TMI Blog2020 (8) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... mentals on the spirit and intent of IBC, it is also evident that such a process is not intended to be adversarial to the corporate debtor but is essentially to protect its interests. In relation to a financial creditor, the trigger for CIRP is default by the corporate debtor of rupees one lakh or more against the debt/s. When seeking initiation of CIRP qua a corporate debtor, the financial creditor is required to make the application in conformity with the requirements of Section 7 of the Code while divulging the necessary information and evidence, as required by the Rules of 2016. After completion of all other requirements, for admitting such an application of the financial creditor, the Adjudicating Authority has to be satisfied, as per sub-section (5) of Section 7 of the Code, that default has occurred and, in this process of consideration by the Adjudicating Authority, the corporate debtor is entitled to point out that 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. As observed by this Court, the legislative policy now is to move away from the concept o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying the period of limitation provided for mortgage liability for the purpose of limitation applicable to the application in question. The discussion foregoing leads to the inescapable conclusion that the application made by the respondent No. 2 under Section 7 of the Code in the month of March 2018, seeking initiation of CIRP in respect of the corporate debtor with specific assertion of the date of default as 08.07.2011, is clearly barred by limitation for having been filed much later than the period of three years from the date of default as stated in the application - the impugned orders deserve to be set aside and the application filed by the respondent No. 2 deserves to be rejected as being barred by limitation. Appeal allowed. - CIVIL APPEAL NO. 6347 OF 2019 - - - Dated:- 14-8-2020 - Justice A. M. Khanwilkar And Justice Dinesh Maheshwari For the Appellant : Mr. Gaurav Goel, AOR For the Respondent : Mr. P.S. Patwalia, Sr. Adv. Mr. Sonal Jain, AOR Mr. Ishkaran Singh, Adv. Ms. Heena Sharma, Adv. Mr. Rajendra Beniwal, Adv. Mr. Divyanshu Srivastava, Adv. Mr. Kumar Sumit, Adv. Ms. Bano Deswal, adv. Mr. Vishal Thakur, Adv. Mr. Shriram, Adv. Mr. Manish Rao, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terim resolution professional. 2.3. Being aggrieved by the aforesaid order dated 09.08.2018, the appellant preferred an appeal before NCLAT and contended against maintainability of the application moved by the respondent No. 2. The appeal so filed by the appellant was summarily dismissed by the Appellate Tribunal by its order dated 17.09.2018. However, the order so passed by the Appellate Tribunal was not approved by this Court in the judgment dated 26.02.2019, passed in Civil Appeal No. 10710 of 2018, after finding that the issue relating to limitation, though raised, was not decided by the Appellate Tribunal. Hence, the matter was remanded to NCLAT for specifically dealing with the issue of limitation. After such remand, the Appellate Tribunal, by its impugned order dated 14.05.2019, has held that neither the application under Section 7 as made in this case is barred by limitation nor the claim of the respondent No. 2 is so barred and has, therefore, again dismissed the appeal. Being aggrieved, the appellant has approached this Court over again by way of the instant appeal. 3. In the impugned order dated 14.05.2019, the Appellate Tribunal has observed that the Code having c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and background aspects: Application by the financial creditor 6. The substance of the relevant factual and background aspects, as emanating from the contents of the application under Section 7 moved by the respondent No. 2 and the observations made by NCLT and NCLAT in the impugned orders as also those noticed from the submissions made by the respective parties, could now be summarised as infra. 6.1. On or about 22.12.2007, the lender banks viz., Corporation Bank, Indian Overseas Bank and Bank of India sanctioned and extended various loans, advances and facilities to the corporate debtor viz., Veer Gurjar Aluminium Industries Pvt. Ltd., who was engaged in manufacturing of aluminium ingots from aluminium scrap. The corporate debtor executed various security documents in favour of the lender banks in the years 2008 and 2009, including those of equitable mortgage against the facilities so obtained. The Corporation Bank proceeded to rephase/enhance the facilities to the corporate debtor from time to time and lastly on 27.08.2010 wherefor, various additional security documents were executed by the corporate debtor. It has been asserted by the respondent No. 2 that the Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord as Annexure A-5 (at p. 140-142). The expression DATES marked with * in the second column is reproduced as found mentioned at p. 141 but, in the format appended to the Rules of 2016, this entry carries the expression DAYS :- 2 AMOUNT CLAIMED TO BE IN DEFAULT AND THE DATE ON WHICH THE DEFAULT OCCURRED (ATTACH THE WORKINGS FOR COMPUTATION OF AMOUNT AND DATES* OF DEFAULT IN TABULAR FORM) The aggregating amount of default is 1,011,573,308 (Rupees One Hundred and One Crore, Fifteen Lakh Seventy Three Thousand Three hundred and Eight only) as on 28-02-2018 including expenses with further interest @ 14.50% plus penal interest of 2% from 01-Mar-2018 till payment/or realization. Dates of default 8.7.2011 being the date of NPA The workings for computation of amount and days of default in tabular form is annexed hereto and marked as Exhibit B). The statement of Account along with Certificate under Bankers Book Evidence Act, 1891 is annexed hereto and marked as Exhibit B-1. 