TMI Blog2021 (3) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... ogether. Condonation of delay - Period of limitation under IBC - exclusion of period after the initiation of proceedings under the SARFAESI Act - HELD THAT:- Section 14 excludes the time spent in proceeding in a wrong forum, which is unable to entertain the proceedings for want of jurisdiction, or other such cause. Where such proceedings have ended, the outer limit to claim exclusion under Section 14 would be the date on which the proceedings ended - In the instant case, even if it is assumed that the right to sue accrued on 31.3.2013 when the account of Corporate Debtor was declared NPA, the financial creditor initiated proceedings under SARFAESI Act on 18th January 2014, that is the date on which notice under Section 13(2) was issued, proceeded with the same, and even took possession of the assets, until the entire proceedings were stayed by the High Court by its order dated 24th July 2017. The proceedings under Section 7 of the IBC were initiated on 10th July 2018 - since the proceedings in the High Court were still pending on the date of filing of the application under Section 7 of the IBC in the NCLT, the entire period after the initiation of proceedings under the SARFAES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 62 of the Insolvency and Bankruptcy Code 2016, hereinafter referred to as the IBC , is against a judgment and order dated 22nd November 2019, passed by the National Company Law Appellate Tribunal (NCLAT), dismissing Company Appeal (AT) (Insolvency) No.672 of 2019, filed by the Appellants, challenging an order dated 25th April 2019, of the National Company Law Tribunal (NCLT), Kolkata Bench, admitting the application filed by the Respondent No.1 as Financial Creditor, under Section 7 of the IBC being CP(IB) No.1202/KB/2018, thereby initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Debi Fabtech Private Ltd. 2. The Corporate Debtor was inter alia engaged in the business of export of textile and garments. On or about 8th February 2012, the Corporate Debtor requested the Financial Creditor for cash credit facility of ₹ 1,00,00,000/- (Rupees One Crore). 3. By a letter of sanction dated 15th February, 2012, the Financial Creditor granted Cash Credit Facility of ₹ 1,00,00,000/- to the Corporate Debtor, after which a Cash Credit Account No.482 was opened in the name of the Corporate Debtor. The Corporate Debtor duly executed a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 226 of the Constitution of India being W.P. No.33799 (W) of 2014 inter alia challenging the said notices issued by the Financial Creditor under Section 13(2) and 13(4) of the SARFAESI Act. 10. While the said writ petition was pending in the High Court, the Authorized Officer of the Financial Creditor issued a notice dated 24th December 2014, notifying the Corporate Debtor, the guarantors and the public in general, that the Authorized Officer of the Financial Creditor had taken possession of the secured assets of the Corporate Debtor, as specified in the Schedule to the said notice, on 24th December 2014, under Section 13(4) of the SARFAESI Act. 11. On 11th May 2017, the District Magistrate Hooghly issued an order under the SARFAESI Act for possession by the Financial Creditor of the assets of the Corporate Debtor hypothecated to the Financial Creditor. 12. On 24th July 2017, the High Court passed an interim order restraining the Financial Creditor from taking steps against the Corporate Debtor under the SARFAESI Act until further orders. The High Court was of the prima facie view that the Financial Creditor being a Cooperative Bank, it could not invoke the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the observation that the ground of limitation had been taken by the Corporate Debtor for the first time, in the appeal. There was no finding of the Adjudicating Authority on this issue. 20. The NCLAT examined the issue of limitation and held that the Respondent had bona fide, within the period of limitation, initiated proceedings against the Corporate Debtor under the SARFAESI Act and was thus entitled to exclusion of time under Section 14(2) of the Limitation Act. The NCLAT, after exclusion of the period of about three years and six months till the date of the interim order of the High Court, during which the Financial Creditor had been proceeding under SARFAESI Act, found that the application of the Financial Creditor, under Section 7 of the IBC, was within limitation. The appeal was accordingly dismissed. 21. As pointed out by Mr. Sai Deepak appearing for the Financial Creditor, the Financial Creditor had, in its application filed in the NCLT under Section 7 of the IBC, enclosed a synopsis of relevant facts and significant dates, with supporting documents, which included the date of sanction of the loan, the date when the Cash Credit Account was declared NPA, the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n application under Section 7 relief is sought for resolution of a 'Corporate Debtor' or liquidation on failure. It is not a money claim or suit. Therefore, no benefit can be given to any person under Section 14(2), till it is shown that the application under Section 7 was prosecuting with due diligence in a court of first instance or of appeal or revision which has no jurisdiction. 22. The decision rendered in Sesh Nath Singh Ors. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. (Supra) thereby cannot be held to be a correct law laid down by the Bench. 23. In the present case, the account of the 'Corporate Debtor' was classified as NPA on 30th March, 2014. Thereafter, on 6th December, 2014, Demand Notice under Section 13(2) of the 'SARFAESI Act, 2002' was issued by the Respondent- 'Cosmos Co-operative Bank Ltd.' The Bank also initiated Arbitration under Section 84 of the Multi-State Cooperative Societies Act on 4th December, 2015. The Bank had also taken possession of the movable assets under Section 13(4) of the 'SARFAESI Act, 2002' as back as on 16th January, 2017. 24. In the circumstances, instead of remitting the case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited (2018) 1 SCC 353, this Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked . 30. Mr. Dave emphatically argued that the NCLT/NCLAT considering an application under Section 7 of the IBC, not being a forum for recovery of debt, Section 14 of the Limitation Act would not apply, as held by the larger Bench of NCLAT in Ishrat Ali s case. 31. Mr. Dave finally argued that, in any case, Section 14 of the Limitation Act could only be attracted, if any earlier proceedings initiated by the applicant were dismissed for want of jurisdiction, or other cause of like nature. Referring to the Explanation in section 14(2) of the Limitation Act, Mr. Dave argued that, since the proceedings initiated by the Financial Creditor under SARFAESI Act were still pending, it was not open to the Financial Creditor to take the benefit of Section 14(2) of the Limitation Act, 1963. The explanation in Section 14 of the Limitation Act, is extracted herein below: Explanation: for the purposes of this section,- (a) in excluding the time dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvency, liquidation and bankruptcy. 36. Section 6 of the IBC provides that, when any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor, in such manner as provided in Chapter II of the IBC. The sine qua non for initiation of the corporate insolvency resolution process is the occurrence of default. 37. Section 7 of the IBC provides as follows: 7. Initiation of corporate insolvency resolution process by financial creditor.-(1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government,] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6-A) of Section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall record its reasons in writing for the same. (5) Where the Adjudicating Authority is satisfied that- (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the existence of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. 43. In enacting the IBC, the legislature has, in its wisdo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the unpaid operational debt; (c) the invoice or notice for payment to the corporate debtor hasbeen delivered by the operational creditor; (d) no notice of dispute has been received by the operational creditoror there is no record of dispute in the information utility; and (e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any. (ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if- (a) the application made under sub-section (2) is incomplete; (b) there has been payment of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment tothe corporate debtor; (d) notice of dispute has been received by the operational creditor orthere is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 238A provides as follows:- 238A. 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. 49. The language and tenor of Section 238A is significant. The Section reads that the provisions of the Limitation Act, 1963 shall, as far as may be, apply to proceedings or appeals inter alia before the NCLT/NCLAT. 50. Section 238 gives overriding effect to the IBC, notwithstanding 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. 51. There is no specific period of limitation prescribed in the Limitation Act, 1963 for an application under the IBC before the NCLT. An application for which no period of limitation is provided anywhere else in the Schedule, is governed by Article 137 of the Schedule to the Limitation Act. Under Article 137 of the Schedule to the Limitation Act, the period of limitation prescribed for such an application is three yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 137 of the Limitation Act, which commenced from the date of the default, was extendable under Section 5 of the Limitation Act. 57. The issues involved in this appeal are:- (i) Whether delay beyond three years in filing an application under Section 7 of IBC can be condoned, in the absence of an application for condonation of delay made by the applicant under Section 5 of the Limitation Act, 1963? (ii) Whether Section 14 of the Limitation Act, 1963 applies to applications under Section 7 of the IBC? If so, is the exclusion of time under Section 14 is available, only after the proceedings before the wrong forum terminate? 58. For the sake of convenience, and to avoid prolixity and unnecessary repetition, all the aforesaid issues are dealt with together. Section 238A of the IBC provides that the provisions of the Limitation Act shall, as far as may be, apply to proceedings before the Adjudicating Authority(NCLT) and the NCLAT. 59. It is well settled by a plethora of judgments of this Court as also different High Courts and, in particular, the judgment of this Court in B.K. Educational Services Private Limited v. Parag Gupta Associates and Ors. (supra) the NCLT/NCLA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me prescribed. Although, it is the general practice to make a formal application under Section 5 of the Limitation Act, 1963, in order to enable the Court or Tribunal to weigh the sufficiency of the cause for the inability of the appellant/applicant to approach the Court/Tribunal within the time prescribed by limitation, there is no bar to exercise by the Court/Tribunal of its discretion to condone delay, in the absence of a formal application. 64. A plain reading of Section 5 of the Limitation Act makes it amply clear that, it is not mandatory to file an application in writing before relief can be granted under the said section. Had such an application been mandatory, Section 5 of the Limitation Act would have expressly provided so. Section 5 would then have read that the Court might condone delay beyond the time prescribed by limitation for filing an application or appeal, if on consideration of the application of the appellant or the applicant, as the case may be, for condonation of delay, the Court is satisfied that the appellant/applicant had sufficient cause for not preferring the appeal or making the application within such period. Alternatively, a proviso or an Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracted in this case, since the impugned order of the NCLAT does not proceed on the basis of any acknowledgment. 