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TMI Blog2018 (10) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants in these appeals is as to whether the Limitation Act, 1963 will apply to applications that are made under Section 7 and/or Section 9 of the Code on and from its commencement on 01.12.2016 till 06.06.2018. In all these cases, the Appellate Authority has held that the Limitation Act, 1963 does not so apply. Even on the assumption that Article 137 of the Limitation Act, 1963 is attracted to such applications, in any case, such applications being filed only on or after commencement of the Code on 01.12.2016, since three years have not elapsed since this date, all these applications, in any event, could be said to be within time. Having held this, by the impugned order dated 07.11.2017 in Civil Appeal No.23988 of 2017, the Appellate Tribunal went on to hold: "68. In view of the settled principle, while we hold that the Limitation Act, 1963 is not applicable for initiation of 'Corporate Insolvency Resolution Process', we further hold that the Doctrine of Limitation and Prescription is necessary to be looked into for determining the question whether the application under Section 7 or Section 9 can be entertained after long delay, amounting to laches and thereby the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem, in any case, the law of limitation, pertaining to the domain of procedure, must be held to apply retrospectively in any case. For this proposition, they cited several judgments which will be referred to later in this judgment. They also referred to and relied upon the definitions under Sections 3(11), 3(12), and Section 5(6) of the Code, which, when contrasted with Section 3(6), would show that though "claim" in Section 3(6) refers to a right to payment, the definitions of "debt" and "default" in Sections 3(11) and 3(12) respectively, refer to liability or obligation in respect of a claim which is "due" and this being the case, a time-barred debt cannot be said to be "due" so as to trigger the Code. The learned counsel further attacked the Appellate Tribunal judgment by stating that an application filed in 2017 under Section 7 or 9 of the Code, praying that the Code be triggered for a debt that has become time-barred long back, say in 2011, would lead to absurdity as it could never have been the intention of the legislature to resuscitate stale and dead claims leading to the drastic consequence of the taking away of the management of the corporate debtor, which may ultimately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sections 25(3), 60 and 61 of the Indian Contract Act, 1872. He also handed up a chart in which, according to him, the following Tribunals, depending upon the particular Act in question, would either be governed or not governed by the Limitation Act as follows:- Tribunal Name Discharges functions of Whether there is a provision for application of Limitation Act? Telecom Disputes Settlement and Appellate Tribunal Appellate Tribunal under Airports Economic Regulatory Authority of India Act, 2008 no Appellate Tribunal under Information Technology Act, 2000 Yes - Section 60 Appellate Tribunal under Telecom Regulatory Authority of India Act, 1997 No National Company Law Appellate Tribunal Appellate Tribunal under Competition Act, 2002 No Appellate Authority under Insolvency & Bankruptcy Code, 2016 No** Appellate Tribunal under Companies Act, 2013 Yes - Section 433 National Company Law Tribunal Tribunal under Companies Act, 2013 Yes - Section 433 Adjudicating Authority under Insolvency & Bankruptcy Code, 2016 No** Securities Appellate Tribunal Appellate Tribunal under Securities & Exchange Board of India Act, 1992 Yes - Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liberated upon in several judgments of the NCLT and the NCLAT. The existing jurisprudence on this subject indicates that if a law is a complete code, then an express or necessary exclusion of the Limitation Act should be respected. Ravula Subba Rao and Anr. v. The Commissioner of Income Tax, Madras, (1956) SCR 577 In light of the confusion in this regard, the Committee deliberated on the issue and unanimously agreed that the intent of the Code could not have been to give a new lease of life to debts which are time-barred. It is settled law that when a debt is barred by time, the right to a remedy is time-barred. Punjab National Bank and Ors. v. Surendra Prasad Sinha AIR 1992 SC 1815 This requires being read with the definition of 'debt' and 'claim' in the Code. Further, debts in winding up proceedings cannot be time-barred, Interactive Media and Communication Solution Private Limited v. Go Airlines, 199 (2013) DLT 267 and there appears to be no rationale to exclude the extension of this principle of law to the Code. 28.2 Further, non-application of the law on limitation creates the following problems: first, it re-opens the right of financial and operational creditors holding tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;" xxx xxx xxx "(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; (12) "default" means non-payment of debt when whole or any part or installment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be;" "5. Definitions.