Supreme Court

Babulal Vardharji Gurjar vs. Veer Gurjar Aluminium Industries Pvt. Ltd. and Anr.

MANU/SC/0589/2020

14.08.2020

Company

Period of limitation for initiation of CIRP under Section 7 of the IBC is three years from the date when right to apply accrues

Present appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) is directed against the judgment and order passed by the National Company Law Appellate Tribunal (NCLAT), whereby, the Appellate Tribunal has rejected the contention that, the application made by Respondent No. 2 under Section 7 of the IBC, seeking initiation of Corporate Insolvency Resolution Process (CIRP) in respect of the debtor company (Respondent No. 1 herein), is barred by limitation. The Appellate Tribunal or NCLAT declined to interfere with the order passed by the National Company Law Tribunal (NCLT), for commencement of CIRP as prayed for by the Respondent No. 2.

The Appellant would contend that, limitation period for an application under Section 7 of the IBC is three years as per Article 137 of the Limitation Act,1963 where the date of alleged “default” is the starting point of limitation; and in the present case, such date of default being specifically mentioned as 8th July, 2011, the application filed by the Respondent No. 2 in the month of March 2018 is barred by limitation. On the other hand, the Respondents would argue that, the liability in relation to the debt in question having been consistently acknowledged by the corporate debtor in its balance sheets and annual reports, fresh period of limitation is available from the date of every such acknowledgment and hence, the application is within time. The basic issue involved in present matter is as to whether the application made by Respondent No. 2 under Section 7 of the IBC is within limitation.

IBC is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation. CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor. Intention of the IBC is not to give a new lease of life to debts which are time-barred. The period of limitation for an application seeking initiation of CIRP under Section 7 of the IBC is governed by Article 137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues.

The trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the IBC accrues on the date when default occurs. Default referred to in the IBC is that of actual non-payment by the corporate debtor when a debt has become due and payable. If default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned. An application under Section 7 of the IBC is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application.

The application made by the Respondent No. 2 under Section 7 of the IBC in the month of March 2018, seeking initiation of CIRP in respect of the corporate debtor with specific assertion of the date of default as 8th July, 2011, is clearly barred by limitation for having been filed much later than the period of three years from the date of default as stated in the application. The NCLT having not examined the question of limitation; the NCLAT having decided the question of limitation on entirely irrelevant considerations; and the attempt on the part of the respondents to save the limitation with reference to the principles of acknowledgment having been found unsustainable, the impugned orders deserve to be set aside and the application filed by the Respondent No. 2 deserves to be rejected as being barred by limitation.

The impugned orders as passed by the NCLAT are set aside; and the application made by the Respondent No. 2 under Section 7 of the IBC seeking initiation of Corporate Insolvency Resolution Process in respect of Respondent No. 1 is rejected for being barred by limitation. Consequently, all the proceedings undertaken in the said application under Section 7 of the IBC, including appointment of IRP, stand annulled.

Tags : Commencement CIRP Legality

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