESI Act for possession by the Financial Creditor

of the assets of the Corporate Debtor hypothecated to the Financial

Creditor.

5

12. On 24th July 2017, the High Court passed an interim order

restraining the Financial Creditor from taking steps against the

Corporate Debtor under the SARFAESI Act until further orders. The

High Court was of the prima facie view that the Financial Creditor

being a Cooperative Bank, it could not invoke the provisions of the

SARFAESI Act. It appears that the Writ Petition is still pending

consideration in the High Court.

13. On or about 10th July 2018, the Financial Creditor filed an

application in the Kolkata Bench of NCLT for initiation of the Corporate

Insolvency Resolution Process (CIRP) against the Corporate Debtor

under Section 7 of the IBC.

14. Notice of the petition under Section 7 of the IBC was duly

served on the Corporate Debtor. The Corporate Debtor appeared

through one Sesh Nath Singh, being the Appellant No.1, and opposed

the petition. On behalf of the Corporate Debtor, it was contended

that the Writ Petition filed by the Corporate Debtor, challenging the

maintainability of the proceedings under the SARFAESI Act, was

pending adjudication in the High Court.

15. The maintainability of the application under Section 7 of IBC

was also opposed before the NCLT, on the purported ground that a

Special Officer had been appointed as Administrator over the

Financial Creditor, only to hold elections. Such Special Officer could
6
not, therefore, initiate any proceeding on behalf of the Financial

Creditor. The Corporate Debtor did not oppose the application under

Section 7 of the IBC in the NCLT on the ground of the same being

barred by limitation.

16. By an order dated 25th April 2019, the Kolkata Bench of NCLT

admitted the application filed by the Financial Creditor under Section

7 of IBC, initiated the CIRP, appointed Mr. Animesh Mukhopadhyay as

Insolvency Resolution Professional (IRP) and declared a moratorium

for the purposes referred to under Section 14 of the IBC.

17. Being aggrieved by the order dated 25th April, 2019 passed by

the Kolkata Bench of NCLT, the Corporate Debtor filed an appeal

before the NCLAT under Section 61 of the IBC, contending that the

application filed by the Financial Creditor should not have been

entertained, the same being barred by limitation.

18. It was only in appeal before the NCLAT, that the Corporate

Debtor, for the first time contended, that the account of the

Corporate Debtor had been declared NPA on 31st March, 2013

whereas the application under Section 7 of IBC had been filed on 27 th

August, 2018, after almost five years and five months from the date

of accrual of the cause of action, and was therefore barred by

limitation.

7

19. After considering the submissions of learned counsel, the

NCLAT dismissed the appeal, with the observation that the ground of

limitation had been taken by the Corporate Debtor for the first time,

in the appeal. There was no finding of the Adjudicating Authority on

this issue.

20. The NCLAT examined the issue of limitation and held that the

Respondent had bona fide, within the period of limitation, initiated

proceedings against the Corporate Debtor under the SARFAESI Act

and was thus entitled to exclusion of time under Section 14(2) of the

Limitation Act. The NCLAT, after exclusion of the period of about

three years and six months till the date of the interim order of the

High Court, during which the Financial Creditor had been proceeding

under SARFAESI Act, found that the application of the Financial

Creditor, under Section 7 of the IBC, was within limitation. The

appeal was accordingly dismissed.

21. As pointed out by Mr. Sai Deepak appearing for the Financial

Creditor, the Financial Creditor had, in its application filed in the NCLT

under Section 7 of the IBC, enclosed a synopsis of relevant facts and

significant dates, with supporting documents, which included the

date of sanction of the loan, the date when the Cash Credit Account

was declared NPA, the dates of the Demand Notice under Section

13(2) of the Act and the notice under Section 13(4), notice of date of

possession under Section 13(4), the date on which possession order
8
was issued by the District Magistrate, Hooghly, West Bengal and the

date of the interim order of the High Court.

22. The relevant dates reveal that the Cash Credit Account of the

Corporate Debtor was declared NPA with effect from 31st March, 2013.

Proceedings under the SARFAESI Act commenced on 18 th January

2014, when a Demand Notice was issued under Section 13(2) of the

SARFAESI Act. In other words, proceedings were initiated under the

SARFAESI Act, 2002, approximately 9 months and 18 days after the

date of accrual of the right to issue. The proceedings under the

SARFAESI Act, 2002 were stayed by the Calcutta High Court, by an

order dated 24th July 2017, on the ground of want of jurisdiction.

About 11 months thereafter, while the writ petition filed by the

Corporate Debtor was still pending in the High Court, and the interim

stay of SARFAESI Act proceedings still continuing, the Financial

Creditor initiated the application under Section 7 of the IBC.

23. Mr. Siddhartha Dave appearing on behalf of the Appellant

submitted that the application of the Financial Creditor, under Section

7 of IBC, was barred by limitation and should have been dismissed on

that ground.

24. Mr. Dave argued that the judgment and order under appeal

was contrary to the law as declared by a larger Bench of the NCLAT in

Company Appeal (AT) (Insolvency) No. 1121 of 2019 titled Ishrat Ali
9
v. Cosmos Cooperative Bank Limited and Anr
., where the NCLAT

held that in an application under Section 7 of the IBC, the applicant is

not entitled to the benefit of Section 14 of the Limitation Act, 1963 in

respect of proceedings under the SARFAESI Act.

25. In the aforesaid case, the NCLAT held:-

“21. An action taken by the ‘Financial Creditor’ under Section 13(2)or
Section 13(4) of the ‘SARFAESI Act, 2002’ cannot be termed to be a civil
proceeding before a Court of first instance or appeal or revision before an
Appellate Court and the other forum. Therefore, action taken under
Company Appeal (AT) (Insolvency) No. 1121 of 2019 Section 13(2) of the
‘SARFAESI Act, 2002’ cannot be counted for the purpose of exclusion of the
period of limitation under Section 14(2) of the Limitation Act, 1963.
In an application under Section 7 relief is sought for resolution of a
‘Corporate Debtor’ or liquidation on failure. It is not a money claim or suit.
Therefore, no benefit can be given to any person under Section 14(2), till it
is shown that the application under Section 7 was prosecuting with due
diligence in a court of first instance or of appeal or revision which has no
jurisdiction.

22. The decision rendered in “Sesh Nath Singh & Ors. v. Baidyabati
Sheoraphuli Cooperative Bank Ltd.” (Supra
) thereby cannot be held to be a
correct law laid down by the Bench.

23. In the present case, the account of the ‘Corporate Debtor’ was classified
as NPA on 30th March, 2014. Thereafter, on 6th December, 2014, Demand
Notice under Section 13(2) of the ‘SARFAESI Act, 2002’ was issued by the
Respondent- ‘Cosmos Co-operative Bank Ltd.’ The Bank also initiated
Arbitration under Section 84 of the Multi-State Cooperative Societies Act on
4th December, 2015. The Bank had also taken possession of the movable
assets under Section 13(4) of the ‘SARFAESI Act, 2002’ as back as on 16th
January, 2017.

24. In the circumstances, instead of remitting the case to the Bench, we
hold that application under Section 7 filed by the ‘Cosmos Co- Company
Appeal (AT) (Insolvency) No. 1121 of 2019 Operative Bank Limited’ was
barred by limitation. We, accordingly, set aside the impugned order dated
23rd September, 2019 passed by the Adjudicating Authority (National
Company Law Tribunal), Mumbai Bench, Mumbai.”

26. Mr. Dave submitted that the account of Corporate Debtor with

the Financial Creditor had been declared Non-Performing Asset (NPA)
10
on 31st March, 2013. The cause of action thus accrued on 31 st March

2013. The period of 3 years expired on 31 st March, 2016. Mr. Dave

argued that the application under Section 7 of the IBC, filed before

the NCLT on 10th July, 2018, after five years and three months from

the date of declaration of the account of the Corporate Debtor as

NPA, was fatally time barred.