69. In M/s. Reliance Asset Reconstruction Company Ltd. (supra), the petition under Section 7 of the IBC, filed by the Financial Creditor in July 2018 was found, on facts, to be hopelessly barred by limitation, as the account of the Corporate Debtor had been declared NPA in 1993, after which recovery proceedings had been initiated, a Recovery Certificate issued in 2003 and amended in 2001. This Court found that the documents relied upon by the Financial Creditor to claim the benefit of Section 18 of the Limitation Act, could not be construed as admission or acknowledgment of liability. 70. Section 14 (2) of the Limitation Act provides that in computing the period of limitation for any application, the time during which the petitioner had been prosecuting, with due diligence, another civil proceeding, whether in a court of first instance, or of appeal or revision, against the same party, for the same relief, shall be excluded, where such proceeding is prosecuted in good faith in a Court which, from defect of jurisdiction or other cause of like nature, is unable to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 29(2) of the Limitation Act inter alia provides that where any special or local law prescribes for any suit, appeal or application a period of limitation different from the period of limitation prescribed by the Schedule, the provisions of Section 3 shall apply as if such period was the period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in Sections 4 to 24 shall apply only insofar as, and to the extent, they are not expressly excluded by such special or local law. When any special statute prescribes certain period of limitation as well as provision for extension up to specified time-limit, on sufficient cause being shown, then the period of limitation prescribed under the special law shall prevail and to that extent the provisions of the Limitation Act shall stand excluded. As the intention of the legislature in enacting subsection (3) of Section 34 of the Act is that the application for setting aside the award should be made within three months and the period can be further extended on sufficient cause being shown by another perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person honestly doing his best to get his case tried on merits but failing because the court is unable to give him such a trial, would not be applicable to an application filed under Section 34 of the Act of 1996. The principle is clearly applicable not only to a case in which a litigant brings his application in the court, that is, a court having no jurisdiction to entertain it but also where he brings the suit or the application in the wrong court in consequence of bona fide mistake or (sic of) law or defect of procedure. Having regard to the intention of the legislature this Court is of the firm opinion that the equity underlying Section 14 should be applied to its fullest extent and time taken diligently pursuing a remedy, in a wrong court, should be excluded. 73. In his separate concurring judgment Raveendran, J. said:- 52. Section 14 of the Limitation Act relates to exclusion of time of proceeding bona fide in court without jurisdiction. .. 53. Sub-section (3) of Section 34 of the AC Act prescribes the period of limitation for filing an application for setting aside an award as three months from the date on which the applicant has received the arbitral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itation Act, would only be available if the proceedings which could not be entertained for defect of jurisdiction, or other cause of a like nature, had ended, in view of the Explanation at the end of Section 14, which says that for the purposes of the said Section, the day on which the earlier proceeding was instituted and the day on which it ended shall both be counted for exclusion of time. Much emphasis has been placed by Mr. Dave on the explanation at the end of Section 14, to argue that the Financial Creditor would not be entitled to the benefit of Section 14 of the Limitation Act since the proceedings under the SARFAESI Act are still pending, as also the writ petition in the High Court. 77. Section 14 of the Limitation Act is to be read as a whole. A conjoint and careful reading of Sub-Sections (1), (2) and (3) of Section 14 makes it clear that an applicant who has prosecuted another civil proceeding with due diligence, before a forum which is unable to entertain the same on account of defect of jurisdiction or any other cause of like nature, is entitled to exclusion of the time during which the applicant had been prosecuting such proceeding, in computing the period of lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or want of jurisdiction or other cause of such nature. Explanation (a), which is clarificatory, only restricts the period of exclusion to the period between the date of initiation and the date of termination. An applicant cannot claim any further exclusion. 82. To cite an example, if a party were to file a suit in a wrong forum, to enforce payment of money secured by a mortgage or charge upon immovable property, for which the prescribed period of limitation is twelve years, after expiry of three years from the date of accrual of the right to sue, and then file an application under Section 7 of the IBC after dismissal of the suit for want of jurisdiction, that application under Section 7 of the IBC would be time barred since such party would not be entitled to exclusion of any period of time beyond the date of institution and date of termination of the earlier proceeding. If after exclusion of the time between the initiation and termination of the proceedings instituted bona fide and in good faith and prosecuted with due diligence, an application was still beyond three years, Section 14 would not help save limitation. 