TMI Blog2018 (10) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... he Code, as was done to various other Sections of the Companies Act. The amendment of Section 238A would not serve its object unless it is construed as being retrospective, as otherwise, applications seeking to resurrect time-barred claims would have to be allowed, not being governed by the law of limitation. As refer to a recent decision of this Court in SBI v. V. Ramakrishnan, (2018 (8) TMI 837 - SUPREME COURT OF INDIA) where this Court, after referring to the selfsame Insolvency Law Committee Report, held that the amendment made to Section 14 of the Code, in which the moratorium prescribed by Section 14 was held not to apply to guarantors, was held to be clarificatory, and therefore, retrospective in nature, the object being that an overbroad interpretation of Section 14 ought to be set at rest by clarifying that this was never the intention of Section 14 from the very inception. It will be seen from a reading of Section 8(2)(a) that the corporate debtor shall, within a period of 10 days of the receipt of the demand notice, bring to the notice of the operational creditor the existence of a dispute . As seen that dispute as defined in Section 5(6) includes a suit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have no legs to stand on. Merely because, from the point of view of convenience, appeals are filed before one appellate forum would not mean that any anomalous situation would arise as each appeal would be decided keeping in mind the provisions of the particular Act in question. Therefore, this argument also must be rejected. Both, Section 433 of the Companies Act as well as Section 238A of the Code, apply the provisions of the Limitation Act as far as may be . Obviously, therefore, where periods of limitation have been laid down in the Code, these periods will apply notwithstanding anything to the contrary contained in the Limitation Act. From this, it does not follow that the baby must be thrown out with the bathwater. This argument, therefore, must also be rejected. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. The right to sue , therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no laches on the part of the Applicant, the Applicant can explain the delay. Where there is a continuing cause of action, the question of rejecting any application on the ground of delay does not arise. 70. Therefore, if it comes to the notice of the Adjudicating Authority that the application for initiation of Corporate Insolvency Resolution Process under section 7 or Section 9 has been filed after long delay, the Adjudicating Authority may give opportunity to the Applicant to explain the delay within a reasonable period to find out whether there are any laches on the part of the Applicant. 71. The stale claim of dues without explaining delay, normally should not be entertained for triggering Corporate Insolvency Resolution Process under Section 7 and 9 of the I B Code . 72. However, the aforesaid principle for triggering an application under Section 10 of the I B Code cannot be made applicable as the Corporate Applicant does not claim money but prays for initiation of Corporate Insolvency Resolution Process against itself, having defaulted to pay the dues of creditors. In so far it relates to filing of claim before the Insolvency Resolution Professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to read the definition of Adjudicating Authority in Section 5(1) of the Code, together with Sections 408, 424 and 433 of the Companies Act, 2013, it would become clear that proceedings before the National Company Law Tribunal ( NCLT ) arising under the Code would be covered by the Limitation Act via Section 433 of the Companies Act from the very inception or commencement of the Code. According to them, it is important to remember that the Eleventh Schedule to the Code, which made amendments in various Acts, did not introduce the limitation provision of the Companies Act so as to govern the Code as it was unnecessary, as Section 433 applied vide Section 5(1) of the Code read with Section 408 of the Companies Act. In any event, they argued that even on the assumption that the Limitation Act does not apply to the applications referred to above, the principle in State of Madhya Pradesh and Anr. v. Bhailal Bhai and Ors., (1964) 6 SCR 261 has to be followed, and the doctrine of laches applies. In applying this doctrine, the period prescribed by the Limitation Act will be taken to be a guide, and any application filed relating to debts that are beyond what is prescribed under the Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section 15W Appellate Tribunal under Depositories Act, 1996 Yes Section 23D Appellate Tribunal under Securities Contracts (Regulation) Act, 1956 Yes Section 22D Appellate Tribunal under Pension Fund Regulatory and Devel No **Prior to the Insolvency Bankruptcy (Second Amendment) Act, 2018 Also, according to the learned advocate, incongruous results would obtain if we were to hold that Section 433 of the Companies Act, would apply to provide a period of limitation to the NCLT deciding cases under the Code. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 time-barred debts under the Limitation Act to file for CIRP, the trigger for which is default on a debt above INR one lakh. The purpose of the law of limitation is to prevent disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party s own inaction, negligence or latches Rajinder Singh v. Santa Singh, AIR 1973 SC 2537 . Though the Code is not a debt recovery law, the trigger being default in payment of debt renders the exclusion of the law of limitation counter-intuitive. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, 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) Adjudicating Authority , for the purposes of this Part, means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013); This Section, therefore, requires that we look at Section 408 of the Companies Act. Section 408 of the Companies Act states: 408. Constitution of National Company Law Tribunal.-The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, a Tribunal to be known as the National Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 before the District Court or the High Court, may now be transferred to the Tribunal. Each of these proceedings would directly be governed by the Limitation Act as they are proceedings before Courts. Obviously, upon transfer of such proceedings to the Tribunal, it cannot be stated that because these proceedings are now before the Tribunal, the Limitation Act will cease to apply. Also, in fresh applications that are made after the Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rules of practice and procedure of that Court and in accordance with the provisions of the charter under which that Court is constituted and which confers on it power in respect to the method and manner of exercising that jurisdiction. The rule is well settled that when a statute directs that an appeal shall lie to a Court already established, then that appeal must be regulated by the practice and procedure of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purpose of the changed forum, time could not be deemed to have started running before a remedy of going to the new forum is made available. (2) Even though by and large the law of limitation has been held to be a procedural law, there are exceptions to this principle. Generally the law of limitation which is in vogue on the date of the commencement of the action governs it. But there are certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 shorter than the period of limitation prescribed by the Indian Limitation Act, 1908, may be instituted within a period of seven years next after the commencement of this Act or within the period prescribed for such suit by the Indian Limitation Act, 1908, whichever period expires earlier. 58. The reason for the said principle is not far to seek. Though periods of limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 implication a contrary intention a statute divesting vested rights is to be construed as prospective, a statute merely procedural is to be construed as retrospective and a statute which while procedural in its character, affects vested rights adversely is to be construed as prospective. 60. This judgment was strongly relied upon by Shri A.K. Sanghi for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 the question was whether Section 11-B of the Central Excise Act as amended on 12.05.2000 would apply to the fact situation in that case. Section 11-B provided a longer period of limitation by substituting six months with one year . Since the rebate application was filed within a period of one year, the respondent contended that they were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 within a reasonable period, otherwise, it would be barred by a doctrine akin to limitation, namely, delay. 18. Learned counsel for the respondents then referred to and relied upon Bombay Dyeing Mfg. Co. Ltd. v. State of Bombay, 1958 SCR 1122 ( Bombay Dyeing ). In this case, the Court was concerned with the Bombay Labour Welfare Fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits. 61. Application of payment where neither party appropriates.-Where neither party makes any appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 amount is not recoverable lawfully through the process of the court, but it will not mean that the amount has become not lawfully payable. Law does not bar a debtor to pay nor a creditor to accept a barred debt. It is clear that this judgment will have no application to the present case as Section 11(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial 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 adjudicatory role envisaged under Section 86(1)(f) also appears to be for speedy resolution so that a vital developmental factor - electricity and its supply is not adversely affected by delay in adjudication of even ordinary civil disputes by the civil court. Evidently, in the absence of any reason or ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; Operational debt is defined in Section 5(21) as follows: 5. Definitions.-In this Part, unless the context otherwise requires,- xxx xxx xxx (21) operational debt means a claim in respect of the provision of goods or services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs 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 time-barred. 24. Strong reliance was placed by Shri Dholakia on France B. Martins v. Mafalda Maria Teresa Rodrigues, (1999) 6 SCC 627, by which Section 24A was inserted in the Consumer Protection Act, 1986 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed, 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, this argument would have no legs to stand on. Merely because, from the point of view of convenience, appeals are filed before one appellate forum would not mean that any anomalous situation would arise as e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Justice of the U.S. Supreme Court, having served for over 34 years. He was the only Justice to have been appointed as the tenth sitting Justice of the U.S. Supreme Court by P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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