-In this Part, unless the context otherwise requires,- xxx xxx xxx (6) "dispute" includes a suit or arbitration proceedings relating to- (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty;" Vide Section 3(37), words and expressions used, but not defined in the Code, but defined inter alia in the Companies Act, 2013 shall have the meanings respectively assigned to them in that Act. Section 5(1) of the Code defines Adjudicating Authority as follows: "5. Definitions.-In this Part, unless the context otherwise requires,- (1) "Adjudicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entation for default or deciding it ex parte; (g) setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and (h) any other matter which may be prescribed." (emphasis supplied) Pertinently, the Eleventh Schedule (Amendments to the Companies Act, 2013) to the Code reads as follows: "1. In Section 2,- xxx xxx xxx (b) after clause (94), the following clause shall be inserted, namely- '(94-A) "winding up" means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable.'" 8. It may also be noticed that under Section 434(1)(c) of the Companies Act, all proceedings under the Companies Act, including the proceedings relating to winding up of companies, pending immediately before such date, before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before they are transferred. This Section is also important in that it indicates that proceedings under the Companies Act relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, that were pending bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition under clause (e) of section 433 of the Act for winding up against the same company pending as on 15th December, 2016, such other petition shall not be transferred to the Tribunal, even if the petition has not been served on the respondent." 9. It is thus clear that Section 433 of the Companies Act, 2013 would apply to the Tribunal even when it decides applications under Sections 7 and 9 of the Code. 10. The matter can be viewed from a slightly different angle. In National Sewing Thread Co. Ltd. v. James Chadwick and Bros. Ltd., 1953 SCR 1028, this Court dealt with an appeal to the High Court from any decision of the Registrar under Section 76 of the Trade Marks Act. It was argued that the provisions of clause 15 of the Letters Patent would not be attracted to such an appeal preferred under Section 76. This was negatived by this Court stating: "......The Trade Marks Act does not provide or lay down any procedure for the future conduct or career of that appeal in the High Court, indeed Section 77 of the Act provides that the High Court can if it likes make rules in the matter. Obviously after the appeal had reached the High Court it has to be determined according to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) 5. "On the plain language of Sections 110- A and 110-F there should be no difficulty in taking the view that the change in law was merely a change of forum i.e. a change of adjectival or procedural law and not of substantive law. It is a well-established proposition that such a change of law operates retrospectively and the person has to go to the new forum even if his cause of action or right of action accrued prior to the change of forum. He will have a vested right of action but not a vested right of forum. If by express words the new forum is made available only to causes of action arising after the creation of the forum, then the retrospective operation of the law is taken away. Otherwise the general rule is to make it retrospective." 55. In answering a question which arose under Section 110-A of the Motor Vehicles Act, this Court held: (Shanti Misra case [(1975) 2 SCC 840 : (1976) 2 SCR 266] , SCC p. 846, para 7) 7. "... '(1) Time for the purpose of filing the application under Section 110-A did not start running before the constitution of the tribunal. Time had started running for the filing of the suit but before it had expired the forum was changed. And for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that not having filed a suit before March 1967 the only remedy of the respondent was by way of an application before the Tribunal. So far the period of limitation was concerned, it was observed that a new law of limitation providing for a shorter period cannot certainly extinguish a vested right of action. In view of the change of the law it was held that the application could be filed within a reasonable time after the constitution of the Tribunal; and, that the time of about four months taken by the respondent in approaching the Tribunal after its constitution, could be held to be either reasonable time or the delay of about two months could be condoned under the proviso to Section 110-A(3)." Both these judgments were referred to and followed in Union of India v. Harnam Singh [(1993) 2 SCC 162 : 1993 SCC (L&S) 375 : (1993) 24 ATC 92], see para 12. 57. The aforesaid principle is also contained in Section 30(a) of the Limitation Act, 1963: 30. "Provision for suits, etc., for which the prescribed period is shorter than the period prescribed by the Indian Limitation Act, 1908.