27. Mr. Dave further submitted that the Financial Creditor had not

filed any application before the NCLT under Section 5 of the Limitation

Act. The delay in filing the application under Section 7 of the IBC,

could not, therefore, have been condoned.

28. Mr. Dave submitted that if the Corporate Debtors were

unsuccessful before the High Court, the Financial Creditor which is in

possession of the secured property, would be free to deal with it in a

manner prescribed by law, to secure the defaulted amount.

However, if the Financial Creditor is permitted to proceed with its

time barred claim before the NCLT, the Corporate Debtor would have

to contest proceedings in two different Forums, for the same

defaulted amount. In the context of his submissions, Mr. Dave

referred to the judgment of this Court in Mobilox Innovations

Private Limited v. Kirusa Software Private Limited1,

29. Mr. Dave drew our attention to a recent judgment of this Court

1. (2018) 1 SCC 353
11
dated 21st January, 2021 in Civil Appeal 4221 of 2020 in M/s.

Reliance Asset Reconstruction Company Limited v. M/s. Hotel

Poonja International Private Limited2, where this Court

observed:-

In Transmission Corporation of Andhra Pradesh Limited v.
Equipment Conductors and Cables Limited
reported in (2019) 12 SCC
697, this Court followed its earlier judgment in Mobilox Innovations
Private Ltd. (supra) and observed as hereunder:-

“In a recent judgment of this Court in Mobilox Innovations Private
Limited v. Kirusa Software Private Limited
(2018) 1 SCC 353, this Court
has categorically laid down that IBC is not intended to be substitute to
a recovery forum. It is also laid down that whenever there is existence
of real dispute, the IBC provisions cannot be invoked…….”

30. Mr. Dave emphatically argued that the NCLT/NCLAT

considering an application under Section 7 of the IBC, not being a

forum for recovery of debt, Section 14 of the Limitation Act would not

apply, as held by the larger Bench of NCLAT in Ishrat Ali’s case.

31. Mr. Dave finally argued that, in any case, Section 14 of the

Limitation Act could only be attracted, if any earlier proceedings

initiated by the applicant were dismissed for want of jurisdiction, or

other cause of like nature. Referring to the Explanation in section

14(2) of the Limitation Act, Mr. Dave argued that, since the

proceedings initiated by the Financial Creditor under SARFAESI Act

were still pending, it was not open to the Financial Creditor to take

the benefit of Section 14(2) of the Limitation Act, 1963. The

explanation in Section 14 of the Limitation Act, is extracted

hereinbelow:

2. 2020 SCC Online NCLAT 920
12
“Explanation: for the purposes of this section,-

(a) in excluding the time during which a former civil proceeding was
pending, the day on which that proceeding was instituted and the day
on which it ended shall both be counted;”

32. The IBC was enacted to consolidate and amend the laws

relating to reorganisation and insolvency resolution of inter alia

corporate persons in a time-bound manner, for maximisation of the

value of assets of such corporate bodies, to promote

entrepreneurship, availability of credit and to balance the interests of

all stakeholders.

33. Prior to enactment of IBC, there was no single law in India that

dealt with insolvency and bankruptcy. Provisions relating to

insolvency and bankruptcy of companies were to be found in the Sick

Industrial Companies (Special Provisions) Act, 1985, hereinafter

referred to in short as “SICA”, the Recovery of Debt Due to Banks and

Financial Institutions Act, 1993, now known as the Recovery of Debts

and Bankruptcy Act, 1993, and hereinafter referred to as the “Debt

Recovery Act”, the SARFAESI Act, and the Companies Act, 2013.

34. These statutes provided for multiple forums, such as the

Board of Industrial and Financial Reconstruction (BIFR), Debt

Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT)

and their respective Appellate Tribunals. Liquidation of companies

was handled by the High Courts under the provisions of Sections 271

and 272 of the Companies Act, 2013 corresponding to Sections 433,

434 and 439 of the Companies Act, 1956. Individual bankruptcy and
13
insolvency was dealt with under the Presidency Towns Insolvency Act,

1909 and the Provincial Insolvency Act, 1920, which have been

repealed by the IBC.

35. As stated in its Object and Reasons, the objective of the IBC is

to consolidate and amend the laws relating to reorganisation and

insolvency resolution of corporate persons, partnership firms and

individuals in a time bound manner, for maximization of the value of

the assets of such persons, to promote entrepreneurship, availability

of credit and to balance the interest of all the stakeholders. An

effective legal framework for timely resolution of insolvency and

bankruptcy would support development of credit markets and

encourage entrepreneurship. It would also ease business, and

facilitate more investments leading to higher economic growth and

development. The IBC seeks to designate the NCLT and DRT as the

Adjudicating Authorities for resolution of insolvency, liquidation and

bankruptcy.

36. Section 6 of the IBC provides that, when any corporate debtor

commits a default, a financial creditor, an operational creditor or the

corporate debtor itself may initiate corporate insolvency resolution

process in respect of such corporate debtor, in such manner as

provided in Chapter II of the IBC. The sine qua non for initiation of

the corporate insolvency resolution process is the occurrence of

default.

14

37. Section 7 of the IBC provides as follows:

“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,] may file an
application for initiating corporate insolvency resolution process against a
corporate debtor before the Adjudicating Authority when a default has
occurred.

Provided that for the financial creditors, referred to in clauses (a) and (b) of
sub-section (6-A) of Section 21, an application for initiating corporate
insolvency resolution process against the corporate debtor shall be filed
jointly by not less than one hundred of such creditors in the same class or
not less than ten per cent. of the total number of such creditors in the same
class, whichever is less:

Provided further that for financial creditors who are allottees under a real
estate project, an application for initiating corporate insolvency resolution
process against the corporate debtor shall be filed jointly by not less than
one hundred of such allottees under the same real estate project or not less
than ten per cent. of the total number of such allottees under the same real
estate project, whichever is less:

Provided also that where an application for initiating the corporate
insolvency resolution process against a corporate debtor has been filed by
a financial creditor referred to in the first and second provisos and has not
been admitted by the Adjudicating Authority before the commencement of
the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such
application shall be modified to comply with the requirements of the first or
second proviso within thirty days of the commencement of the said Act,
failing which the application shall be deemed to be withdrawn before its
admission.

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):
Provided that if the Adjudicating Authority has not ascertained the
existence of default and passed an order under sub-section (5) within such
time, it shall record its reasons in writing for the same.

15

(5) Where the Adjudicating Authority is satisfied that—

(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.”

38. A financial creditor may either by itself or jointly with other

financial creditors, as may be notified by the Government, file an

application for initiation of the corporate insolvency resolution

process against a corporate debtor before the Adjudicating Authority,

when a default has occurred. The trigger point for an application

under Section 7 of the IBC is the occurrence of a default. The

restrictions stipulated in the three provisos to Section 7 are not

applicable in this case.

39. As observed by this Court (Rohinton Nariman, J.) in

Innoventive Industries Limited v. ICICI Bank and Another 3, the

scheme of the IBC is to ensure that when a default takes place, in the

sense that the debt becomes due and is not paid, the insolvency

3. (2018) 1 SCC 407
16
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. The Code gets triggered the moment default is

of rupees one lakh or more (Section 4).

