PERTINENCE OF LIMITATION ACT ON INSOLVENCY AND BANKRUPTCY CODE, 2016 by -Hemant Chaudhry
The Insolvency and Bankruptcy Code, 2016 has been made with the aim for solving the bankruptcy and to ascertain a process for the proceedings of the identical. When a debtor is unable to pay the debt he becomes insolvent and also the creditor may start the proceedings by filing an application. Here comes the most foremost part that under what time-frame, an application for the identical shall be filed. So here is the most controversial part comes and Limitation Act plays a vital role in it. This subject has been a really controversial and has been founded by various rulings followed by the insertion of Section 238A within the code which has been upheld by the Hon’ble Supreme Court within the case of B.K Educational Services v. Parag Gupta & Associates. The applicability of the Limitation Act, for aim of initiating the recovery proceedings, has been amended various times. The stress of this research paper are on the applying of Limitation Act, 1963 on The Insolvency and Bankruptcy Code, 2016which implicitly will include the history of its applicability on IBC, with the cases and amendments. This paper will further include the examination of Limitation Act with relation to IBC, 2016 and will further include the landmark cases which are regarding this subject.
Keywords: Limitation, Resolution Process, Debtor, Financial Creditor.
Insolvency and Bankruptcy Code, 2016 has been trending from the very beginning of its enactment and various amendments are made in it through rulings and amendments. This Code is enacted mainly for the aim of laying down the procedure for initiating the process of insolvency and resolving it, the most and therefore the controversial issue was the limitation of filing the application, in respect of the default by the debtor, before the adjudicating authority.
A financial creditor, may file an application before the Adjudicating Authority, against the corporate debtor, for initiating the corporate insolvency resolution process. For such application, there must be some limitation for filing the same, so here Limitation Act plays an important role in it and has been in controversy since long time and hence has been resolved and as per the Report of Insolvency Law Committee, 20182 followed by the insertion of Section 238A3 in the Code and the same was upheld by the Hon’ble Supreme Court within the case ofB.K Educational Services v. Parag Gupta &Associates4.
If we talk about the concept of Limitation Act, then this Act mainly talks about the “period of limitation”, which suggeststhat a particular period of limitation that has been prescribed in the Act, for any suit, appeal or application by the Schedule, and “prescribed period” means the period of limitation that has been computed in accordance with the provisions of this Act.5The significant reason for the Limitation Act, 1963 isn’t to wreck right or suppress the right of a person. The restriction act has recommended certain time-frames for various suits and offers and the bothered party needs to move toward the official courtroom for cure inside the endorsed period. An individual who didn’t expeditiously act to authorize his privileges ought to lose them as old cases.
When any default occurs on the part of the debtor, then “right to sue” has been accrued and if the default has been occurred over three years prior to filing an application, then that application would be barred as per Article 1376, except in the cases where Section 5 of Limitation Act applies, if there is such delay in filing such application.7
2. APPLICABILITY OF THE LIMITATION ACT ON INSOLVENCY AND BANKRUPTCY CODE, 2016
The Insolvency and Bankruptcy Code, 2016 came into force in 2016 with the main aim of setting down the procedure of for the insolvency resolution process and for the service of the same. This code has gone through various amendments and various interpretations were emerged through it, especially about the applicability of Limitation Act on the code. In the case of M/s Neelakanth Township and Construction Pvt. ltd. v. Urban Infrastructure Trustees ltd.8the first question arises, whether Limitation Act is applicable on the Code or not, where the National Company Law Appellate Tribunal has categorically held that Limitation Act is not applicable on Insolvency and Bankruptcy Code, 2016 and the reason connected by the tribunal was that the main purpose of the code is for the resolution of the assets and not for the recovery and hence it was held by the NCLAT that an application can be filed under Section 7, 9, 10 beyond the limitation period.
The same opines were acknowledged by the NCLAT in the case of M/s Black Pearl Hotel Put ltd. v. Planet M Retail ltd,9during this case the, Operational creditor has filed an application under section 9 of IBC 2016. But the Adjudicating authority has dismissed the application on the ground that the application was barred by period of limitation. NCLAT proceeded to add that regardless of whether it is acknowledged that the Limitation Act is material to the Code; at that point Article 137 of the Limitation Act is relevant. According to article 137, the time-frame for recording application ,where no particular period is given under different arrangements of Limitation Act, the article gives a time of a long time from the date wherein the option to document the application gathers. Subsequently the operational bank will get the option to record an application under Section 9 of the IBC with impact from 01.12.2016 for a time of three years;
this judgment implicitly gave some hope for the applicability of Limitation Act, 1963 on Insolvency and Bankruptcy Code, 2016.