6.4. It may also be usefully indicated that Part-V of the application, drawn as per the format in Form 1, required the applicant to state the Particulars o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered as CP(IB)-488/I BP/MB/2018 before the Adjudicating Authority (NCLT). On being noticed, the corporate debtor submitted its reply in opposition and raised various objections on the contents and frame of the application. It was also contended that various proceedings had been initiated with the sole aim of browbeating the corporate debtor and forcing it to pay the unrealistic claim of the applicant. With specific reference to the proceedings under the SARFAESI Act, it was contended that as per the notice under Section 13 (2), the account of corporate debtor with Indian Overseas Bank was classified as NPA on 05.08.2011 but, it was not mentioned as to when the loan account with Corporation Bank was classified as NPA. The corporate debtor also contended that its loan account had not been properly maintained by the respective banks due to the defect in accounting system and it was clear that the claim was arbitrary, inflated and not recoverable. With reference to the proceedings pending before DRT in OA No. 172/2013, it was also contended that IBC would not apply to cases where the bank has approached DRT or has adopted the proceeding under the SARFAESI Act and, for this reason, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank: (2018) 1 SCC 407 as regards the scheme of the Code and the requirements of Section 7 thereof and observed,- 21 ..The rational and reasoning which can be drawn from the above lines of the citations clearly indicate mainly two aspects and that is existence of debt and the default which the present facts of the case clearly demonstrate. So any amount of argument that deals with issues which are not pertinent and trivial to the main issues concerned does not or cannot come in the way of adjudication of the lis in favour of the Petitioners. The present facts of the case are fully and comprehensively covered by the wordings of the above citations. 22. The above discussion clearly shows that there is a debt owed by the Corporate Debtor in favour of Corporation Bank and subsequently on assignment of the debts by the said bank to the Petitioner, the Corporate Debtor is liable to make the payment to the Petitioner. Further there is ample proof to come to the conclusion that the Corporate Debtor defaulted in making payment to Corporation Bank and thereafter to the assignor, the Petitioner herein. 23. This Adjudicating Authority, on perusal of the documents filed by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under Section 19 of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is pending before Debt Recovery Tribunal, Aurangabad. Wherein question has been raised is whether the amount is payable to the assignee or not. 3. However, the initiation of Corporate Insolvency Resolution Process cannot be annulled merely on the ground of pendency of a petition under Section 19 of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 . In fact in terms of Section 14 of I B Code all such pending proceeding cannot proceed during the period of moratorium. 4. Learned counsel appearing on behalf of the Appellant contended that there is no debt payable. However, when we asked the counsel to file an addition affidavit signed by the Appellant making specific statement that they have not received any amount or amount received has already been paid and therefore there is no debt or there is no default, it is informed by the counsel for the Appellant that such affidavit cannot be filed by the Appellant as the Corporate Debtor had taken loan from the Bank. 5. In view of the aforesaid stand taken by Appellant, we are not inclined to interfere w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of account of the appellant and other related documents. However, that is a matter which ought to be agitated before the National Company Law Appellate Tribunal in the first place. Accordingly, we relegate the parties before the National Company Law Appellate Tribunal for fresh consideration of the objection raised by the appellant that the claim of the respondent is barred by limitation .. The impugned order dated 14.05. 2019 by NCLAT after remand 10. In compliance of the aforesaid order of this Court dated 26.02.2019, the Appellate Tribunal (NCLAT) took up the said appeal for consideration afresh and proceeded to dismiss the same by way of its impugned order dated 14.05.2019 while holding that the application in question is not barred by limitation. 10.1. In the introductory paragraphs 1 to 4 of the impugned order dated 14.05.2019, the Appellate Tribunal referred to the subject matter of appeal as also the orders passed in the previous round of proceedings; and in paragraphs 5 and 6, took note of the rival contentions. Thereafter, in paragraphs 7 to 14, the Appellate Tribunal took note of the background facts including those pertaining to the loans take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is not barred by limitation in the manner that the right to apply under Section 7 of the Code accrued to the respondent financial creditor only on 01.12.2016 when the Code came into existence. The Appellate Tribunal said, - 21. The I B Code has come into existence on 1st December, 2016 and thereafter the right to apply accrued to respondent Financial Creditor under Section 7 of the I B code only on 1st December, 2016. The application having filed in the year 2018, we hold that the application under Section 7 is not barred by limitation. 