40. In Innoventive Industries Limited (supra), this Court

further held that a debt may not be due if it is not payable in law or in

fact. In the case of a corporate debtor, who commits a default of a

financial debt, the Adjudicating Authority has merely to see the

records of the information utility or other evidence produced by the

financial creditor, to satisfy itself that a default has occurred. It is of

no matter that the debt is disputed, so long as the debt is, “due” i.e.

payable, unless interdicted by some law or has not yet become due in

the sense that it is payable at some future date. It is only when this is

proved to the satisfaction of the Adjudicating Authority that the

Adjudicating Authority may reject an application and not otherwise.

41. The judgment of this Court in Mobilox Innovations Private

Limited (supra) was rendered in the context of an application for

initiation of Corporate Insolvency Resolution Process by an

operational creditor, under Section 9 of the IBC.

42. Noticing the difference between Section 7 and Section 9 of the

IBC, this Court held:-

51. It is clear, therefore, that once the operational creditor has filed an
17
application, which is otherwise complete, the adjudicating authority must
reject the application under Section 9(5)(2)(d) if notice of dispute has been
received by the operational creditor or there is a record of dispute in the
information utility. It is clear that such notice must bring to the notice of the
operational creditor the “existence” of a dispute or the fact that a suit or
arbitration proceeding relating to a dispute is pending between the parties.
Therefore, all that the adjudicating authority is to see at this stage is
whether there is a plausible contention which requires further investigation
and that the “dispute” is not a patently feeble legal argument or an
assertion of fact unsupported by evidence. It is important to separate the
grain from the chaff and to reject a spurious defence which is mere bluster.
However, in doing so, the Court does not need to be satisfied that the
defence is likely to succeed. The Court does not at this stage examine the
merits of the dispute except to the extent indicated above. So long as a
dispute truly exists in fact and is not spurious, hypothetical or illusory, the
adjudicating authority has to reject the application.”

43. In enacting the IBC, the legislature has, in its wisdom,

differentiated between an application for initiation of corporate

insolvency resolution process by a financial creditor, which is filed

under Section 7 of the IBC, and an application for initiation of

insolvency resolution process by an operational creditor, which is

under Section 9 of the IBC, set out hereinbelow:-

9. Application for initiation of corporate insolvency resolution
process by operational creditor.—(1) After the expiry of the period of
ten days from the date of delivery of the notice or invoice demanding
payment under sub-section (1) of Section 8, if the operational creditor does
not receive payment from the corporate debtor or notice of the dispute
under sub-section (2) of Section 8, the operational creditor may file an
application before the Adjudicating Authority for initiating a corporate
insolvency resolution process.

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

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

(a) a copy of the invoice demanding payment or demand notice
delivered by the operational creditor to the corporate debtor;

(b) an affidavit to the effect that there is no notice given by the
corporate debtor relating to a dispute of the unpaid operational debt;

(c) a copy of the certificate from the financial institutions maintaining
accounts of the operational creditor confirming that there is no payment
of an unpaid operational debt by the corporate debtor, if available;

18

(d) a copy of any record with information utility confirming that there
is no payment of an unpaid operational debt by the corporate debtor,
if available; and

(e) any other proof confirming that there is no payment of an unpaid
operational debt by the corporate debtor or such other information,
as may be prescribed.

(4) An operational creditor initiating a corporate insolvency resolution
process under this section, may propose a resolution professional to act as
an interim resolution professional.

(5) The Adjudicating Authority shall, within fourteen days of the receipt of
the application under sub-section (2), by an order—

(i) admit the application and communicate such decision to the
operational creditor and the corporate debtor if,—

(a) the application made under sub-section (2) is complete;

(b) there is no payment of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has
been delivered by the operational creditor;

(d) no notice of dispute has been received by the operational creditor
or there is no record of dispute in the information utility; and

(e) there is no disciplinary proceeding pending against any resolution
professional proposed under sub-section (4), if any.

(ii) reject the application and communicate such decision to the
operational creditor and the corporate debtor, if—

(a) the application made under sub-section (2) is incomplete;

(b) there has been payment of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for payment to
the corporate debtor;

(d) notice of dispute has been received by the operational creditor or
there is a record of dispute in the information utility; or

(e) any disciplinary proceeding is pending against any proposed
resolution professional:

Provided that Adjudicating Authority, shall before rejecting an
application under sub-clause (a) of clause (ii) give a notice to the
applicant to rectify the defect in his application within seven days of
the date 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) of this
section.

19

44. Under Section 9(5)(i)(d) of the IBC, the Adjudicating Authority

has to reject an application made by an operational creditor, if notice

of dispute has been received by the operational creditor and there is

no record of dispute in the information utility. There is no such

provision in section 7 of the IBC.

45. The Limitation Act 1963, has been enacted to consolidate and

amend the law of limitation of suits and other proceedings and for

purposes connected therewith. The Limitation Act applies to “suits

and other proceedings and for purposes connected therewith” as

stated in its preamble. The expression “other proceedings” are

necessarily proceedings arising out of and/or related to suits.

46. In K. Venkateswara Rao And Anr. v. Bekkam Narasimha

Reddi & Ors4, this Court held that the Limitation Act did not apply to

an election petition under the Representation of People Act, 1950,

which is a complete Code. In Nityananda M. Joshi and Others v.

The Life Insurance Corporation of India and others 5, a three

Judge Bench of this Court speaking through Sikri, J. held that Article

137 of the Limitation Act only contemplates applications to Courts.

47. Various statutes have, however, adopted the provisions of the

Limitation Act, by incorporation or reference, either in its entirety or

to a limited extent. For example, Section 37 of the Arbitration Act,
4 AIR 1969 SC 872
5 (1969) 2 SCC 199
20
1940 provided that all the provisions of the Indian Limitation Act,

1908 would apply to arbitrations as they applied to proceedings in

Court. Section 433 of the Companies Act, 2013 provides that

the provisions of the Limitation Act, 1963 shall, as far as may be,

apply to proceedings or appeals before the Tribunal or the Appellate

Tribunal, as the case may be.

48. The insolvency Committee of the Ministry of Corporate Affairs,

Government of India, in a report published in March 2018, stated that

the intent of the IBC could not have been to give a new lease of life to

debts which were already time barred. Thereafter Section 238A was

incorporated in the IBC by the Insolvency and Bankruptcy Code

(Second Amendment) Act, 2018 (Act 26 of 2018), with effect from 6 th

June 2018. Section 238A provides as follows:-

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

49. The language and tenor of Section 238A is significant. The

Section reads that the provisions of the Limitation Act, 1963 shall, as

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

NCLT/NCLAT.

50. Section 238 gives overriding effect to the IBC, notwithstanding

anything inconsistent therewith contained in any other law, for the

time being in force, or any instrument having effect, by virtue of any
21
such law.

51. There is no specific period of limitation prescribed in the

Limitation Act, 1963 for an application under the IBC before the NCLT.

An application for which no period of limitation is provided anywhere

else in the Schedule, is governed by Article 137 of the Schedule to

the Limitation Act. Under Article 137 of the Schedule to the Limitation

Act, the period of limitation prescribed for such an application is three

years from the date of accrual of the right to apply.

52. There can be no dispute with the proposition that the period of

limitation for making an application under Section 7 or 9 of the IBC is

three years from the date of accrual of the right to sue, that is, the

date of default. In Gaurav Hargovindbhai Dave v. Asset

Reconstruction Company (India) Ltd. And Anr.6, this Court held:-

“6. ……The present case being “an application” which is filed
under Section 7, would fall only within the residuary Article 137.”

53. Section 5 of the Limitation Act provides that any appeal or any

application, other than an application under any of the provisions of

Order XXI of the Code of Civil Procedure, 1908, may be admitted after

the prescribed period of limitation, if the appellant or the applicant

satisfies the Court, that he had sufficient cause for not preferring the

appeal or making the application within such period. The explanation

6. (2019) 10 SCC 572
22
in Section 5 of the Limitation Act clarifies that, the fact that the

appellant or the applicant may have been misled by any order,

practice or judgment of the High Court in ascertaining or computing

the prescribed period, may be sufficient cause within the meaning of

this Section.

