The Hon’ble Apex Court in the case of Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. expounded that if the 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 as per section 238-A of the I & B Code read with Section 18 of the Limitation Act.
Factual matrix:
The Respondent no.2 (creditor) had filed an application under section 7 of the IBC for initiating CIRP proceedings against the Respondent no. 1 company viz., Veer Gurjar Aluminium Industries Pvt. Ltd. on 21.03.2018. Upon perusing the submissions made by the parties involved, the Adjudicating Authority (NCLT) admitted the Corporate Insolvency Resolution Process (CIRP) application and, inter alia necessary order, appointing an IRP to represent the respondent debtor company, was passed.
The appellant filed an appeal before NCLAT, Delhi challenging the admissibility of the CIRP application. The NCLAT summarily dismissed the appeal. The Appellant then approached the Supreme Court which did not approve of the decision of the Appellate Tribunal as the issue relating to the limitation period was not adjudicated upon by the Appellate Tribunal. Consequently, the Supreme Court remanded the matter back to the NCLAT. The NCLAT, after considering the issue related to the limitation period, held that neither the application made by nor the claim of the Respondent is barred by limitation. Finally, the appellant preferred an instant appeal under Section 62 of the I & B Code before the Supreme Court, being aggrieved by the decision of the Appellate Tribunal.
Issue before the court:
Whether the application made by the financial creditor under section 7 of IBC, 2016 within the period of limitation?
Observations of the Court:
On the reasoning of the Appellate Authority
The Court observed that apparently the two reasons essentially appear to have weighed with NCLAT to hold that the application in question is within limitation were mere assumptions without any substantial basis. The reasoning given by the Appellate Authority was mainly based on two points:
- the right to apply under Section 7 of the Code accrued to the respondent financial creditor on 01.12.2016 when the Code came into force;
- the period of limitation for recovery of possession of the mortgaged property is twelve years.
The court remarked that reasoning so adopted by NCLAT do not stand in conformity with the law declared by this Court and could only be disapproved. The court after considering, in light of the merits of the present case, the established law on the scope of applicability of limitation to the CIRP application and the date from which limitation period is to be computed, expounded that the Appellate tribunal had erred in basing its reasoning on irrelevant considerations.
The court observed that there is nothing in the Code to even remotely indicate if the period of limitation for the purpose of an application under Section 7 is to commence from the date of commencement of the Code itself. To substantiate the same, the court relied upon the case of B.K. Educational Services Pvt. Ltd. v. Paras Gupta & Associates, wherein it was held that the date of the Code’s coming into force on 01.12.2016 was wholly irrelevant to the triggering of any limitation period for the purposes of the Code, this Court said,
“3. Article 141 of the Constitution of India mandates that our judgments are followed in letter and spirit. The date of coming into force of the IB Code does not and cannot form a trigger point of limitation for applications filed under the Code. Equally, since “applications” are petitions which are filed under the Code, it is Article 137 of the limitation Act which will apply to such applications.”
Further, the court referred to its previous judgments and observed that the Articles of the Limitation Act relating to the suits concerning mortgaged property (and thereby the period of limitation of twelve years) were sought to be applied to hold that similar applications under Section 7 of the Code were not barred by limitation. Such propositions were specifically disapproved by a three-Judge Bench of this Court in the case of Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. & Anr. decided on 18.09.2019. In that case, the Court had disapproved the approach of Adjudicating Authority in applying Article 62 of the Limitation Act to such an application under Section 7 of the Code with the observations that Article 62 is out of way, for it applies only to suits; and application under Section 7 falls within the ambit of residuary Article 137. In Sagar Sharma & Anr. v. Phoenix Arc Pvt. Ltd. & Anr., this Court again pointed out the fallacy in applying the period of limitation related to mortgage liability for the purpose of application under Section 7 of the Code.
In view of the above, there remains nothing to doubt that the Appellate Tribunal had been in error in applying the period of limitation provided for mortgage liability for the purpose of limitation applicable to the application in question.
On Merits of the Case
The Court observed that in the case of B.K. Educational Services (Supra), it has clearly been held that the limitation period for application under Section 7 of the Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of Limitation Act, if any case where condonation of delay is made out. Also, in the case of Jignesh Shah and Anr. v. Union of India and Anr., the Court applied the principles so stated in B.K. Educational Services, and held that the winding up petition filed beyond three years from the date of default was barred by time.
Further, in the case of Gaurav Hargovindbhai Dave (supra), where the date of default was stated in the application under Section 7 of the Code to be the date of NPA i.e., 21.07.2011, this Court held that the limitation began to run from the date of NPA and hence, the application filed under Section 7 of the Code on 03.10.2017 was barred by limitation.
The court also noted that in the application made before NCLT, the respondent-creditor specifically stated the date of default as ‘8.7.2011 being the date of NPA’. It remains indisputable that neither any other date of default has been stated in the application nor any suggestion about any acknowledgement has been made.
The respondent-creditor was required to state the particulars of financial debt with documents and evidence on record, however, nothing was at all stated at any place about the so called acknowledgment or any other date of default.
The Court observed that in the present case, the respondent-creditor never came out with any pleading other than stating the date of default as ‘08.07.2011’ in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement. Since the application made by the respondent No. 2 for CIRP is barred by limitation, no proceedings undertaken therein after the order of admission could be of any effect. All such proceedings remain non-est and could only be annulled.
Finally, the court summarized the foregoing discussion to come to the concluding remark that the application made by the respondent-creditor under Section 7 of the Code, seeking initiation of CIRP in respect of the corporate debtor with specific assertion of the date of default as 08.07.2011, is clearly barred by limitation for having been filed much later than the period of three years from the date of default as stated in the application. The NCLT having not examined the question of limitation; the NCLAT having decided the question of limitation on entirely irrelevant considerations; and the attempt on the part of the respondents to save the limitation with reference to the principles of acknowledgment have been found to be unsustainable.
Therefore, the impugned orders passed by the Appellate Authority were set aside and the CIRP application filed by the creditor was rejected for being barred by limitation.
Case Details:
Before: Supreme Court of India
Bench: Hon’ble Justice Mr. AM Khanwilkar and Hon’ble Justice Mr. Dinesh Maheshwari
Name of the Parties: Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr.
Date of Decision: 14.08.2020
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