10.3. Thereafter, in paragraph 22, the Appellate Tribunal extracted the relevant passages from the decision in Innoventive Industries (supra) wherein this Court has explained as to how the CIRP is triggered in the scheme of IBC; and has underscored the requirement of existence of default on the part of the corporate debtor wherefor and whereby a financial creditor could maintain an action under Section 7 of the Code as also the essential elements of the process of such an action, including the form and manner of moving the application in conformity with the Rules of 2016 and initial enquiry by the Adjudicating Authority on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending; and also observed that the appellant has suppressed the fact that on 31.07.2018, the corporate debtor approached the financial creditor for one time settlement. After these observations, the Appellate Tribunal referred to the facts that nine properties of the corporate debtor had been mortgaged with the financial creditor and that the financial creditor had adopted the proceedings for enforcement of mortgage security and had recovered possession pursuant to the order passed by DRT. Having thus referred to the other proceedings and particularly the enforcement of mortgage security, the Appellate Tribunal referred to the limitation period of twelve years for recovery of possession of mortgaged property as per Article 61(b) of the Limitation Act in paragraphs 29 and 30 and concluded that the property having been mortgaged, the claim is not barred by limitation as the period of limitation is twelve years with regard to the mortgaged property. These considerations, observations and findings led the Appellate Tribunal to hold and conclude in paragraph 31 of the impugned order that the application under Section 7 of the Code is not barred by limitation. These paragraphs 26 to 31 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 7 of the Code accrued to the respondent financial creditor only on 01.12.2016 when the Code came into force- Paragraph 21 of the impugned order ibid ; and second, that the period of limitation for recovery of possession of the mortgaged property is twelve years- Paragraphs 29 and 30 of the impugned order ibid . Noticeably, though the Appellate Tribunal has referred to the pendency of the application under Section 19 of the Act of 1993 as also the fact that corporate debtor had made a prayer for OTS in the month of July, 2018 but, has not recorded any specific finding about the effect of these factors. Broad features of rival submissions 12. Assailing the orders so passed by NCLAT and asserting that the application made by the respondent No. 2 is barred by limitation, the erstwhile director of the corporate debtor has preferred this appeal which has been duly opposed by the applicant financial creditor (respondent No. 2) as also the IRP for the corporate debtor (respondent No. 1). The broad features and substance of the rival submissions could be noticed as infra. The Appellant 13. The learned senior counsel for the appellant has contended that in the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 SCC 158 , where default had occurred in the year 2001 when the Recovery Certificate was issued and the NCLT and NCLAT held that the claim was not time-barred for the cause of action being a continuing one, this Court has held that there was no doubt that the claim was due and payable, but the same was barred by limitation as applicable under IBC. Proceeding further, the learned senior counsel has referred to the decision rendered by a three-Judge Bench of this Court in Civil Appeal No. 4952 of 2019: Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. Anr. - Now reported in (2019) 10 SCC 572 to submit that therein, it is specifically held that the application under Section 7 of IBC would fall within the purview of Article 137 of the Limitation Act and the time of three years begins to run from the date of default and no new life would be given to the time-barred debts. The learned senior counsel has also referred to the order of NCLAT dated 02.05.2019 in Company Appeal (AT)(Insolvency) No. 655 of 2018, which was in challenge before this Court in Gaurav Hargovindbhai Dave (supra), to point out that NCLAT had taken the application under Section 7 of IBC to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is separate and distinct; and when limitation period of three years under Article 137 of the Limitation Act, in relation to the application under Section 7 of the Code, starts from the date of default, acknowledgment of the debt in the balance sheet will not give any fresh date of default because default occurs only once and cannot be continuing. The learned counsel has also submitted that the NCLAT has wrongly relied on the alleged proposal for OTS which was never filed before NCLT and also was denied by the appellant herein; and in any case, the proposal for OTS, if at all made on 31.07.2018, cannot revive the date of default as per declaration of NPA on 08.07.2011 nor does it attract Section 18 of the Limitation Act. 13.7. As regards relevant considerations and approach, the learned senior counsel for the appellant has submitted, with reference to paragraph 64 of the decision in Swiss Ribbons Private Limited and Anr. v. Union of India and Ors.: (2019) 4 SCC 17, that the legislative policy has moved from cause of action to determination of default and in the present case, default having occurred when the account