2025 (4) TMI 890 - HC - IBC

Suit for recovery - Period of limitation - Exclusion of period spent before NCLT under IBC - Seeking to exclude the period from 13th March 2018 to 26th November 2019 basis Section 14 of the Limitation Act 1963 in computing the period of limitation applicable to filing of the suit - HELD THAT - A dismissal on the ground of presence of a pre-existing dispute need not be assessed by this Court as to whether it was on merits or under jurisdiction but the fact that it is abortive suffices for the purpose of this assessment. What is more important is that whether the proceeding was made in good faith and prosecuted with diligence. There is no assertion by the defendant that such a proceeding could not have been maintained. It would be quite specious for the defendant to state that only in order to stay the limitation the plaintiff had proceeded under the IBC. Proceedings under the IBC are routinely filed by operational creditors fearing the inability of the corporate debtor to satisfy their debts. Section 8 of the IBC itself allows an operational creditor to send a demand notice on the occurrence of default defined under Section 3(12) of IBC in respect of a debt which has become due and payable unless the corporate debtor brings to attention existence of a prior dispute which would prevent further proceedings under the IBC - A perusal of the petition under Section 8 of IBC filed before the NCLT by the plaintiff shows that there were amounts outstanding and demand notices were sent pursuant to the default. Therefore there is no reason to arrive at a conclusion that the proceedings before the IBC were not bona fide. Conclusion - The time period from 13th March 2018 to 26th November 2019 be excluded in computation of limitation period applicable for filing of the present suit. Application allowed.

ISSUES PRESENTED and CONSIDERED

The primary legal issue considered in this judgment is whether the period from 13th March 2018 to 26th November 2019, spent by the plaintiff in proceedings before the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) under the Insolvency and Bankruptcy Code, 2016 (IBC), can be excluded from the limitation period for filing the present suit under Section 14 of the Limitation Act, 1963. The Court examines whether the proceedings under the IBC qualify as "civil proceedings" and whether they were prosecuted with due diligence and in good faith.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

Section 14 of the Limitation Act, 1963, allows the exclusion of time spent in prosecuting a civil proceeding in good faith in a court that is unable to entertain it due to a defect of jurisdiction or other similar causes. The Court also considers the applicability of Section 238A of the IBC, which incorporates the provisions of the Limitation Act into IBC proceedings. Precedents cited include P. Sarathy v. State Bank of India, M.P. Steel Corpn. v. CCE, and Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank Ltd., which discuss the interpretation of "court" and "civil proceedings" in the context of Section 14.

Court's interpretation and reasoning:

The Court interprets Section 14 of the Limitation Act to include proceedings before quasi-judicial tribunals like the NCLT and NCLAT as "civil proceedings," emphasizing that the term "court" in Section 14 is not limited to traditional civil courts. The Court reasons that the proceedings under the IBC, although not equivalent to a suit for recovery, are aimed at realizing debts and thus relate to the same matter in issue as the present suit.

Key evidence and findings:

The Court examines the timeline of events, including the issuance of demand notices, the filing of the application under Section 9 of the IBC, and the subsequent dismissal by the NCLT and NCLAT due to pre-existing disputes. The Court finds that the plaintiff prosecuted these proceedings with due diligence and in good faith.

Application of law to facts:

The Court applies Section 14 of the Limitation Act to exclude the period spent in IBC proceedings from the limitation period for filing the present suit. It concludes that the proceedings before the NCLT and NCLAT were prosecuted diligently and in good faith, and the dismissal was due to an "abortive" procedure rather than a decision on the merits.

Treatment of competing arguments:

The defendant argued that the proceedings under the IBC were not "civil proceedings" and that the dismissal was on merits, not due to a defect of jurisdiction. The Court rejects these arguments, emphasizing that the IBC proceedings were indeed civil in nature and that the dismissal was due to a pre-existing dispute, rendering the proceedings abortive.

Conclusions:

The Court concludes that the period from 13th March 2018 to 26th November 2019 should be excluded from the limitation period for filing the present suit, as the requirements of Section 14 of the Limitation Act are satisfied.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

The Court holds that "proceedings under the IBC would be civil proceedings before a quasi-judicial tribunal, which were rendered abortive, due to the inability of the plaintiff to cross the threshold of not having a pre-existing dispute."

Core principles established:

The judgment reinforces the principle that Section 14 of the Limitation Act applies to proceedings before quasi-judicial tribunals like the NCLT and NCLAT, provided they are prosecuted with due diligence and in good faith. It also establishes that the term "court" in Section 14 is not limited to traditional civil courts.

Final determinations on each issue:

The Court determines that the plaintiff is entitled to the exclusion of the period spent in IBC proceedings from the limitation period for filing the present suit. This determination is based on the finding that the IBC proceedings were civil in nature, prosecuted diligently and in good faith, and rendered abortive due to a procedural issue rather than a decision on the merits.

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