TMI Blog2019 (9) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016, which again does not correlate with 3rd November, 2015, being the date on which the statutory notice was itself issued. This again is only for the purpose of appointing an Officer of the Court as Official Liquidator in order to manage the day-to-day affairs and otherwise secure and safeguard the assets of the Respondent company. There is no averment in the petition that thanks to these or other facts the Company s substratum has disappeared, or that the Company is otherwise commercially insolvent. It is clear therefore that even on facts, the company s substratum disappearing or the commercial insolvency of the company has not been pleaded. Winding up Petition filed beyond the period of three-years mentioned in Article 137 of the Limitation Act is time-barred, and cannot therefore be proceeded with any further. - WRIT PETITION (CIVIL) NO.455 OF 2019 - - - Dated:- 25-9-2019 - CIVIL APPEAL NO. OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) No.______ of 2019) (D. No.13468 of 2019) TRANSFER PETITION (CIVIL) NO.817 OF 2019 CIVIL APPEAL NO. 7618-19 OF 2019 (D. No.16521 of 2019) WRIT PETITION (CIVIL) NO.645 OF 2019 Justice R. F. Nariman, Justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, by its letter dated 3rd August, 2012, exercised its option to sell its entire holding of shares in MCX-SX, and called upon La-Fin to purchase these shares in accordance with the Letter of Undertaking. On 16th August, 2012, La-Fin replied that it was under no legal or contractual obligation to buy the aforesaid shares. (iv) Thereafter, correspondence between the parties continued, until finally, on 19th June, 2013, IL FS filed a Suit No.449 of 2013 in the Bombay High Court for specific performance of the Letter of Undertaking by La-Fin or, in the alternative, for damages. It is important to note that the cause of action for the suit - as stated in the plaint - arose on 16th August, 2012, i.e. the day La-Fin purportedly refused to honour its obligation under the Letter of Undertaking. (v) On 13th October, 2014, a learned Single Judge of the Bombay High Court passed an injunction order restraining La-Fin from alienating its assets pending disposal of the suit, subject to attachments of La-Fin s properties that had been made by the Economic Offences Wing of the Mumbai Police (hereinafter referred to as the EOW ) during the pendency of the suit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, challenging certain provisions of the Code, with which we are not directly concerned. Writ Petition (Civil) No.455 of 2019 was then filed in this Court on 4th April, 2019 challenging the constitutionality of certain provisions of the Code, as well as the NCLT and NCLAT orders, after which the Civil Appeal (Diary No. 16521 of 2019) was also filed against the NCLAT order under Section 62 of the Code. 5. Dr. Abhishek Manu Singhvi, learned Senior Advocate appearing on behalf of the Petitioners/Appellants, did not go into the merits of the case, but has raised only the statutory bar of limitation against IL FS. According to the learned Senior Advocate, after this Court s judgment in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates 2018 SCC OnLine 1921, it is clear that the Limitation Act, 1963 (hereinafter referred to as the Limitation Act ) would apply to all Section 7 applications that are filed under the Code and that the residuary Article, i.e., Article 137 of the Limitation Act would be attracted to the facts of this case. Inasmuch as the Winding up Petition that has been transferred to the NCLT was filed on 21st October, 2016, i.e., beyond th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to his client and, therefore, in any event, the Winding up Petition filed after such debt was kept alive would be in time, notwithstanding that it was filed at a subsequent period after the suit. According to him, in any event, limitation being a mixed question of fact and law, at best the matter ought to be remanded to the NCLT for a determination on this mixed question. 7. Having heard the learned Senior Counsel for the parties, it is important to first advert to this Court s decision in B.K. Educational Services Pvt. Ltd. (supra) in which Section 238A of the Code was referred to, which states as follows: 238A. Limitation.-The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be. 8. In paragraph 7 of the said judgment, the Report of the Insolvency Law Committee of March, 2018 was referred to as follows: 7. Having heard the learned counsel for both sides, it is important to first set out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommittee thought it fit to insert a specific section applying the Limitation Act to the Code. The relevant entry under the Limitation Act may be on a case to case basis. It was further noted that the Limitation Act may not apply to applications of corporate applicants, as these are initiated by the applicant for its own debts for the purpose of CIRP and are not in the form of a creditor's remedy. (emphasis supplied) 9. After referring to Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, the Court extracted passages from the judgment in M.P. Steel Corporation v. CCE (2015) 7 SCC 58 and then concluded: 20. A perusal of this judgment would show that limitation, being procedural in nature, would ordinarily be applied retrospectively, save and except that the new law of limitation cannot revive a dead remedy. This was said in the context of a new law of limitation providing for a longer period of limitation than what was provided earlier. In the present case, these observations are apposite in view of what has been held by the Appellate Tribunal. An application that is filed in 2016 or 2017, after the Code ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded period would not avail the respondent in that case. 24. In Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472, this Court took the view that the amendment made to Section 43-B in the Income Tax Act was retrospective, holding: 14. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn. at p. 291: It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. In fact the amendment would not serve its object in such a situation unless it is construed as retrospective 25. In the present case also, it is clear that 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. The Court then held: 38. This case is most apposite. As in the present case, and as is reflected in the Insolvency Law Committee Report of March, 2018, the legislature did not contemplate enabling a creditor who has allowed the period of li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he existence of such suit cannot be construed as having either revived a period of limitation or having extended it, insofar as the winding up proceeding was concerned. Thus, in Hariom Firestock Limited v. Sunjal Engineering Pvt. Ltd. (1999) 96 Comp Cas 349, a Single Judge of the Karnataka High Court, in the fact situation of a suit for recovery being filed prior to a winding up petition being filed, opined: 8 To my mind, there is a fallacy in this argument because the test that is required to be applied for purposes of ascertaining whether the debt is in existence at a particular point of time is the simple question as to whether it would have been permissible to institute a normal recovery proceeding before a civil court in respect of that debt at that point of time. Applying this test and de hors that fact that the suit had already been filed, the question is as to whether it would have been permissible to institute a recovery proceeding by way of a suit for enforcing that debt in the year 1995, and the answer to that question has to be in the negative. That being so, the existence of the suit cannot be construed as having either revived the period of limitatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said debt which is said to be merged in the decree, the winding up petition cannot be filed after the period of limitation that means after a period of three years. 14. It is not in dispute that in the instant case, the period of limitation is covered by residuary article namely Article 137 of Limitation Act. A special Bench of this Court, in the case of Hari Mohan Dalai v. Parmeshwar Shau, reported in 56 Indian Law Reports, 61, has made certain observations on how the residuary article is to be construed. 15. Construing the provisions of Article 181 the residuary article under the old Act, Chief Justice Rankin, speaking for the Special Bench, held that In Article 181 the legislature makes provisions not for any definite type of cases but for an unknown number of cases of all kinds. The provision which it makes specific as regard the period of limitation, but as regarded the terminus a quo it is content to state in general language and quite simply the fundamental principle that, for the purposes of any particular application, time is to run from the moment at which the applicant first had the right to make it. 16. This Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, while invoking the provisions of the Act of 2002. This choice of the secured creditor to invoke the Act of 2002 is independent of and despite the pendency of the proceedings under the Act of 1993, has to be looked at from the perspective of whether or not such an action meets the requirement of Section 36 of the Act of 2002, when the secured creditor is proposing to take a measure under Section 13(4) of the Act of 2002. Although, a secured creditor, as held in Transcore (supra), is entitled to take a remedy or a measure as available in the Act of 2002, despite the pendency of other proceedings, including a proceeding under Section 19 of the Act of 1993, in respect of the self-same cause of action, in my view, the invocation of such independent right under the Act of 2002, has to be done within the period of limitation prescribed under the Limitation Act, 1963 in terms of Section 36 of the Act of 2002. The Act of 2002 gives an independent right to a secured creditor to proceed against its financial assets and in respect of which such asset the secured creditor has security interest. The right to proceed, however, is subject to the adherence to the provisions of limitation as ensh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibit filing of the winding up petition or preclude the petitioner from maintaining the same. 16. In Board of Regents of the University of the State of New York et. al. v. Mary Tomanio 100 S. Ct. 1790, the Supreme Court of the United States of America held that a federal action under the Civil Rights Act of 1871 was barred by the application of a three-year New York statute of limitations. What was argued was that the federal remedy became available only as a consequence of the State remedy being denied, as the Respondent had commenced a proceeding in the New York states courts attacking a decision of the Board of Regents not to grant a waiver of a licence to practice as a chiropractor. By November 1975, the appeals in the State proceedings being exhausted, and the Respondent being denied any relief, the Respondent instituted an action in the Federal District Court on 25th June, 1976. The Supreme Court of the United States of America held that the second action was clearly barred by the law of limitation, being filed three years after the cause of action had arisen. It was held that once the limitation period started running, it did not stop because a separate and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that she satisfies these conditions. In all events, it is readily apparent that the plaintiff has not satisfied the identicality requirement. The first action, brought in the Court of First Instance, sought the equitable remedies of reinstatement and back pay; the second action, brought in the federal district court, sought the legal remedies of compensatory and punitive damages. Thus, it is nose-on-the-face plain that the two actions did not seek the same form of relief. We hasten to add that this conclusion breaks no new ground. This court has held, squarely and repeatedly, that under Puerto Rico law, seeking only equitable relief does not toll the statute of limitations where the subsequent complaint seeks damages. Nieves-Vega v. Ortiz-Quinones, 443 F.3d 134, 137 (1st Cir. 2006) (collecting cases). In view of the plaintiff s failure to satisfy the first facet of the identicality requirement, we need not inquire into the other two facets. Puerto Rico law is pellucid that a plaintiff who seeks to interrupt the running of a statute of limitations on this basis must satisfy all three facets of the identicality requirement. See, e.g., Santana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued in this case remain available to the local authority, I do not think it follows that the provisions of the Limitation Acts that I have mentioned do not operate to stop the presentation of a petition. The effect of Section 2(1) of the 1939 Act (or Section 9(1) of the 1980 Act) is that a petition may not be presented if six years have passed since the rates were demanded. There is nothing there to qualify the position if a distress warrant happens to be current. A petition lies not because a distress warrant has been or may be issued but because a local authority is a creditor as that word is and has been used in the Companies Acts (see the North Bucks case). The remedies by way of distress and petition are separate and distinct. 