54. In B.K. Educational Services Private Limited v. Parag

Gupta and Associates7, this Court held:-

“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 in-
ception of the Code, Article 137 of the Limitation Act gets at-
tracted. “The right to sue”, therefore, accrues when a default oc-
curs. 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.”

55. In Radha Export (India) Private Limited v. K.P. Jayaram

and Anr.8, this Court referred to B.K. Educational Services (P)

Ltd. v. Parag Gupta & Associates (supra) and held the application

under Section 7 of the IBC to be barred by limitation.

56. In Babulal Vardharji Gurjar v. Veer Gurjar Aluminium In-

dustries Pvt. Ltd. and another 9, this Court held that limitation of

three years as provided by Article 137 of the Limitation Act, which

commenced from the date of the default, was extendable under

Section 5 of the Limitation Act.

7. (2019) 11 SCC 633

8. (2020) 10 SCC 538

9. (2020) 15 SCC 1
23

57. The issues involved in this appeal are:-

(i) Whether delay beyond three years in filing an application under

Section 7 of IBC can be condoned, in the absence of an

application for condonation of delay made by the applicant

under Section 5 of the Limitation Act, 1963?

(ii) Whether Section 14 of the Limitation Act, 1963 applies to

applications under Section 7 of the IBC? If so, is the exclusion of

time under Section 14 is available, only after the proceedings

before the wrong forum terminate?

58. For the sake of convenience, and to avoid prolixity and

unnecessary repetition, all the aforesaid issues are dealt with

together. Section 238A of the IBC provides that the provisions of the

Limitation Act shall, as far as may be, apply to proceedings before the

Adjudicating Authority(NCLT) and the NCLAT.

59. It is well settled by a plethora of judgments of this Court as

also different High Courts and, in particular, the judgment of this

Court in B.K. Educational Services Private Limited v. Parag

Gupta Associates and Ors. (supra) the NCLT/NCLAT has the discre-

tion to entertain an application/appeal after the prescribed period of

limitation. The condition precedent for exercise of such discretion is

the existence of sufficient cause for not preferring the appeal and/or

the application within the period prescribed by limitation.
24

60. In Ramlal Motilal and Chhotelal v. Rewa Coalfields Ltd. 10

this Court affirmed the view taken by Madras High Court in Krishna

v. Chattappan11 and held that Section 5 of the Limitation Act gives

the Courts a discretion, which is to be exercised in the way in which

judicial power and discretion ought to be exercised, upon principles

which are well understood. The expression ‘sufficient cause’ should

be construed liberally to advance substantial justice, as held by this

Court, inter alia, in Shakuntla Devi Jain vs. Kuntal Kumar 12 and in

State of West Bengal v. Administrator, Howrah Municipality

and Others13.

61. The condition precedent for condonation of the delay in filing

an application or appeal, is the existence of sufficient cause.

Whether the explanation furnished for the delay would constitute

‘sufficient cause’ or not would dependent upon facts of each case.

There cannot be any straight jacket formula for accepting or rejecting

the explanation furnished by the applicant/appellant for the delay in

taking steps. Acceptance of explanation furnished should be the rule

and refusal an exception, when no negligence or inaction or want of

bona fides can be imputed to the defaulting party.

62. It is true that a valuable right may accrue to the other party

10. AIR 1962 SC 361

11. 1890 ILR Mad 269

12. AIR 1969 SC 575

13. (1972) 1 SCC 366
25
by the law of limitation, which should not lightly be defeated by

condoning delay in a routine manner. At the same time, when stakes

are high, the explanation should not be rejected by taking a pedantic

and hyper technical view of the matter, causing thereby irreparable

loss and injury to the party against whom the lis terminates. The

courts are required to strike a balance between the legitimate rights

and interests of the respective parties.

63. Section 5 of the Limitation Act, 1963 does not speak of any

application. The Section enables the Court to admit an application or

appeal if the applicant or the appellant, as the case may be, satisfies

the Court that he had sufficient cause for not making the application

and/or preferring the appeal, within the time prescribed. Although, it

is the general practice to make a formal application under Section 5

of the Limitation Act, 1963, in order to enable the Court or Tribunal to

weigh the sufficiency of the cause for the inability of the

appellant/applicant to approach the Court/Tribunal within the time

prescribed by limitation, there is no bar to exercise by the

Court/Tribunal of its discretion to condone delay, in the absence of a

formal application.

64. A plain reading of Section 5 of the Limitation Act makes it

amply clear that, it is not mandatory to file an application in writing

before relief can be granted under the said section. Had such an

application been mandatory, Section 5 of the Limitation Act would
26
have expressly provided so. Section 5 would then have read that

the Court might condone delay beyond the time prescribed by

limitation for filing an application or appeal, if on consideration of the

application of the appellant or the applicant, as the case may be,

for condonation of delay, the Court is satisfied that the

appellant/applicant had sufficient cause for not preferring the appeal

or making the application within such period. Alternatively, a proviso

or an Explanation would have been added to Section 5, requiring the

appellant or the applicant, as the case may be, to make an

application for condonation of delay. However, the Court can always

insist that an application or an affidavit showing cause for the delay

be filed. No applicant or appellant can claim condonation of delay

under Section 5 of the Limitation Act as of right, without making an

application.

65. As observed above, Section 238A makes the provisions of the

Limitation Act applicable to proceedings under the IBC before the

Adjudicating authority and the Appellate Authority (NCLAT) ‘as far as

may be’. Section 14(2) of the Limitation Act which provides for

exclusion of time in computing the period of limitation in certain

circumstances, provides as follows:

“14. Exclusion of time of proceeding bona fide in court without jurisdiction.

(1) …..

(2) In computing the period of limitation for any application, the time during
which the applicant has been prosecuting with due diligence another civil
proceeding, whether in a court of first instance or of appeal or revision,
against the same party for the same relief shall be excluded, where such
27
proceeding is prosecuted in good faith in a court which, from defect of
jurisdiction or other cause of a like nature, is unable to entertain it.”

66. Similarly under Section 18 of the Limitation Act, an

acknowledgement of present subsisting liability, made in writing in

respect of any right claimed by the opposite party and signed by the

party against whom the right is claimed, has the effect of

commencing of a fresh period of limitation, from the date on which

the acknowledgment is signed. However, the acknowledgment must

be made before the period of limitation expires.

67. As observed above, Section 238A of the IBC makes the

provisions of the Limitation Act, as far as may be, applicable to pro-

ceedings before the NCLT and the NCLAT. The IBC does not exclude

the application of Section 6 or 14 or 18 or any other provision of the

Limitation Act to proceedings under the IBC in the NCLT/NCLAT. All the

provisions of the Limitation Act are applicable to proceedings in the

NCLT/NCLAT, to the extent feasible.

68. We see no reason why Section 14 or 18 of the Limitation Act,

1963 should not apply to proceeding under Section 7 or Section 9 of

the IBC. Of course, Section 18 of the Limitation Act is not attracted in

this case, since the impugned order of the NCLAT does not proceed

on the basis of any acknowledgment.

28

69. In M/s. Reliance Asset Reconstruction Company Ltd.

(supra), the petition under Section 7 of the IBC, filed by the Financial

Creditor in July 2018 was found, on facts, to be hopelessly barred by

limitation, as the account of the Corporate Debtor had been declared

NPA in 1993, after which recovery proceedings had been initiated, a

Recovery Certificate issued in 2003 and amended in 2001. This Court

found that the documents relied upon by the Financial Creditor to

claim the benefit of Section 18 of the Limitation Act, could not be con-

strued as admission or acknowledgment of liability.