became NPA as on 08.07.2011, the application remains barred b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. Mahabir Cold Storage v. CIT, Patna: 1991 Supp (1) SCC 402 to submit that the registers of a company are of prima facie evidence; and the balance sheet disclosing loans and borrowings and forming part of annual returns, indeed constitute the admission and acknowledgment of the corporate debtor of its indebtedness. Therefore, according to the learned counsel, the loan amount acknowledged to be due and payable by the corporate debtor in the balance sheets and annual reports, continuously from the year 2011 and until the year 2017, becomes an admitted fact of evidence and thereby, the period of limitation is extended by dint of applicability of Section 18 of the Limitation Act. 14.4. The learned senior counsel has re-emphasised on the submissions that the suggestions of the appellant, that no extension of limitation period under Section 18 of the Limitation Act is permissible in the Code because date of default is sacrosanct and only three years period from that date is permissible, remain untenable in law. The learned counsel has contended that at the time of filing such application by the respondent No. 2, there was no provision in the Code importing any defined period of limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel appearing for the IRP (respondent No. 1) has more or less argued on the same lines and has submitted that the application in question is well within the period of limitation when examined in the light of the applicable provisions of the Code and the Limitation Act. 15.1. According to the learned counsel, the application filed by the respondent No. 2 remains within limitation for the reasons: (a) that the liability of loan is long standing and same is recorded in the balance sheets of corporate debtor for the Financial Years 2011-12, 2012-13, 2013-14, 2014-15, 2015-16 and 2016-17; (b) that by way of letter dated 31.07.2018, request for OTS was made on behalf of the corporate debtor; and (c) OA No. 172/2013 was filed before DRT well within the stipulated time period and the same is still pending. It has been contended that in view of these indisputable facts, the claim of the financial creditor cannot be said to be dead or stale claim and hence, is not barred by limitation, particularly when the financial creditor has been availing of another civil remedy available to it and had filed the application under Section 19 of the Act of 1993 well within limitation. 15.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents has been that the applicability of Section 18 of the Limitation Act, providing for extension of the period of limitation upon making of acknowledgment by the party against whom a right is claimed, is not taken away and, for such acknowledgments (of liability) having been consistently and continuously made in the balance sheets and annual reports by the corporate debtor as also in its offer for OTS, the fresh period of limitation would be available from the date of every such acknowledgment. Hence, with heavy reliance on the principles relating to acknowledgment under Section 18 of the Limitation Act, the learned counsel for the respondents would assert that the application in question is not barred by limitation. On the other hand, the gravamen of submissions on behalf of the appellant has been that looking to the scheme of the Code and the decisions of this Court, the application in question is governed by Article 137 of the Limitation Act; that three years time period prescribed therein commences from the date of default; and that acknowledgment of debt in the balance sheet or annual report does not give any fresh period of limitation because default occurs only once and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid]- The expression in parenthesis was substituted for repaid by Amendment Act No. 26 of 2018 with retrospective effect from 06.06.2018 by the debtor or the corporate debtor, as the case may be; **** **** **** (30): secured creditor means a creditor in favour of whom security interest is created; **** **** **** 17.2. Part II of the Code deals with insolvency resolution and liquidation of corporate persons and the extent of application of this Part II is specified in Section 4 that reads as under:- 4. Application of this Part. - (1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees. 17.3. The expressions employed in Part II of the Code are defined in Section 5 thereof. The relevant definitions are as under:- 5. Definitions.-In this Part, unless the context otherwise requires,- **** **** **** (6) dispute includes a suit or arbitration proceedings relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under subsection (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5). (7) The Adjudicating Authority shall communicate- (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be. 17.5. Section 238-A, inserted in the Code by way Amendment Act No. 26 of 2018, is deemed to have come into effect from 06.06.2018. This Section 238-A, being di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Tribunal has referred to Article 61(b) of the Limitation Act that relates to suits on mortgages. As shall be noticed hereafter later, such a reference does not fit in the issue at hand from any angle. However, we may extract Articles 61(b) and 62 of the Limitation, just for the sake of reference, as under:- PART V - SUITS RELATING TO IMMOVABLE PROPERTY. 29 Description of suit 29 Period of Limitation 29 Time from which period begins to run 29 61. By a mortgagor- 29 Twelve years 29 When the transfer becomes known to the plaintiff. 