19. The aforesaid judgments correctly hold that a suit for recovery based upon a cause of action that is within limitation cannot in any manner impact the separate and independent remedy of a winding up proceeding. In law, when time begins to run, it can only be extended in the manner provided in the Limitation Act. For example, an acknowledgement of liability under Section 18 of the Limitation Act would certainly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alive either by means of an acknowledgement or part payment or by filing a suit in respect thereof in a proper court well within the period of limitation, but to my mind, it is clear that mere pendency of an insolvency petition without anything more cannot have the effect of saving the limitation prescribed by the Indian Limitation Act. The context in which the learned Single Judge made an observation that the filing of a suit within limitation would keep the debt alive, is in the context of Section 13 of the Presidency-towns Insolvency Act, 1909 - which requires that the debt of the petitioning creditor should be alive even at the hearing of the insolvency petition. Obviously, if at the hearing of the petition, the debt was time-barred, the stringent result of insolvency of the individual concerned would not follow. It is in this context that the learned Single Judge held that a debt would be subsisting at the date of hearing of the insolvency petition if a suit was filed to recover it within the period of limitation. The context of Section 13 of the Presidency-towns Insolvency Act, 1909 is far removed from the present context, in which what has to be seen is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unable to pay its debts- (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding one lakh rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; (b) if execution or other process issued on a decree or order if any Court or Tribunal in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) if it is proved to the satisfaction of the Tribunal that the company is unable to pay its debts, the Tribunal shall take into account the contingent and prospective liabilities of the company. (2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm if it is signed by any such agent or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t held: 20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corporation [(1874) LR 19 Eq 444] ) Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been properly was not allowed. (See Re. Brighton Club and Horfold Hotel Co. Ltd. [(1865) 35 Beav 204] ) 21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt, see Re. A Company. [94 SJ 369] Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of La- Fin, which, as of 2013 were worth over INR 1000 crores, had in 2016 become only worth INR 200 crores. 25. This judgment does not take Shri Kaul s argument any further. Nowhere in the Winding up Petition is it alleged that the company sought to be wound-up has lost its substratum, in the sense that there is no reasonable prospect of it ever making a profit in the future, nor can it be said that the company had abandoned its business and is, therefore, unable to meet the outstandings owed by it. On the other hand, what emerges from this judgment (and paragraph 21 therein in particular), is that it is not open for a company to say that a debt is undisputed, that it has ability to pay the debt, but will not pay the debt. Equally, where a debt is clearly owed, but the exact amount of debt is disputed, the company will be held to be unable to pay its debts. What has to be seen in each case is whether the debt is bona fide disputed. If so, without more, a winding up petition would then be dismissed. One other thing must be noticed at this stage. The trigger for limitation is the inability of a company to pay its debts. Undoubtedly, this trigger occurs when a defa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 433(e) of the Companies Act, 1956 being discretionary, which is referred to in the preceding paragraph 25. As stated hereinabove, the facts as to commercial insolvency are to be pleaded and proved at the admission stage of the winding up petition; the trigger for the winding up proceeding for limitation purposes, as has been stated hereinabove, being the date of default. 27. Shri Kaul then relied upon Mediquip Systems (P) Ltd. v. Proxima Medical System GMBH (2005) 7 SCC 42 and in particular, paragraphs 18 and 23 thereof, which state as follows: 18. This Court in a catena of decisions has held that an order under Section 433(e) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to in the expression unable to pay its debts in Section 433(e) of the Companies Act should be taken in the commercial sense and that the machinery for winding up will not be allowed to be utilised merely as a means for realising debts due from a company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is one of the considerations in order to determine whether the company is able to pay its debts or not. 29. Even on the facts of this case, the Winding up Petition alleges that the ultimatum to the Respondent company asserting that the Respondent company was legally obliged to purchase the requisite shares in accordance with the terms of the Letter of Undertaking was on 7th January, 2013. By this date at the very latest, the cause of action for filing a petition under Section 433(e) certainly arose. Also, as has been correctly pointed out by Dr. Singhvi, the statutory notice given on 3rd November, 2015 does not refer to any facts as to the commercial insolvency of La-Fin. The statutory notice only refers to the suit proceedings and attachment by the EOW which had taken place long before in December 2013. Factually, therefore, no basis is laid for the legal contentions argued before us by Shri Kaul. 30. In the Winding up Petition itself, what is referred to is the fall in the assets of La-Fin to being worth approximately INR 200 crores as of October, 2016, which again does not correlate with 3rd November, 2015, being the date on which the statutory n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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