70. Section 14 (2) of the Limitation Act provides that in computing

the period of limitation for any application, the time during which the

petitioner had been prosecuting, with due diligence, another civil

proceeding, whether in a court of first instance, or of appeal or

revision, against the same party, for the same relief, shall be

excluded, where such proceeding is prosecuted in good faith in a

Court which, from defect of jurisdiction or other cause of like nature,

is unable to entertain it. The conditions for exclusion are that the

earlier proceedings should have been for the same relief, the

proceedings should have been prosecuted diligently and in good faith

and the proceedings should have been prosecuted in a forum which,

from defect of jurisdiction or other cause of a like nature, was unable

to entertain it.

29

71. In State of Goa v. Western Builders14, this Court held that

Section 14 of the Limitation Act would apply to an application for

setting aside of an arbitral award under Section 34 of the Arbitration

and Conciliation Act, 1996 by virtue of Section 43 of the said Act,

which made the Limitation Act applicable to arbitrations as it applies

to proceedings in Court. This Court found that in the absence of any

provision in the Arbitration and Conciliation Act, 1996 excluding the

applicability of Section 14, a party was legitimately entitled to

exclusion of the time spent in bona fide prosecution of proceedings

with due diligence in a wrong forum. Distinguishing the earlier

judgment of this Court in Union of India v. Popular Construction

Co.15, the Court held that exclusion of time under Section 14 of the

Limitation Act in computation of limitation was different from

condonation of delay under Section 5 of the said Act.

72. In Consolidated Engineering Enterprises v. Principal

Secretary, Irrigation Department and Ors. 16, a three-Judge

Bench of this Court unanimously held that in the absence of any

provision in the Arbitration and Conciliation Act, 1996 which excluded

the applicability of Section 14 of the Limitation Act, there was no

reason why Section 14 of the Limitation Act should not apply to an

application for setting aside an arbitral award. This Court held:

“19. A bare reading of sub-section (3) of Section 34 read with the
proviso makes it abundantly clear that the application for setting aside

14 (2006) 6 SCC 239
15 (2001) 8 SCC 470
16 (2008) 7 SCC 169
30
the award on the grounds mentioned in sub-section (2) of Section 34
will have to be made within three months. The period can further be
extended, on sufficient cause being shown, by another period of 30
days but not thereafter. It means that as far as application for setting
aside the award is concerned, the period of limitation prescribed is
three months which can be extended by another period of 30 days, on
sufficient cause being shown to the satisfaction of the court.

20. Section 29(2) of the Limitation Act inter alia provides that where
any special or local law prescribes for any suit, appeal or application a
period of limitation different from the period of limitation prescribed by
the Schedule, the provisions of Section 3 shall apply as if such period
was the period prescribed by the Schedule and for the purpose of
determining any period of limitation prescribed for any suit, appeal or
application by any special or local law, the provisions contained in
Sections 4 to 24 shall apply only insofar as, and to the extent, they are
not expressly excluded by such special or local law. When any special
statute prescribes certain period of limitation as well as provision for
extension up to specified time-limit, on sufficient cause being shown,
then the period of limitation prescribed under the special law shall
prevail and to that extent the provisions of the Limitation Act shall
stand excluded. As the intention of the legislature in enacting sub-
section (3) of Section 34 of the Act is that the application for setting
aside the award should be made within three months and the period
can be further extended on sufficient cause being shown by another
period of 30 days but not thereafter, this Court is of the opinion that the
provisions of Section 5 of the Limitation Act would not be applicable
because the applicability of Section 5 of the Limitation Act stands
excluded because of the provisions of Section 29(2) of the Limitation
Act. However, merely because it is held that Section 5 of the Limitation
Act is not applicable to an application filed under Section 34 of the Act
for setting aside an award, one need not conclude that provisions of
Section 14 of the Limitation Act would also not be applicable to an
application submitted under Section 34 of the Act of 1996.

21. Section 14 of the Limitation Act deals with exclusion of time of
proceeding bona fide in a court without jurisdiction. On analysis of the
said section, it becomes evident that the following conditions must be
satisfied before Section 14 can be pressed into service:

(1) Both the prior and subsequent proceedings are civil
proceedings prosecuted by the same party;

(2) The prior proceeding had been prosecuted with due diligence
and in good faith;

(3) The failure of the prior proceeding was due to defect of
jurisdiction or other cause of like nature;

(4) The earlier proceeding and the latter proceeding must relate
to the same matter in issue and;

(5) Both the proceedings are in a court.

31

22. The policy of the section is to afford protection to a litigant against
the bar of limitation when he institutes a proceeding which by reason of
some technical defect cannot be decided on merits and is dismissed.
While considering the provisions of Section 14 of the Limitation Act,
proper approach will have to be adopted and the provisions will have to
be interpreted so as to advance the cause of justice rather than abort the
proceedings. It will be well to bear in mind that an element of mistake is
inherent in the invocation of Section 14. In fact, the section is intended to
provide relief against the bar of limitation in cases of mistaken remedy or
selection of a wrong forum. On reading Section 14 of the Act it becomes
clear that the legislature has enacted the said section to exempt a certain
period covered by a bona fide litigious activity. Upon the words used in
the section, it is not possible to sustain the interpretation that the
principle underlying the said section, namely, that the bar of limitation
should not affect a person honestly doing his best to get his case tried on
merits but failing because the court is unable to give him such a trial,
would not be applicable to an application filed under Section 34 of the Act
of 1996. The principle is clearly applicable not only to a case in which a
litigant brings his application in the court, that is, a court having no
jurisdiction to entertain it but also where he brings the suit or the
application in the wrong court in consequence of bona fide mistake or
(sic of) law or defect of procedure. Having regard to the intention of the
legislature this Court is of the firm opinion that the equity underlying
Section 14 should be applied to its fullest extent and time taken diligently
pursuing a remedy, in a wrong court, should be excluded.”

73. In his separate concurring judgment Raveendran, J. said:-

“52. Section 14 of the Limitation Act relates to exclusion of time of
proceeding bona fide in court without jurisdiction.
……..

53. Sub-section (3) of Section 34 of the AC Act prescribes the period of
limitation for filing an application for setting aside an award as three
months from the date on which the applicant has received the arbitral
award. The proviso thereto vests in the court discretion to extend the
period of limitation by a further period not exceeding thirty days if the
court is satisfied that the applicant was prevented by sufficient cause
for not making the application within three months. The use of the
words “but not thereafter” in the proviso makes it clear that even if a
sufficient cause is made out for a longer extension, the extension
cannot be beyond thirty days. The purpose of proviso to Section 34(3)
of the AC Act is similar to that of Section 5 of the Limitation Act which
also relates to extension of the period of limitation prescribed for any
application or appeal. It vests a discretion in a court to extend the
prescribed period of limitation if the applicant satisfies the court that he
had sufficient cause for not making the application within the
prescribed period. Section 5 of the Limitation Act does not place any
outer limit in regard to the period of extension, whereas the proviso to
sub-section (3) of Section 34 of the AC Act places a limit on the period
of extension of the period of limitation. Thus the proviso to Section
34(3) of the AC Act is also a provision relating to extension of period of
limitation, but differs from Section 5 of the Limitation Act, in regard to
32
period of extension, and has the effect of excluding Section 5
alone of the Limitation Act.”

74. As held by this Court in Commissioner, M.P. Housing Board

and Ors. v. Mohanlal & Co.,17, Section 14 of the Limitation Act has

to be interpreted liberally to advance the cause of justice. Section 14

would be applicable in cases of mistaken remedy or selection of a

wrong forum.