37 *** *** *** Description of application Period of limitation Time from which period begins to run 137. Any other application for which no period of limitation is provided elsewhere in this division Three years When the right to apply accrues. The relevant basics of the Insolvency and Bankruptcy Code, 2016 18. Now, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. During the course of an extensive examination of the relevant provisions, this Court also analysed the scheme of Corporate Insolvency Resolution Process under the Code and, in relation to the initiation of such CIRP by the financial creditor, exposited as follows: - 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of debt , we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a claim and for the meaning of claim , we have to go back to Section 3(6) which defines claim to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 7 days of admission or rejection of such application, as the case may be. (emphasis in bold supplied) 18.3. The other decision in which this Court again traversed through the historical background and scheme of the Code had been in the wake of challenge to the constitutional validity of various of its provisions in the case of Swiss Ribbons (supra), decided on 25.01.2019. 18.3.1. In Swiss Ribbons, while upholding the constitutional validity of IBC, this Court took note, inter alia, of the pre-existing state of law as also the objects and reasons for enactment of the Code; and while observing that the focus of the Code was to ensure revival and continuation of the corporate debtor, where liquidation is to be availed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor s assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends. (emphasis in bold supplied) 18.3.2. In Swiss Ribbons, this Court again explained the connotations as also contours of the provisions relating to initiation of CIRP by the financial creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Adjudicating Authority, the corporate debtor is entitled to point out that 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. As observed by this Court, the legislative policy now is to move away from the concept of inability to pay debts to determination of default . Operation of law of limitation over IBC proceedings 20. Having taken note of the rudiments that the Code is a beneficial legislation intended to put the corporate debtor on its feet and it is not a mere money recovery legislation for the creditors; and having also noticed that CIRP is not intended to be adversarial to the corporate debtor but is essentially to protect its interests and that CIRP has its genesis in default on the part of the corporate debtor, we may now examine the operation of law of limitation over the proceedings under the Code. 21. Section 238-A, providing that the provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or appeals, inter alia, before the Adjudicating Authority (NCLT) or the Appellate Tribunal (NCLAT), was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. This requires being read with the definition of debt and claim in the Code. Further, debts in winding-up proceedings cannot be time-barred, 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 laches . 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 counterintuitive. Second, it re-opens the right of claimants (pursuant to issuance of a public notice) to file time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Code would obviously only refer to debts that are due and payable in law, i.e., the debts that are not time-barred. That this is the case has already been held by us in the Innoventive Industries Ltd. (supra) .. **** **** **** 36. The definition of default in Section 3(12) uses the expression due and payable followed by the expression and is not paid by the debtor or the corporate debtor . Due and payable in Section 3(12), therefore, only refers to the whole or part of a debt, which when referring to the date on which it becomes due and payable , is not in fact paid by the corporate debtor. The context of this provision is therefore actual non-payment by the corporate debtor when a debt has become due and payable. **** **** **** 42. 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 the Limitati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (emphasis in bold supplied) 25. As noticed, the abovementioned decision in K. Sashidhar was rendered on 05.02.2019 wherein, the principles in B.K. Educational Services were undoubtedly restated by this Court. However, thereafter, the case of Jignesh Shah (supra) came to be decided by a three-Judge Bench of this Court on 25.05.2019. A particular passage in this three-Judge Bench decision in Jignesh Shah (as occurring in paragraph 21, SCC p. 770) has been relied upon by both the parties to assert that the law so declared by this Court supports their case. 25.1 In order to comprehend the meaning and import of the referred observations in paragraph 21 of Jignesh Shah, the text thereof is required to be read in its context. Therefore, it shall be worthwhile to take note of the relevant factual and background aspects of the case of Jignesh Shah. Therein, IL FS Financial Services Ltd. ( IL FS ) had filed a winding up petition against La-Fin Financial Services Pvt. Ltd. ( La-Fin ) which was transferred to National Company Law Tribunal, Mumbai Branch and then, was heard as Section 7 application under the Code. The background had been that on 20.08.2009, a share-purchase agreement wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra). 