Consequently, one Amendment came into existence i.e. Insolvency and Bankruptcy Code (Second Amendment) Act, 201810, which has resolved the uncertainty of application of Limitation Act, 1963 on Insolvency and Bankruptcy Code, 2016 and that amendment has inserted Section 238A to the code, which explicitly says that the provisions of Limitation Act would be applicable to the proceedings before the Adjudicating and Appellate Authorities of the code.
In the very famous and landmark case of B.K Educational Services v. Parag Gupta &Associates11, the Supreme Court interpreted Section 238A of Insolvency and Bankruptcy Code, 2016 and held that the provisions of Limitation Act, 1963 are applicable on the applications files by the financial and operational creditors under Section 7 and 9 of the Code. The issues before the Hon’ble Supreme Court was that whether the Limitation Act is applicable to the applications made under Section 7 and 9 of the code from its commencement date i.e. 1st December, 2016 till 6th June, 2018 i.e. the date on which such amendment was passed. The Supreme Court has held that Limitation Act would apply to the NCLT proceedings and for Section 238A, the court said that it should be applied retrospectively.
3. INSOLVENCY LAW COMMITTEE REPORT, MARCH 2018
The main essence of Insolvency Law Committee Report, 2018 was that the Committee found it much relevant for the application of Limitation Act, 1963 in Insolvency and Bankruptcy Code, 2016. The intent of the Code was that to provide certain limitation for filing an application through creditors, who do not exercise their remedy under the well established statutes.
4. ANALYSIS OF SECTION 238A OF THE CODE
- RETROSPECTIVE EFFECT OF SECTION 238A
After the insertion of Section 238A in the code, the controversy behind this provision was whether this provision is retrospective in nature. As Section 238A being procedural in nature then this must be retrospective in nature, as the Hon’ble Court relied on the case of Thirumalai Chemicals ltd v. Union of India12, and observed that limitation being procedural in nature, hence it would be applied retrospectively during the proceedings.
4.2 LIMITATION PERIOD START FROM THE DATE OF DEFAULT
The Supreme Court in Gaurav Hargovindbhai Dave v. Asset Reconstruction Company India Ltd.13held that the procedure under Section 7 of the IBC are “an application” and not “suits”; thusly they would fall inside the residuary Article 137 of the Limitation Act and the choice to apply will rise up out of the date of default. It was again underlined by the Supreme Court in Jignesh Shah v. Union of India14 that the alternative to apply under the IBC will be from date of default and not from the date of order of the IBC i.e. 01.12.2016.15
5. APPLICABILITY OF SECTION 18 OF LIMITATION ACT ON THE CODE
In the case of Bhajan Singh Samra v. M/s. Wimpy International Ltd.,16 the Delhi High Court held that confirmation of a debt either in a monetary record or as a letter properly marked by the respondent, would add up to an affirmation under Section 18(1) of the Limitation Act, expanding the time of limitation. Along these lines, affirmation of the candidate’s credit by method of letters and furthermore in the respondent-organization’s accounting reports broadens the time of limitation as well as comprises new reason for activity.
In a very recent case of Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industrie Pvt. ltd17, the Hon’ble Supreme Court has held that Section 18 of Limitation Act, 1963 is inapplicable to an application filed under Section 7 of Insolvency and Bankruptcy Code, 2016. It was observed by the court that if the financial creditor has not filed an application for initiating the Corporate Insolvency Resolution Process within three years from the date of default, then the claim becomes time-barred under Article 137 of the Schedule to the Limitation Act, 1963, which means that no case can be brought under Section 7 of the Code if an application has been filed beyond the three years of default.
6. ANALYSIS OF PROVISIONS OF LIMITATION ACT WITH RESPECT TO THE CODE
There are few provisions of Limitation Act, 1963 which are important in relation to the Insolvency and Bankruptcy Code, 2016. So these provisions are discussed in this paper which is as follows:
- Period of Limitation: Section 2(j) of the Act, talks about the “period of limitation” means the period of limitation prescribed for any suit, appeal or application by the Schedule and “prescribed period” means the period of limitation computed in accordance with the provisions of this This section sets a particular limitation that there is a particular
- Expiry of prescribed period when court is closed: Section 4 of the Act, implies that, when the recommended time of suit, appeal or application lapses on the day, when the day is shut, at that point the equivalent might be favored on the day, on which the court gets re-opened.