75. There can be little doubt that Section 14 applies to an

application under Section 7 of the IBC. At the cost of repetition, it is

reiterated that the IBC does not exclude the operation of Section 14

of the IBC. The question is whether prior proceedings under the

SARFAESI Act do not qualify for the exclusion of time under Section

14, inasmuch as they are not civil proceedings in a Court, as argued

by Mr. Dave.

76. Even if it were to be held that the benefit of Section 14 would

be available to an applicant under IBC, for proceedings initiated bona

fide and prosecuted with due diligence under the SARFAESI Act,

another question raised in this appeal is, whether exclusion of time

under Section 14 of the Limitation Act, would only be available if the

proceedings which could not be entertained for defect of jurisdiction,

or other cause of a like nature, had ended, in view of the Explanation

at the end of Section 14, which says that for the purposes of the said

Section, the day on which the earlier proceeding was instituted and

17. (2016) 14 SCC 199
33
the day on which it ended shall both be counted for exclusion of time.

Much emphasis has been placed by Mr. Dave on the explanation at

the end of Section 14, to argue that the Financial Creditor would not

be entitled to the benefit of Section 14 of the Limitation Act since the

proceedings under the SARFAESI Act are still pending, as also the writ

petition in the High Court.

77. Section 14 of the Limitation Act is to be read as a whole. A

conjoint and careful reading of Sub-Sections (1), (2) and (3) of Section

14 makes it clear that an applicant who has prosecuted another civil

proceeding with due diligence, before a forum which is unable to

entertain the same on account of defect of jurisdiction or any other

cause of like nature, is entitled to exclusion of the time during which

the applicant had been prosecuting such proceeding, in computing

the period of limitation. The substantive provisions of Sub-sections

(1), (2) and (3) of Section 14 do not say that Section 14 can only be

invoked on termination of the earlier proceedings, prosecuted in good

faith.

78. In Bihta Co-operative Development Cane Marketing

Union Ltd. and Anr. v. Bank of Bihar and Ors. 18, this Court held

that the explanation must be read so as to harmonize with and clear

up any ambiguity in the main section. It should not be so construed

as to widen the ambit of the section.

18 AIR 1967 SC 389
34

79. As held in S. Sundaram Pillai and Others v. V.R.

Pattabiraman and Others19, it is well settled that an explanation

added to a statutory provision is not a substantive provision in any

sense of the term but is meant to explain or clarify certain

ambiguities, which may have crept into statutory provisions.

80. In Sundaram Pillai (supra), this Court referred to Sarathi’s

Interpretation of Statutes; Swarup’s Legislation and Interpretation,

Interpretation of statues (5th edition) by Bindra as also various

judgments of this Court including those referred to above and held:-

“53. Thus, from a conspectus of the authorities referred to above, it is
manifest that the object of an Explanation to a statutory provision is—

“(a) to explain the meaning and intendment of the Act itself,

(b) where there is any obscurity or vagueness in the main
enactment, to clarify the same so as to make it consistent with the
dominant object which it seems to subserve,

(c) to provide an additional support to the dominant object of the
Act in order to make it meaningful and purposeful,

(d) an Explanation cannot in any way interfere with or change the
enactment or any part thereof but where some gap is left which is
relevant for the purpose of the Explanation, in order to suppress the
mischief and advance the object of the Act it can help or assist the
Court in interpreting the true purport and intendment of the
enactment, and

(e) it cannot, however, take away a statutory right with which any
person under a statute has been clothed or set at naught the working
of an Act by becoming an hindrance in the interpretation of the
same.”

81. In our considered view, Explanation (a) cannot be construed in

a narrow pedantic manner to mean that Section 14 can never be

19 (1985) 1 SCC 591
35
invoked until and unless the earlier proceedings have actually been

terminated for want of jurisdiction or other cause of such nature.

Explanation (a), which is clarificatory, only restricts the period of

exclusion to the period between the date of initiation and the date of

termination. An applicant cannot claim any further exclusion.

82. To cite an example, if a party were to file a suit in a wrong

forum, to enforce payment of money secured by a mortgage or

charge upon immovable property, for which the prescribed period of

limitation is twelve years, after expiry of three years from the date of

accrual of the right to sue, and then file an application under Section

7 of the IBC after dismissal of the suit for want of jurisdiction, that

application under Section 7 of the IBC would be time barred since

such party would not be entitled to exclusion of any period of time

beyond the date of institution and date of termination of the earlier

proceeding. If after exclusion of the time between the initiation and

termination of the proceedings instituted bona fide and in good faith

and prosecuted with due diligence, an application was still beyond

three years, Section 14 would not help save limitation.

83. To cite another example, if civil proceedings were initiated in a

wrong forum in good faith and prosecuted with due diligence, but

after the proceedings ended, time was wasted by making frivolous,

meritless applications, the applicant would only be entitled to

exclusion of time from the date of initiation till the end of the
36
proceedings initiated in good faith and bona fide and pursued

diligently, and no more. The applicant would not be entitled to

exclusion of any further time spent in pursuing frivolous further

proceedings, or otherwise.

84. To sum up, Section 14 excludes the time spent in proceeding

in a wrong forum, which is unable to entertain the proceedings for

want of jurisdiction, or other such cause. Where such proceedings

have ended, the outer limit to claim exclusion under Section 14 would

be the date on which the proceedings ended.

85. In the instant case, the proceedings under the SARFAESI Act

may not have formally been terminated. The proceedings have

however been stayed by the High Court by an interim order, on the

prima facie satisfaction that the proceedings initiated by the financial

creditor, which is a cooperative bank, was without jurisdiction. The

writ petition filed by the Corporate Debtor was not disposed of even

after almost four years. The carriage of proceedings was with the

Corporate Debtor. The interim order was still in force, when

proceedings under Section 7 of the IBC were initiated, as a result of

which the Financial Creditor was unable to proceed further under the

SARFAESI Act.

86. In the instant case, even if it is assumed that the right to sue

accrued on 31.3.2013 when the account of Corporate Debtor was
37
declared NPA, the financial creditor initiated proceedings under

SARFAESI Act on 18th January 2014, that is the date on which notice

under Section 13(2) was issued, proceeded with the same, and even

took possession of the assets, until the entire proceedings were

stayed by the High Court by its order dated 24th July 2017. The

proceedings under Section 7 of the IBC were initiated on 10 th July

2018.

87. In our view, since the proceedings in the High Court were still

pending on the date of filing of the application under Section 7 of the

IBC in the NCLT, the entire period after the initiation of proceedings

under the SARFAESI Act could be excluded. If the period from the

date of institution of the proceedings under the SARFAESI Act till the

date of filing of the application under Section 7 of the IBC in the NCLT

is excluded, the application in the NCLT is well within the limitation of

three years. Even if the period between the date of the notice under

Section 13(2) and date of the interim order of the High Court staying

the proceedings under the SARFAESI Act, on the prima facie ground of

want of jurisdiction is excluded, the proceedings under Section 7 of

IBC are still within limitation of three years.

88. An Adjudicating Authority under the IBC is not a substitute

forum for a collection of debt in the sense it cannot reopen debts

which are barred by law, or debts, recovery whereof have become

time barred. The Adjudicating Authority does not resolve disputes, in
38
the manner of suits, arbitrations and similar proceedings. However,

the ultimate object of an application under Section 7 or 9 of the IBC is

the realization of a ‘debt’ by invocation of the Insolvency Resolution

Process. In any case, since the cause of action for initiation of an

application, whether under Section 7 or under Section 9 of the IBC, is

default on the part of the Corporate Debtor, and the provisions of the

Limitation Act 1963, as far as may be, have been applied to

proceedings under the IBC, there is no reason why Section 14 or 18 of

the Limitation Act would not apply for the purpose of computation of

the period of limitation.