25.2. This Court accepted the contentions urged on behalf of the appellants and while reproducing the relevant passages from B.K. Educational Services, held that the bar of limitation was operating over the application filed by IL FS in the following words:- 12. This judgment clinches the issue in favour of the Petitioner/Appellant. With the introduction of Section 238A into the Code, the provisions of the Limitation Act apply to applications made under the Code. Winding up petitions filed before the Code came into force are now converted into petitions filed under the Code. What has, therefore, to be decided is whether the Winding up Petition, on the date that it was filed, is barred by lapse of time. If such petition is found to be time-barred, then Section 238A of the Code will not give a new lease of life to such a time-barred petition. On the facts of this case, it is clear that as the Winding up Petition was filed beyond three years from August, 2012 which is when, even according to IL FS, default in repayment had occurred, it is barred by time. (emphasis in bold supplied) 25.3. Though with the aforesaid finding, the matter stood concluded that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Neglected to pay would arise only on default to pay the sum due, which would clearly be a fixed date depending on the facts of each case. Equally in the second situation, if execution or other process is issued on a decree or order of any Court or Tribunal in favour of a creditor of the company, and is returned unsatisfied in whole or in part, default on the part of the debtor company occurs. This again is clearly a fixed date depending on the facts of each case. And in the third situation, it is necessary to prove to the satisfaction of the Tribunal that the company is unable to pay its debts. Here again, the trigger point is the date on which default is committed, on account of which the Company is unable to pay its debts. This again is a fixed date that can be proved on the facts of each case. Thus, Section 433(e) read with Section 434 of the Companies Act, 1956 would show that the trigger point for the purpose of limitation for filing of a winding up petition Under Section 433(e) would be the date of default in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred and the decision of this Court reported in [1959] Supp. (2) SCR 476 has been cited. The corresponding provision, as regards continuing cause of action for specific category of cases is now contained in Section 22 of the Limitation Act, 1963 which is akin to the earlier Section 23 of the Limitation Act,1908 but with slight modifications. For the sake of reference, these provisions are extracted as under: Section 23 of the Limitation Act, 1908 Continuing breaches and wrongs.-In the case of a continuing breach of contract and in the case of a continuing wrong independent of contract, a fresh period of limitation begins to run at every moment of the time during which the breach or the wrong, as the case may be, continues. Section 22 of the Limitation Act, 1963 Continuing breaches and torts.-In the case of a continuing breach of contract or in the case of a continuing tort, a fresh period of limitation begins to run at every moment of the time during which the breach or the tort, as the case may be, continues. ]. This Court rejected such contention while observing as under: 4. In order to get out of the clutches of para 27, it is urged that Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in the case of Gaurav Hargovindbhai Dave (supra), decided on 18.09.2019. Therein, the financial creditor had stated in the relevant column of Form No. 1 of the application under Section 7 of the Code the date of default to be the date of NPA i.e., 21.07.2011. The application under Section 7 was filed on 03.10.2017. The Adjudicating Authority applied Article 62 of the Limitation Act and reached to the conclusion that since the limitation period was twelve years from the date on which money sued has become due, the claim was within limitation and hence, admitted the application. The NCLAT applied another reasoning that the time of limitation would begin to run only from 01.12.2016, the date on which the Code was brought into force. This Court took note of the contentions of both the parties and while accepting the submissions that time began to run on 21.07.2011 (the date of NPA), held that the application filed under Section 7 was time-barred. The relevant passages of the said decision in Gaurav Hargovindbhai Dave (supra) could be usefully reproduced as under:- 4. Mr Aditya Parolia, learned counsel appearing on behalf of the appellant has argued that Article 137 being a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar issue yet again in the case of Sagar Sharma (supra), decided on 30.09.2019. Therein, apart from disapproving the proposition that the date of commencement of the Code could be the starting point of limitation (as noticed hereinabove), this Court again pointed out the fallacy in applying the period of limitation related to mortgage liability to the application under Section 7 of the Code and said, 2 ..However, we find in the impugned judgment that Article 62 (erroneously stated to be Article 61) was stated to be attracted to the facts of the present case, considering that there was a deed of mortgage which was executed between the parties in this case. We may point out that an application under Section 7 of the Code does not purport to be an application to enforce any mortgage liability. It is an application made by a financial creditor stating that a default, as defined under the Code, has been made, which default amounts to ₹ 1,00,000 (Rupees one lakh) or more which then triggers the