Law of Limitation - Insolvency Proceedings

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2022 (5) TMI 1123 - Supreme Court

Insolvency Proceedings and the Law of Limitation.

This article seeks to study the relationship between IBC and the rigours of limitation law.

New Delhi Municipal Council (“NDMC”) had entered into an agreement with Minosha India Limited (“MIL”) on 20^th February, 2015. Owing to the purported failure of MIL to perform its obligations under the agreement, NDMC terminated the agreement.

On 7^th June, 2016, MIL initiated arbitration proceedings under the Arbitration and Conciliation Act, 1996 by issuing a notice of commencement of arbitration. Before the arbitration proceedings could commence, on 14^th May, 2018, MIL was admitted into insolvency under the IBC by the National Company Law Tribunal (“Tribunal”).

A Resolution Plan to resolve the insolvency of MIL was sanctioned by the Tribunal on 28.11.2019. MIL filed an application to appoint an arbitrator under the Arbitration and Conciliation Act before the Delhi High Court on 28.11.2019 which was allowed on 14.12.2020.

In the proceedings before the Hon’ble Delhi High Court, NDMC did not raise the issue of Limitation under the Act.

Matter reaches the Hon’ble Supreme Court of India.

NDMC raised an argument of limitation before the hon’ble apex court.

Notice of commencement of arbitration dated 7^th June, 2016 and as such, the application for appointment of an arbitrator under the Arbitration and Conciliation Act, 1996 ought to have been filed within 3 years from the date of the notice of commencement of arbitration, being on or before 6^th June, 2019, when in fact the application was filed only on 28.11.2019.

NDMC contended, even if limitation is not raised by a party, the court is bound to consider the issue of Limitation as per the law laid down in Indian Limitation Act, 1963.

NDMC argued that the language of Section 60(6) of the Insolvency and Bankruptcy Code, 2016 (IBC) ought not to protect the action of Minosha India Limited (“MIL”).

Findings:

The Hon’ble Supreme Court of India in its judgment observed that when there was a potential conflict between two provisions of any legislation, a manner of interpretation that would make all provisions sustainable ought to be preferred and not otherwise.

While Section 25(2)(b) of the IBC imposed an obligation on the Resolution Professional(RP) to conduct proceedings on behalf of the company in insolvency, Section 60(6) of the IBC clearly suspended the continuation of limitation under the Act for as long as a company in insolvency was under the moratorium imposed under Section 14 of the IBC.

While relying on various judgments of the Hon’ble Supreme Court of India and the House of Lords, held that Section 60(6) would have to be read in its plain meaning and not as being in contradiction of Section 25(2)(b).

The apex court emphasised that the period of insolvency for a company under the IBC was a period of turbulence where the management and control of a company transfers from an Interim Resolution Professional (IRP) to a Resolution Professional (RP) all the while being under control of a Committee of Creditors and at all times to the exclusion of the management of the company in insolvency.

The Committee of Creditors (COC), who are at the helm of the affairs of the company in insolvency are keen to resolve the insolvency of the company than initiate litigations on behalf of the company in insolvency. The provisions of the Limitation Act may not apply to proceedings before the NCLT or the NCLAT, if they are patently inconsistent with some provisions of the IBC. Thus even COC would focus on the resolution process during insolvency proceedings than going into the technicalities of limitation law.

Therefore, the wisdom of the Parliament in looking to exclude the period of limitation under the Act for as long as a company is in insolvency under the IBC cannot be faulted with or interpreted in a manner that would render the provision as meaningless.

Conclusion:

This judgment is an appreciable one since it solidifies the position of law that the period of limitation, which otherwise never halts, is expressly expected to halt during the period of insolvency resolution under the IBC.

A company, once out of insolvency, would be confronted with the continuation of the period of limitation. The company can no more hide behind the veil of insolvency when encountered with limitation.

This judgment is in line with the continued interpretation of the apex court to overall interpret the IBC in a manner that makes the legislation efficient and effective.

Full Text:

2022 (5) TMI 1123 - Supreme Court