89. To quote V. Sudhish Pai from his book ‘ Constitutional

Supremacy – A Revisit’ “Judgments and observations in judgments

are not to be read as Euclid’s theorems or as provisions of statute.

Judicial utterances/pronouncements are in the setting of the facts of

a particular case. To interpret words and provisions of a statute it

may become necessary for judges to embark upon lengthy

discussions, but such discussion is meant to explain not define.

Judges interpret statutes, their words are not to be interpreted as

statutes.”

90. As observed above, unlike statutes like the Arbitration Act,

1940 and the Arbitration and Conciliation Act 1996, which make the

provisions of the Limitation Act, as they apply to Court proceedings,

also applicable to arbitration proceedings, Section 238A of the IBC
39
makes the Limitation Act applicable to proceedings in NCLT/NCLAT ‘as

far as may be’ and/or in other words, to the extent they may be

applied.

91. Legislature has in its wisdom chosen not to make the provi-

sions of the Limitation Act verbatim applicable to proceedings in

NCLT/NCLAT, but consciously used the words ‘as far as may be’. The

words ‘as far as may be’ are not meant to be otiose. Those words are

to be understood in the sense in which they best harmonise with the

subject matter of the legislation and the object which the Legislature

has in view. The Courts would not give an interpretation to those

words which would frustrate the purposes of making the Limitation

Act applicable to proceedings in the NCLT/NCLAT ‘as far as may be’.

92. In other words, the provisions of the Limitation Act would ap-

ply mutatis mutandis to proceedings under the IBC in the

NCLT/NCLAT. To quote Shah J. in New India Sugar Mill Limited v.

Commissioner of Sales Tax, Bihar20 , “It is a recognised rule of in-

terpretation of statutes that expression used therein should ordinarily

be understood in a sense in which they best harmonise with the ob-

ject of the statute, and which effectuate the object of the Legisla-

ture”.

93. As held by this Court in Busching Schmitz Private Ltd. v.

P.T. Menghani21, the Court should adopt an object oriented ap-

20 AIR 1963 SC 1207 (P.1213)
21 AIR 1977 SC 1569
40
proach keeping in mind the principle that legislative futility is to be

ruled out so long as interpretative possibility permits. Needless to

mention that the object oriented approach cannot be carried to the

extent of doing violence to the plain language used, by rewriting the

section or substituting words in place of the actual words used by

Legislature.

94. The use of words ‘as far as may be’, occurring in Section 238A

of the IBC tones down the rigour of the words ‘shall’ in the aforesaid

Section which is normally considered as mandatory. The expression

‘as far as may be’ is indicative of the fact that all or any of the provi-

sions of the Limitation Act may not apply to proceedings before the

Adjudicating Authority (NCLT) or the Appellate authority (NCLAT) if

they are patently inconsistent with some provisions of the IBC. At the

same time, the words ‘as far as may be’ cannot be construed as a to-

tal exclusion of the requirements of the basic principles of Section 14

of the Limitation Act, but permits a wider, more liberal, contextual

and purposive interpretation by necessary modification, which is in

harmony with the principles of the said Section.

95. If, in the context of proceedings under Section 7 or 9 of the

IBC, Section 14 were to be interpreted with rigid and pedantic

adherence to its literal meaning, to hold that only civil proceedings in

Court would enjoy exclusion, the result would be that an applicant

would not even be entitled to exclusion of the period of time spent in
41
bona fide invoking and diligently pursuing an earlier application

under the same provision of IBC, for the same relief, before an

Adjudicating Authority, lacking territorial jurisdiction This could not

possibly have been the legislative intent.

96. In our considered opinion, the judgment of the NCLAT in the

case of Ishrat Ali is unsustainable in law. The proceedings under the

SARFAESI Act, 2002 are undoubtedly civil proceedings. In S.A.L.

Narayan Rao and Anr. v. Ishwarlal Bhagwandas and Anr.22, the

Constitution Bench of this Court held:-

“…..The expression “civil proceeding” is not defined in the Constitution, nor
in the General Clauses Act. The expression in our judgment covers all
proceedings in which a party asserts the existence of a civil right conferred
by the civil law or by statute, and claims relief for breach thereof. A criminal
proceeding on the other hand is ordinarily one in which if carried to its
conclusion it may result in the imposition of sentences such as death,
imprisonment, fine or forfeiture of property. It also includes proceedings in
which in the larger interest of the State, orders to prevent apprehended
breach of the peace, orders to bind down persons who are a danger to the
maintenance of peace and order, or orders aimed at preventing vagrancy
are contemplated to be passed. But the whole area of proceedings, which
reach the High Courts is not exhausted by classifying the proceedings as
civil and criminal. There are certain proceedings which may be regarded as
neither civil nor criminal. For instance, proceeding for contempt of court,
and for exercise of disciplinary jurisdiction against lawyers or other
professionals, such as Chartered Accountants may not fall within the
classification of proceedings, civil or criminal. But there is no warrant for
the view that from the category of civil proceedings, it was intended to
exclude proceedings relating to or which seek relief against enforcement of
taxation laws of the State.”

97. On a parity of reasoning, there is no rationale for the view that

the proceedings initiated by a secured creditor against a borrower

under the SARFAESI Act for taking possession of its secured assets,

22. AIR 1965 SC 1818
42
were intended to be excluded from the category of civil proceedings.

In this context, reference may be made to the judgment of this Court

in United Bank of India v. Satyawati Tandon and Ors. 23 cited by

Mr. Deepak Sai, where this Court observed:

“11. ….The Government of India accepted the recommendations
of the two Committees and that led to enactment of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short
“the SARFAESI Act”), which can be termed as one of the most radical
legislative measures taken by Parliament for ensuring that dues of
secured creditors including banks, financial institutions are
recovered from the defaulting borrowers without any obstruction.
For the first time, the secured creditors have been empowered to
take steps for recovery of their dues without intervention of the
courts or tribunals.”

98. Even though Section 13 of the SARFAESI Act enables a

secured creditor to enforce security interest created in its favour,

without the intervention of the Court or Tribunal, the SARFAESI Act

does not exclude the intervention of Courts and/or Tribunals

altogether. Some relevant provisions of the SARFAESI Act are set out

hereinbelow:

“14. Chief Metropolitan Magistrate or District Magistrate to assist
secured creditor in taking possession of secured asset.—(1) Where
the possession of any secured assets is required to be taken by the secured
creditor or if any of the secured asset is required to be sold or transferred
by the secured creditor under the provisions of this Act, the secured
creditor may, for the purpose of taking possession or control of any such
secured assets, request, in writing, the Chief Metropolitan Magistrate or the
District Magistrate within whose jurisdiction any such secured asset or
other documents relating thereto may be situated or found, to take
possession thereof, and the Chief Metropolitan Magistrate or as the case
may be, the District Magistrate shall, on such request being made to him—

(a) take possession of such asset and documents relating thereto; and

(b) forward such asset and documents to the secured creditor: Provided
that any application by the secured creditor shall be accompanied by an

23. (2010) 8 SCC 110
43
affidavit duly affirmed by the authorised officer of the secured creditor,
declaring that—

(i) the aggregate amount of financial assistance granted and the total claim
of the Bank as on the date of filing the application;

(ii)the borrower has created security interest over various properties and
that the Bank or Financial Institution is holding a valid and subsisting
security interest over such properties and the claim of the Bank or Financial
Institution is within the limitation period;

(iii)the borrower has created security interest over various properties giving
the details of properties referred to in sub-clause (ii)above;

(iv) the borrower has committed default in repayment of the financial
assistance granted aggregating the specified amount; (v) consequent upon
such default in repayment of the financial assistance the account of the
borrower has been classified as a non-performing asset;

