by Dr Manoj Kumar Sharma, Ms Parinita Goswami*
The Insolvency and Bankruptcy Code, 2016 (hereafter referred to as Code) was enacted with much fan-fare for providing time bound resolution of the insolvency for the companies, individuals and partnership firms. It is an important economic reform for ensuring the financial health of the business entities and to trigger the insolvency resolution whenever the business entity commits a default in payment of the prescribed amount or higher amount. Since its inception, the Code has been amended on various occasions to cope up with the various challenges which have emerged in the implementation of the Code for more than six years.
As we understand that the Limitation Act, 1963 prescribes limitation period for filing various suits, appeals, applications etc. before civil courts and it provides detailed rules for computation of the limitation period. The Limitation Act, 1963 is based on public policy and it bars judicial remedies, if filed after the expiry of the time prescribed by the Act.
Before the enactment of the Code, the law of limitation was made applicable to proceedings for the resolution of the insolvency under the Code of Civil Procedure, 1908; the Recovery of Debt and Bankruptcy Act, 1993; the Securitization and Reconstruction of Financial Assets and Enforcement of Interest Act, 2002, and; The Companies Act, 2013. However, the Code itself prescribes strict time-lines for initiation of various proceedings under the Code, therefore, it is important to underline the relationship and interplay between the Limitation Act and the Code.
A brief reference to the legal provisions dealing with limitation under the Code is made hereinafter.
Section 60(6) of the Code provides:
“Notwithstanding anything contained in the Limitation Act or any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded.”
Another provision regarding limitation was laid down in Section 238 of the Code as under:
“The provisions of the Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of such law.”
Further, the Companies Act, 2013 lays down in Section 433 as under:
“The provisions of the Limitation Act 2013 shall as far as may be, apply to proceedings or appeals before the Tribunal or the Appellate Tribunal as the case may be.”
Thus, whereas the Companies Act, 2013 clearly provides for the applicability of the Limitation Act to proceedings or appeals under the Act, the Code provides for overriding effect of the Code qua other laws including the law of limitation.
Therefore, the matter of the applicability of the Code to insolvency petitions has come under judicial scrutiny.
The first notable analysis of the applicability of the law of limitation to insolvency proceedings can be found in Neelkanth Township and Construction Pvt. Ltd. v. Urban Infrastructure Trustee Ltd[1]. In this matter, it was contended before the National Companies Law Appellate Tribunal that if the Code has not been enacted to provide for recovery of money claims but to provide for time bound resolution of insolvency. Accordingly, it was contended that if the limitation period provided by the Limitation Act for recovery of money on the basis of maturity of debentures had expired, the claims can not be presented under the Code. After referring to relevant provisions, the NCLAT ruled that the Limitation Act, 1963 is not applicable to proceedings under the Code. The decision was challenged by way of an appeal to the Supreme Court of India, however, the appeal was dismissed on other grounds and the question remained an open question.
Similarly, in Speculum Plast Pvt. Ltd. v. PTC Techno Pvt. Ltd.[2], the NCLAT ruled that Limitation Act, 1963 is not applicable to the initiation of the Corporate Insolvency Resolution Process (CIRP) under the Code. The Tribunal, however, ruled that if the CIRP is filed after a long delay, the general principles of the Limitation Act dealing with a reasonable explanation of the delay shall be applicable. The NCLAT held the Limitation Act is not applicable keeping in view the overriding effect given to the Code under Section 238, however, the general principles relating to seeking a satisfactory explanation of delay can be resorted to while considering the question of condonation, if any.
The matter again cropped up in Black Pearl Hotels Pvt. Ltd. v. Planet M Retail Ltd[3] wherein the application filed by Operational creditors in the Tribunal for initiation of CIRP was rejected on the ground that the debt was barred by the limitation prescribed under the Limitation Act. However, the Appellate Tribunal ruled that the question of non-applicability of the Limitation Act to proceedings under the Code would be attracted on and from the date of enforcement of the Code i.e. from 01st December 2016. The appellate tribunal ruled that the right to file proceedings under the Code accrued on and after 01st December 2016, hence if application is filed within the period of three years (as provided under the Limitation Act) from 01st December 2016, the same would be maintainable. The NCLAT held that where the cause of action for recovery comes into existence before 01st December 2016, the application filed within three years from the date of implementation of the Code i.e. within three years from 01st December 2016, would be maintainable having regarding to Article 137[4] of the Limitation Act, 1963.[5]
In M/s BK Educational Services Private Limited v. Parag Gupta and Associates[6], it was contended that the amounts which had become due in 2012-13 can not be claimed under the Code since the period for initiation of the procedure prescribed under the Limitation Act had expired. The Tribunal accepted the contention and the matter was appealed before the Appellate Tribunal. The Appellate Tribunal held that the provisions of the Limitation Act are not applicable to proceedings under the Code and therefore, accepted the application for initiation of CIRP on the basis of claims which became due in 2012-13. In appeal, the Supreme Court of India reversed the decision of the appellate tribunal. The Court held that the enactment of the Code does not revive any debt which has become time-barred under the provisions of the Limitation Act, 1963. The Court invoked the provisions of Article 137 of the Limitation Act which provides a limitation period of three years for filing applications for which no limitation period is prescribed elsewhere.
The above accounts show that there were conflicting decisions and uncertainty regarding the applicability of the Limitation Act, of 1963 to the proceedings under the Code. However, the matter was settled by the Insolvency & Bankruptcy Code (Amendment) Ordinance, 2018 which was replaced by the Insolvency and Bankruptcy (Second Amendment) Act, 2018. The amendment introduced section 238A in the Code which provides as under:
“The provision of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or appeal before the Adjudicating Authority, the National Company Law Appellate Tribunal, Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.”
In fact, the decision of the Supreme Court motivated the legislature to settle the dust by incorporating section 238A in the Code. The new provision clearly makes the Limitation Act, 1963 applicable to proceedings and appeals even under the Code thereby settling the matter beyond doubt.
[1] Neelkanth Township and Construction Pvt. Ltd v. Urban Infrastructure Trustee Ltd, Company Appeal (AT) (Insolvency) No.44 of 2017. [2] Speculum Plast Pvt. Ltd. v. PTC Techno Pvt. Ltd. [2017], 2017 SCC OnLine NCLAT 319. [3] Black Pearl Hotels Pvt. Ltd. v. Planet M Retail Ltd., Company Appeal (AT) (Insolvency) No.91 of 2017, decided on 17th October 2017. [4] The Article 137 provides a limitation period of three years from the date on which the right to file the application accrues in those cases where no specific period is provided under the Limitation Act, 1963. [5] Swaroop George, ‘Limitation of claims under the IBC: Final opportunity for creditors?’ (Bar and Bench), available at https://www.barandbench.com/columns/limitation-claims-ibc-creditors [6] B.K Educational Services Pvt Ltd v Parag Gupta and Associates, (2018), SCC (India).
*Dr Manoj Kumar Sharma is an Associate Professor of Law, at The Rajiv Gandhi National University of Law, Punjab at the time of of publication of this blog.
Ms Parinita Goswami is an Assistant Professor of Law at SRM University, Sonepat at the time of publication of this blog.
Comments