The Supreme Court on 22nd March comprising of a bench of Justices Indira Banerjee and Hemant Gupta has held that in an application under Section 7 of the Insolvency and Bankruptcy Code, the applicant can claim the benefit of Section 14 of the Limitation Act, in respect of proceedings under the SARFAESI Act. (Sesh Nath v. Baidyabati Sheoraphuli Co-operative Bank Ltd)
Section 14 of the Limitation Act 1963 allows for exclusion from the limitation period the time spent litigating before wrong forum.
The bench held that Section 14 applies to an application under Section 7 of the IBC and that there is no rule that the exclusion of time under Section 14 is available, only after the proceedings before the wrong forum terminate.
The bench also held that SAFAESI proceedings are 'civil proceedings' for the purposes of Section 14 of the Limitation Act.
Facts of the case
The National Company Law Appellate Tribunal rejected Corporate Debtor's argument that since the Corporate Debtor's account was declared NPA on March 31, 2013, and since the application under Section 7 of the IBC was filed on August 27, 2018, almost five years and five months after the date of accrual of the cause of action, the application filed by fiduciary was filed in good faith. The NCLAT found that the claimant, a financial creditor, had properly commenced proceedings against the Corporate Debtor under the SARFAESI Act within the statute of limitations and was hence entitled to time exclusion under Section 14(2) of the Limitation Act.
Issue before the Court:
1) In the absence of an application for condonation of delay submitted by the claimant under Section 5 of the Restriction Act, 1963, will a delay of more than three years in filing an application under Section 7 of the IBC be excused?
2) Is it true that applications filed under Section 7 of the IBC are subject to Section 14 of the Limitation Act of 1963? If that's the case, should the period be excluded under Section 14 only after the proceedings in the wrong forum have ended?
Contention of the parties
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.
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 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.
Courts Observation and judgment
The bench considering issue.1 noted, “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.” [Reliance was placed on B.K. Educational Services Private Limited v. Parag Gupta Associates, (2019) 11 SCC 633, Babulal Vardharji Gurjar v. Veer Gurjar Aluminium industries Pvt. Ltd., (2020) 15 SCC 1]
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’
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 provisions 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 total 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.
Section 14(2) of the Limitation Act which provides for exclusion of time in computing the period of limitation in certain circumstances, says, “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 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.”
The Court answering issue 2 said, “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.”
With respect to the extended question on applicability of Section 14 only after termination of proceedings, it was observed that Section 14 of the Limitation Act is to be read as a whole in order to achieve a holistic meaning of the provision.
The bench noted, “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”.
Read Judgment @Latestlaws.com
Share this Document :Picture Source :