(vi) affirming that the period of sixty days notice as required by the
provisions of sub-section (2) of section 13, demanding payment of the
defaulted financial assistance has been served on the borrower;

(vii) the objection or representation in reply to the notice received from the
borrower has been considered by the secured creditor and reasons for non-
acceptance of such objection or representation had been communicated to
the borrower;

(viii) the borrower has not made any repayment of the financial assistance
in spite of the above notice and the Authorised Officer is, therefore, entitled
to take possession of the secured assets under the provisions of sub-section
(4) of section 13 read with section 14 of the principal Act;

(ix) that the provisions of this Act and the rules made thereunder had been
complied with:

Provided further that on receipt of the affidavit from the Authorised Officer,
the District Magistrate or the Chief Metropolitan Magistrate, as the case
may be, shall after satisfying the contents of the affidavit pass suitable
orders for the purpose of taking possession of the secured assets within a
period of thirty days from the date of application:
Provided also that if no order is passed by the Chief Metropolitan Magistrate
or District Magistrate within the said period of thirty days for reasons
beyond his control, he may, after recording reasons in writing for the same,
pass the order within such further period but not exceeding in aggregate
sixty days. Provided also that the requirement of filing affidavit stated in
the first proviso shall not apply to proceeding pending before any District
Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the
date of commencement of this Act. (1A) The District Magistrate or the Chief
44
Metropolitan Magistrate may authorise any officer subordinate to him,—

(i)to take possession of such assets and documents relating thereto; and

(ii) to forward such assets and documents to the secured creditor.
(2) For the purpose of securing compliance with the provisions of sub-
section (1), the Chief Metropolitan Magistrate or the District Magistrate may
take or cause to be taken such steps and use, or cause to be used, such
force, as may, in his opinion, be necessary.

(3) No act of the Chief Metropolitan Magistrate or the District Magistrate1
[any officer authorised by the Chief Metropolitan Magistrate or District
Magistrate] done in pursuance of this section shall be called in question in
any court or before any authority.

17. Application against measures to recover secured debts.—(1) Any
person (including borrower), aggrieved by any of the measures referred to
in sub-section (4) of section 13 taken by the secured creditor or his
authorised officer under this Chapter, may make an application along with
such fee, as may be prescribed,]to the Debts Recovery Tribunal having
jurisdiction in the matter within forty five days from the date on which such
measure had been taken:

…….

(2) The Debts Recovery Tribunal shall consider whether any of the
measures referred to in sub-section (4) of section 13 taken by the secured
creditor for enforcement of security are in accordance with the provisions of
this Act and the rules made thereunder.

(3) If, the Debts Recovery Tribunal, after examining the facts and
circumstances of the case and evidence produced by the parties, comes to
the conclusion that any of the measures referred to in sub-section

(4) of section 13, taken by the secured creditor are not in accordance with
the provisions of this Act and the rules made thereunder, and require
restoration of the management or restoration of possession, of the secured
assets to the borrower or other aggrieved person, it may, by order,—

(a) declare the recourse to any one or more measures referred to in sub-
section (4) of section 13 taken by the secured creditor as invalid; and

(b) restore the possession of secured assets or management of secured
assets to the borrower or such other aggrieved person, who has made an
application under sub-section (1), as the case may be; and

(c) pass such other direction as it may consider appropriate and necessary
in relation to any of the recourse taken by the secured creditor under sub-
45
section (4) of section 13.

(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured
creditor under sub-section (4) of section 13, is in accordance with the
provisions of this Act and the rules made thereunder, then, notwithstanding
anything contained in any other law for the time being in force, the secured
creditor shall be entitled to take recourse to one or more of the measures
specified under sub-section (4) of section 13 to recover his secured debt.
(4A) Where—

(i) any person, in an application under sub-section (1), claims any tenancy
or leasehold rights upon the secured asset, the Debt Recovery Tribunal,
after examining the facts of the case and evidence produced by the parties
in relation to such claims shall, for the purposes of enforcement of security
interest, have the jurisdiction to examine whether lease or tenancy,—

(a) has expired or stood determined; or

(b) is contrary to section 65A of the Transfer of Property Act, 1882 (4 of
1882); or

(c) is contrary to terms of mortgage; or

(d) is created after the issuance of notice of default and demand by the
Bank under subsection (2) of section 13 of the Act; and

(ii) the Debt Recovery Tribunal is satisfied that tenancy right or leasehold
rights claimed in secured asset falls under the sub-clause (a) or sub-clause

(b) or sub-clause (c) or sub-clause (d) of clause (i), then notwithstanding
anything to the contrary contained in any other law for the time being in
force, the Debt Recovery Tribunal may pass such order as it deems fit in
accordance with the provisions of this Act.

18. Appeal to Appellate Tribunal.—(1) Any person aggrieved, by any
order made by the Debts Recovery Tribunal under section 17, may prefer
an appeal along with such fee, as may be prescribed]to the Appellate
Tribunal within thirty days from the date of receipt of the order of Debts
Recovery Tribunal.

Provided that different fees may be prescribed for filing an appeal by the
borrower or by the person other than the borrower: Provided further that no
appeal shall be entertained unless the borrower has deposited with the
Appellate Tribunal fifty per cent. of the amount of debt due from him, as
claimed by the secured creditors or determined by the Debts Recovery
Tribunal, whichever is less: Provided also that the Appellate Tribunal may,
for the reasons to be recorded in writing, reduce the amount to not less
than twenty-five per cent. of debt referred to in the second proviso.
46

(2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as
far as may be, dispose of the appeal in accordance with the provisions of
the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51
of 1993) and rules made thereunder.

99. The Chief Metropolitan Magistrate or the Judicial Magistrate,

as the case may be, exercising powers under Section 14 of the

SARFAESI Act, functions as a Civil Court/Executing Court. Proceedings

under the SARFAESI Act would, therefore, be deemed to be civil

proceedings in a Court. Moreover, proceedings under the SARFAESI

Act under Section 13(4) are appealable to the DRT under Section 18

of the SARFAESI Act. Mr. Dave’s argument that proceedings under

the SARFAESI Act would not qualify for exclusion under Section 14 of

the Limitation Act, because those proceedings were not conducted in

a Civil Court, cannot be sustained.

100. Another civil proceeding whether in a Court of first instance or

of appeal or revision, against the party, for the same relief, would

have to be construed to include any civil Proceeding in a forum,

whether of first instance, or appellate, or revisional, against the same

party for similar relief, more so, having regard to the language and

tenor of Section 238A of the Limitation Act which applies the

provisions of the Limitation Act “as far as may be”, to proceedings in

the NCLT/NCLAT.

101. In our considered view, keeping in mind the scope and

ambit of proceedings under the IBC before the NCLT/NCLAT, the

expression ‘Court’ in Section 14(2) would be deemed to be any forum

for a civil proceeding including any Tribunal or any forum under the
47
SARFAESI Act.

102. In any case, Section 5 and Section 14 of the Limitation Act are

not mutually exclusive. Even in a case where Section 14 does not

strictly apply, the principles of Section 14 can be invoked to grant

relief to an applicant under Section 5 of the Limitation Act by

purposively construing ‘sufficient cause’. It is well settled that

omission to refer to the correct section of a statute does not vitiate

an order. At the cost of repetition it is reiterated that delay can be

condoned irrespective of whether there is any formal application, if

there are sufficient materials on record disclosing sufficient cause for

the delay.

103. In our considered opinion, the NCLAT rightly refused to stay

the proceedings before the NCLT. The judgment and order of the

NCLT does not warrant interference. This appeal is accordingly

dismissed.

..….……………………………J.

[INDIRA BANERJEE]

..….……………………………J.

[HEMANT GUPTA]
NEW DELHI
March 22, 2021



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