- Extension of prescribed period in certain cases: Any appeal or application may be admitted, except of any of the provisions of Order XXI of Civil Procedure Court, 1908, if and appellant or applicant satisfies the court that he had sufficient reason for not preferring such appeal or application within such prescribed period. This has been enshrined under Section 5 of the Limitation Act,
7.EXCLUSION OF SECTION 14 OF ACT UNDER SECTION 61 OF THE CODE
As it is well observed that the code has gone through various amendments and judgments, and it is very clear from this paper that Limitation Act is applicable on the Code, but some of the principles are inapplicable and have been excluded and out of which Section 1418 of the Act has been excluded under Section 61 of the code, in the case of Radhika Mehra v. Vaayu Infrastructure LLP19. In this case, a corporate debtor, being distressed by the admission of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 favored a writ petition before the High Court of Judicature at Bombay, which was removed with the freedom to file an application. From that point, an application was filed before the National Company Law Appellate Tribunal past 45 days, under Section 61 of IBC, alongside an application under Section 14 of the Limitation Act, 1963. NCLAT excused the application on the ground of being barred by limitation, holding that Section 14 of the Act identifies with the time of restriction for a suit and the equivalent doesn’t have any significant bearing to the allure under Section 61 of IBC. NCLAT depended upon Section 238 of the IBC to hold that the provision of the IBC will supersede different laws.
After enshrining the application of Limitation Act, 1963 on Insolvency and Bankruptcy Code, 2016, by doing analysis of various provisions of the Act with respect to the Code, and by analysing the landmark judgments in this paper, it is clear that the provisions of the Limitation Act will be pertinent to IBC, including the applications to be filed under Section 7 and 9. It will have review impact from 01.12. 2016. Consequently, it is sheltered to presume that if the creditor endeavors to document an application in lieu of the debt, wherein the default had happened three years preceding the date of default, the said application would pull in the proviso of Article 137 of the Limitation Act and accordingly be banned. The main exemption would be the place where Section 5 of the Limitation Act might be applied to approve the delay, because of suitable reasons.
Further, considering the choice of the Hon’ble Supreme Court, the circumstance wherein the moneylenders looked for cure of time banished guarantee is likewise dodged in as much as obligations which are presently banned by law of restriction can’t currently be depended upon to start procedures under IBC. The thought behind the appropriateness of the Limitation Act to most rules is to guarantee that well established obligations that have just been let go are not resuscitated after its time has passed. This rule additionally works on the aphorism that one can’t profit by one’s own wrong. It is to be perceived that if a lender has not followed up on the recuperation of an obligation for an all-encompassing timeframe, at that point the said leaser is banished from doing likewise and guarantee that the loan boss doesn’t attempt to support the measure of interest that would have developed throughout the long term. Along these lines, the Hon’ble Supreme Court through its judgment has stopped the lacuna under IBC and aligned IBC with the law of limitation.
1 Student of IMS Unison University
2Report of The Insolvency Law Committee, (26 March, 2018), Available at: http://www.mca.gov.in/Ministry/pdf/ReportInsolvencyLawCommittee_12042019.pdf
3 Section 238A, Insolvency and Bankruptcy Code, 2016, India
4B.K Educational Services Private Limited v. Parag and Associates, AIR 2018 SC 5601 (India).
5 Section 2(j), Limitation Act, 1963, India
6 Article 137, Limitation Act, 1963, India
7Dispute Digest, (3 December, 2018), Indian Business Law Journal, Available at: https://law.asia/limitation-act- applies-ibc-proceedings/
8 M/s Neelkanth Township & Construction Pvt. ltd. v. Urban Infrastructure Trustees ltd, Civil Appeal No. 10711/2017 (India)
9 M/s Black Pearl Hotel Put ltd. v. Planet M Retail ltd, (2017) 4 SCC 498 (India)
10Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, (17 August, 2018), Insolvency and Bankruptcy Board of India, Available at: https://www.ibbi.gov.in/webadmin/pdf/whatsnew/2018/Aug/The%20Insolvency%20and%20Bankruptcy%20Code% 20(Second%20Amendment)%20Act,%202018_2018-08-18%2018:42:09.pdf
12 Thirumalai Chemicals ltd v. Union of India, (2011) 6 SCC 739 (India)
13 Gaurav Hargovindbhai Dave v. Asset Reconstruction Company India Ltd, AIR 2019, (India)
14 Jignesh Shah v. Union of India, (2019) 10 SCC 750 (India)
15Analysis provisions of Limitation Act, 1963 with respect to Insolvency and Bankruptcy Code, 2016, (14 February, 2020), Available at: https://ibclaw.in/analysis-of-the-provisions-of-limitation-act-1963-with-respect-to-insolvency- and-bankruptcy-code-2016/
16Bhajan Singh Samra v. M/S. Wimpy International Ltd., (2011) 185DLT 428 (India)
17 Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd, AIR 2018 SC 5601 (India)
18 Section 14, Limitation Act, 1963, India
19Radhika Mehra v. Vaayu Infrastructure LLP, Company Appeal (AT) (Insolvency) No. 121 of 2020 (India)