83. To cite another example, if civil proceedings were init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication under Section 7 of the IBC in the NCLT is excluded, the application in the NCLT is well within the limitation of three years. Even if the period between the date of the notice under Section 13(2) and date of the interim order of the High Court staying the proceedings under the SARFAESI Act, on the prima facie ground of want of jurisdiction is excluded, the proceedings under Section 7 of IBC are still within limitation of three years. 88. An Adjudicating Authority under the IBC is not a substitute forum for a collection of debt in the sense it cannot reopen debts which are barred by law, or debts, recovery whereof have become time barred. The Adjudicating Authority does not resolve disputes, in the manner of suits, arbitrations and similar proceedings. However, the ultimate object of an application under Section 7 or 9 of the IBC is the realization of a debt by invocation of the Insolvency Resolution Process. In any case, since the cause of action for initiation of an application, whether under Section 7 or under Section 9 of the IBC, is default on the part of the Corporate Debtor, and the provisions of the Limitation Act 1963, as far as may be, have been applied to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... futility is to be ruled out so long as interpretative possibility permits. Needless to mention that the object oriented approach cannot be carried to the extent of doing violence to the plain language used, by rewriting the section or substituting words in place of the actual words used by Legislature. 94. The use of words as far as may be , occurring in Section 238A of the IBC tones down the rigour of the words shall in the aforesaid Section which is normally considered as mandatory. The expression as far as may be is indicative of the fact that all or any of the provisions of the Limitation Act may not apply to proceedings before the Adjudicating Authority (NCLT) or the Appellate authority (NCLAT) if they are patently inconsistent with some provisions of the IBC. At the same time, the words as far as may be cannot be construed as a total exclusion of the requirements of the basic principles of Section 14 of the Limitation Act, but permits a wider, more liberal, contextual and purposive interpretation by necessary modification, which is in harmony with the principles of the said Section. 95. If, in the context of proceedings under Section 7 or 9 of the IBC, Section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er under the SARFAESI Act for taking possession of its secured assets, were intended to be excluded from the category of civil proceedings. In this context, reference may be made to the judgment of this Court in United Bank of India v. Satyawati Tandon and Ors. (2010) 8 SCC 110 cited by Mr. Deepak Sai, where this Court observed: 11. .The Government of India accepted the recommendations of the two Committees and that led to enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act ), which can be termed as one of the most radical legislative measures taken by Parliament for ensuring that dues of secured creditors including banks, financial institutions are recovered from the defaulting borrowers without any obstruction. For the first time, the secured creditors have been empowered to take steps for recovery of their dues without intervention of the courts or tribunals. 98. Even though Section 13 of the SARFAESI Act enables a secured creditor to enforce security interest created in its favour, without the intervention of the Court or Tribunal, the SARFAESI Act does not exclude the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor and reasons for non acceptance of such objection or representation had been communicated to the borrower; (viii) the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act; (ix) that the provisions of this Act and the rules made there under had been complied with: Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets within a period of thirty days from the date of application: Provided also that if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may, after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days. Provided also that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estore the possession of secured assets or management of secured assets to the borrower or such other aggrieved person, who has made an application under sub-section (1), as the case may be; and (c) pass such other direction as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under subsection (4) of section 13. (4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made there under, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt. (4A) Where- (i) any person, in an application under sub-section (1), claims any tenancy or leasehold rights upon the secured asset, the Debt Recovery Tribunal, after examining the facts of the case and evidence produced by the parties in relation to such claims shall, for the purposes of enforcement of security interest, have the jurisdiction to examine whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy for exclusion under Section 14 of the Limitation Act, because those proceedings were not conducted in a Civil Court, cannot be sustained. 100. Another civil proceeding whether in a Court of first instance or of appeal or revision, against the party, for the same relief, would have to be construed to include any civil Proceeding in a forum, whether of first instance, or appellate, or revisional, against the same party for similar relief, more so, having regard to the language and tenor of Section 238A of the Limitation Act which applies the provisions of the Limitation Act as far as may be , to proceedings in the NCLT/NCLAT. 101. In our considered view, keeping in mind the scope and ambit of proceedings under the IBC before the NCLT/NCLAT, the expression Court in Section 14(2) would be deemed to be any forum for a civil proceeding including any Tribunal or any forum under the SARFAESI Act. 102. In any case, Section 5 and Section 14 of the Limitation Act are not mutually exclusive. Even in a case where Section 14 does not strictly apply, the principles of Section 14 can be invoked to grant relief to an applicant under Section 5 of the Limitation Act by purposively cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