application of the Code on settled principles that have been laid down by several judgments of this Court. (emphasis in bold supplied) 30. When Section 238-A of the Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suit or other proceedings, wherever it could apply and where the period of limitation could get extended because of acknowledgment of liability. Noticeably, in contradistinction to the proceeding of a suit, this Court observed that a suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding up proceeding is to be filed- What has been observed in relation to the proceeding for winding up, perforce, applies to the application seeking initiation of CIRP under IBC . It is difficult to read the observations in the aforesaid paragraph 21 of Jignesh Shah to mean that the ratio of B.K. Educational Services has, in any manner, been altered by this Court. As noticed, in B.K. Educational Services, it has clearly been held that the limitation period for application under Section 7 of the Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of Limitation Act, if any case for condonation of delay is made out. The findings in paragraph 12 in Jignesh Shah makes it clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, where only the date of default as 08.07.2011 has been stated for the purpose of maintaining the application under Section 7 of the Code, and not even a foundation is laid in the application for suggesting any acknowledgement or any other date of default, in our view, the submissions sought to be developed on behalf of the respondent No. 2 at the later stage cannot be permitted. It remains trite that the question of limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. Indisputably, in the present case, the respondent No. 2 never came out with any pleading other than stating the date of default as 08.07.2011 in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation for recovery of possession of the mortgaged property is twelve years. The reasonings so adopted by NCLAT do not stand in conformity with the law declared by this Court and could only be disapproved. 36. The question as to whether date of enforcement of the Code (i.e., 01.12.2016) provides the starting point of limitation for an application under Section 7 of the Code and hence, the application in question, made in the year 2018, is within limitation, is not even worth devoting much time. A bare look at paragraph 21 of the impugned order leaves nothing to guess that such observations by the Appellate Tribunal had only been assumptive in nature without any foundation and without any basis. There is nothing in the Code to even remotely indicate if the period of limitation for the purpose of an application under Section 7 is to commence from the date of commencement of the Code itself. Similarly, nothing provided in the Limitation Act could be taken as the basis to support the proposition so stated by the Appellate Tribunal. In fact, such observations had been in the teeth of law declared by this Court in the case of B. K. Educational Services (supra). 36.1. It appears tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Code. However, the observations and findings in the later part of the impugned order are contrary even to those occurring in the said paragraph 24 of the very same order. 37.3 It again appears that in other cases too, similar reasoning prevailed with the Adjudicating Authorities as also the Appellate Tribunal, where the Articles of the Limitation Act relating to the suits concerning mortgaged property (and thereby the period of limitation of twelve years) were sought to be applied to hold that similar applications under Section 7 of the Code were not barred by limitation. Such propositions were specifically disapproved by a three-Judge Bench of this Court in the case of Gaurav Hargovindbhai Dave (supra) decided on 18.09.2019. As noticed hereinbefore, in Gaurav Hargovindbhai Dave (supra) this Court disapproved the approach of Adjudicating Authority in applying Article 62 of the Limitation Act to such an application under Section 7 of the Code with the observations that Article 62 is out of way, for it applies only to suits; and application under Section 7 falls within the ambit of residuary Article 137. In Sagar Sharma (supra), this Court again pointed out the fallacy i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourts/Tribunals/Authorities, of course, strictly in accordance with law. In the interest of justice, we also make it clear that the observations in this judgment are relevant only in regard to the issue determined that the application under Section 7 of the Code is barred by limitation and not beyond. In other words, nothing in this judgment shall have bearing on any other proceeding that shall be dealt with on its own merits and in accordance with law. Conclusion 40. In view of the above, this appeal is allowed to the extent indicated and with the observations foregoing. The impugned orders dated 14.05.2019 as passed by the National Company Law Appellate Tribunal, New Delhi in Company Appeal (AT) Insolvency No. 549 of 2018 and dated 09.08.2018 as passed by the National Company Law Tribunal, Mumbai Bench in CP(IB)-488/I BP/MB/2018 are set aside; and the application made by the respondent No. 2 under Section 7 of the Code, seeking initiation of Corporate Insolvency Resolution Process in respect of respondent No. 1 is rejected for being barred by limitation. Consequently, all the proceedings undertaken in the said application under Section 7 of the Code, including appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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