-Notwithstanding anything contained in this Act- (a) any suit for which the period of limitation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he should be governed by the old provision pertaining to period of limitation. Procedural law is retrospective meaning thereby that it will apply even to acts or transactions under the repealed Act. 25. Law on the subject has also been elaborately dealt with by this Court in various decisions and reference may be made to a few of those decisions. This Court in Garikapati Veeraya v. N. Subbiah Choudhry [AIR 1957 SC 540], New India Insurance Co. Ltd. v. Shanti Misra [(1975) 2 SCC 840 : (1976) 2 SCR 266], Hitendra Vishnu Thakur v. State of Maharashtra [(1994) 4 SCC 602 : 1994 SCC (Cri) 1087], Chintamani Saran Nath Shahdeo v. State of Bihar [(1999) 8 SCC 16] and Shyam Sunder v. Ram Kumar [(2001) 8 SCC 24], has elaborately discussed the scope and ambit of an amending legislation and its retrospectivity and held that every litigant has a vested right in substantive law but no such right exists in procedural law. This Court has held that the law relating to forum and limitation is procedural in nature whereas law relating to right of appeal even though remedial is substantive in nature. 26. Therefore, unless the language used plainly manifests in express terms or by necessary implicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d debt can be recovered by resorting to recovery proceedings under the Kerala Revenue Recovery Act of 1968. In stating that the said Act cannot extend to recovery of a time- barred debt, this Court stated in paragraph 8, "8. ...... In every case the exact meaning of the word "due" will depend upon the context in which that word appears." It was held in that case that Section 17(3) of the Kerala Revenue Recovery Act, 1968 made it clear that a person making payment under protest will have a right to institute a suit for refund of the whole or part of the sum paid by him under protest. It was thus held that when the right to file such a suit is expressly preserved, there is a necessary implication that the shield of limitation available to a debtor in a suit is also preserved, as a result of which, a wide interpretation of the expression "amount due" to include time-barred debts would destroy an important defence available to a debtor in a suit against him by the creditor, and may fall foul of Article 14 of the Constitution of India. 14. Another judgment referred to by learned counsel for the appellants is contained in Union of India v. Uttam Steels Ltd., (2015) 13 SCC 209. Here t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgments cited by Shri Dholakia. In State of Jharkhand v. Shivam Coke Industries, (2011) 8 SCC 656, this Court, in construing Section 46(4) of the Bihar Finance Act, 1981, held that the Limitation Act could not be read into the exercise of a suo motu power of revision. This was for the reason that the Limitation Act applies to courts and not to quasi-judicial bodies. In so holding, the Court went on to hold: "46. We would, however, agree with the position that such a power cannot be exercised by the revisional authority indefinitely. In our considered opinion, such extraordinary power i.e. suo motu power of initiation of revisional proceeding has to be exercised within a reasonable period of time and what is a reasonable period of time would depend on the facts and circumstances of each case. For this proposition, a number of decisions of this Court can be referred to on which reliance was placed even by the counsel appearing for the respondent." This judgment has no direct bearing on the controversy before us except that even where the Limitation Act was held not to apply, the power of the revisional authority cannot be exercised at any point of time but had to be exercised with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for obtaining satisfaction of the debt, even though an action thereon would be time-barred. Vide Narendra Lal Khan v. Tarubala Dasi [(1921) ILR 48 Cal 817, 823]. ......"6 (at 1134-1135) Section 25(3) of the Contract Act was referred to by this judgment. This Section is based on the fact that under the Indian Contract Act, 1872, "consideration" is defined in Section 2(d) as including past consideration, a notion that was unknown to English law. This doctrine came from Field's Draft Civil Code, 1862,7 which was one of the sources for the enactment of the Indian Contract Act, 1872. Section 572 of Field's Draft Civil Code reads as follows: "§ 572. An existing legal or moral obligation resting upon the promiser, is also a good consideration for a promise, to an extent corresponding with the extent of the obligation, but no further or otherwise."8 19. Shri Dholakia also referred to and relied upon Section 60 and 61 of the Contract Act which are set out hereunder: "60. Application of payment where debt to be discharged is not indicated.-Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the ground of default which falls under Section 11(1)(d) and which states that where the amount of two months' rent, lawfully payable by the tenant and due from him is in arrears by reason of non-payment within the time fixed by the contract or in the absence of such contract by the last day of the month next following that for which rent is payable then such default would constitute ground for eviction. It is interesting to note that the expression used in Section 11(1)(d) is "lawfully payable" and not "lawfully recoverable" and therefore, Section 11(1) (d) has nothing to do with recovery of arrears of rent. On the contrary, Section 11(1)(d) provides a ground for eviction of the tenant in the eviction suit. It is well settled that law of limitation bars the remedy of the claimant to recover the rent for the period beyond three years prior to the institution of the suit, but that cannot be a ground for defeating the claim of the landlord for decree of eviction on satisfaction of the ingredients of Section 11(1)(d) of the said Act, 1982. In the case of Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay [AIR 1958 SC 328] it has been held that when the debt becomes time-barred the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n before it cannot be entertained or allowed if it is found legally not recoverable in a regular suit or any other regular proceeding such as arbitration, on account of law of limitation. We have taken this view not only because it appears to be more just but also because unlike labour laws and the Industrial Disputes Act, the Electricity Act has no peculiar philosophy or inherent underlying reasons requiring adherence to a contrary view. 31. We have taken the aforesaid view to avoid injustice as well as the possibility of discrimination. We have already extracted a part of para 11 of the judgment in State of Kerala v. V.R. Kalliyanikutty [State of Kerala v. V.R. Kalliyanikutty, (1999) 3 SCC 657] wherein the Court considered the matter also in the light of Article 14 of the Constitution. In that case the possibility of Article 14 being attracted against the statute was highlighted to justify a particular interpretation as already noted. It was also observed that it would be ironic if in the name of speedy recovery contemplated by the statute, a creditor is enabled to recover claims beyond the period of limitation. In this context, it would be fair to infer that the special adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation.-For the purposes of this sub- clause,- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of Section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016); (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;" Ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear therefore, that at least in the case of an operational creditor, "default" must be non-payment of amounts that have become due and payable in law. The "dispute" or pendency of a suit or arbitration proceedings would necessarily bring in the Limitation Act, for if a suit or arbitration proceeding is time-barred, it would be liable to be dismissed. This again is an important pointer to the fact that when the expression "due" and "due and payable" occur in Sections 3(11) and 3(12) of the Code, they refer to a "default" which is non-payment of a debt that is due in law, i.e., that such debt is not barred by the law of limitation. It is well settled that where the same word occurs in a similar context, the draftsman of the statute intends that the word bears the same meaning throughout the statute (see Bhogilal Chunilal Pandya v. State of Bombay, 1959 Supp. (1) SCR 310 at 313-314). It is thus clear that the expression "default" bears the same meaning in Sections 7 and 8 of the Code, making it clear that the corporate insolvency resolution process against a corporate debtor can only be initiated either by a financial or operational creditor in relation to debts which have not become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, the NCLAT, as well. Also, the argument that the NCLAT is an appellate tribunal which is common to three statutes, under one of which, viz., the Competition Act, no period of limitation has been prescribed, would not lead to any anomalous situation. When the Appellate Tribunal, i.e., the NCLAT decides an appeal under the Competition Act, since an appeal is a continuation of the application filed before the Competition Commission (See Lachmeshwar Prasad Shukul and Ors. v. Keshwar Lal Chaudhuri and Ors., AIR 1941 FC 5), the NCLAT will decide the appeal on the footing that the Limitation Act did not apply to an application made before the Competition Commission. On the other hand, insofar as applications are filed under Section 7 or 9 of the Code, or petitions or applications filed under the Companies Act, the NCLAT will decide such petitions/applications on the footing that the Limitation Act will apply to such petitions/applications. Merely because appeals under different statutes are sent to one appellate tribunal would make no difference to the position in law. Undoubtedly, if three separate appellate tribunals had been constituted under the three enactments in question, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condone the delay in filing such application. 28. In view of our finding that the Limitation Act has in fact been applied from the inception of the Code, it is unnecessary for us to go into the arguments based on the doctrine of laches. The appeals are therefore remanded to the NCLAT to decide the appeals afresh in the light of this judgment. 5 Rule 2(2) of the Companies (Transfer of Pending Proceedings) Rules, 2016 defines the "Act" as meaning the Companies Act, 1956. 6 Similarly, in Punjab National Bank v. S. Sinha, 1993 Supp (1) SCC 499, this Court reiterated the well- known difference between the right to recover a debt remaining even though the remedy to do so may be barred by the law of limitation (see paragraph 5). 7 DRAFT OF A CIVIL CODE FOR THE STATE OF NEW YORK, PREPARED BY THE COMMISSIONERS OF THE CODE, AND SUBMITTED TO THE JUDGES AND OTHERS FOR EXAMINATION, PRIOR TO REVISION BY THE COMMISSIONERS (Weed, Parsons and Company Printers 1862) ["Field's Draft Civil Code"]. 8 David Dudley Field Jr., the draftsman of the Draft Civil Code for the State of New York, was one of three celebrated brothers. Stephen Field, one of the brothers, was the second-longest serving Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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