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TMI Blog2021 (9) TMI 1324X X X X Extracts X X X X X X X X Extracts X X X X ..... plication to Adjudicating Authority) Rules,2016. Contentions of the Petitioner: 2. The Corporate Debtor approached the Petitioner at their Eastern Express Highway Brach to grant it credit facilities/ term loans and the Petitioner sanctioned three term loans vide Letter of Arrangements dated 27.08.2010, 26.11.2010 and 24.11.2011 which were duly accepted by the Corporate Debtor by executing various documents, agreements and deeds from time to time to secure the said facilities/ loans. 3. The Corporate Debtor defaulted in repaying the principal, interest and other monies on due dates as agreed in terms of documents, agreements and deeds. The Petitioner then classified the Corporate Debtor's loan account as Non-Performing Asset (NPA) on 28.06.2013. Thereafter, the Petitioner had issued a demand notice under Section 13 of SARFAESI Act, 2002 dated 02.07.2013 to the Corporate Debtor demanding the outstanding debt amount. The Petitioner then again issues a Legal Notice dated 02.05.2014 calling upon the Corporate Debtor to repay the total sum o Rs. 322,08,61,560/- due and payable as on 31.03.2014 within 7 days from receipt of Legal Notice. Also, an Original Application No. 726/2014 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 was beyond the control of the Petitioner. Although, the Petitioner had initiated various other proceedings against the Corporate Debtor for recovery of its dues. The IA 2508 of 2021 in CP 1382 of 2020 has been filed by the Petitioner under Section 5 of the Limitation Act, 196 to condone the delay in filing the Company Petition 1382 of 2020. 8. The Counsel for the Petitioner submits that the intention of the Code is to provide a justified balance between an interest of all stakeholders of the Company so that they can enjoy the availability of credit and the loss that a creditor might have to bear on account of default. Therefore, it is absolutely necessary that the delay of 1392 days in filing the Company Petition be condoned by exercising the power that the Tribunal has under Section 5 of the Limitation Act, 1963 in the interest of both the parties as well as other stakeholders. Contentions of the Corporate Debtor: 9. The Counsel for the Corporate Debtor submits that the Company Petition No. 1382 of 2020 is extensively time barred and liable to be dismissed at the outset as the Petitioner/ Applicant itself admits in the IA that there is an enormous delay of 1392 days in fili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is applicable to proceedings under the Code, particularly to petitions under Section 7 of the Code i. Section 238-A of the Code, which was inserted in the Code vide the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 provides for applicability of the Limitation Act to proceedings before the Adjudicating Authority under the Code. The said provision is reproduced below for ease of reference: "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" ii. The language 'as the case may be' is to be construed to mean 'respectively', and therefore, Section 238-A would include within its ambit, all proceedings before the Adjudicating Authority under the Code. iii. The petitions under Section 7, being proceedings before the Adjudicating Authority, would also be covered under Section 238-A of the Code, and accordingly, the provisions of Limitation Act are applicable to petitions under Section 7 of the Code. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor; (c) that intention of the Code is not to give a new lease of life to debts which are time-barred; (d) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues; (e) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs; (f) that default referred to in the Code is that of actual nonpayment by the corporate debtor when a debt has become due and payable; and (g) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and (h) an application under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application. "[Emphasis Supplied] iii. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s signed either personally or by an agent duly authorised in this behalf, and (c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right." ii. The Supreme Court, in Asset Reconstruction Company (India) Ltd. v Bishal Jaiswal & Anr., has held that Section 18 of the Limitation Act is applicable to petitions filed under Section 7 of the Code. Relevant extract is reproduced below for ease of reference: "10. Nearer home, in Laxmi Pat Surana v. Union Bank of India, Civil Appeal No. 2734 of 2020, a judgment delivered on 26.03.2021, his Court, after referring to various judgments of this Court, including the judgment in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 ["Babulall, then held: "35. The purport of such observation has been dealt with in the case of Babulal Vardharji Gurjar (II) [Babulal Vardharji Gurjarv. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1]. Suffice it to observe that this Court had not ruled out the application of Section 18 of the Limitation Act to the proceedings under the Code, if the fact situation of the case so warrants. Consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right; (b) the word "signed" means signed either personally or by an agent duly authorized in this behalf; and (c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right. "37. Ordinarily, upon declaration of the loan account/ debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 of the Code. However, Section 7 comes into play when the corporate debtor commits "default". Section 7, consciously uses the expression "default" - not the date of notifying the loan account of the corporate person as NPA. Further, the expression "default" has been defined in Section 3(12) to mean non-payment of "debt" when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference: "43. It is, therefore, clear that the majority decision of the Full Bench in V. Padmakumar (supra) is contrary to the aforesaid catena of judgments. The minority judgment of Justice (Retd.) A.I.S. Cheema, Member (Judicial), after considering most of these judgments, has reached the correct conclusion. We, therefore, set aside the majority judgment of the Full Bench of the NCLAT dated 12.03.2020." iv. The judgment of the Supreme Court in Bishal Jaiswal has also held that the auditor's report filed as part of the financial statements of the Company should also be considered for any caveats with regard to acknowledgments made in the books of accounts including the balance sheet. The relevant extract is reproduced below for ease of reference: "32. A perusal of the aforesaid Sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognized by Section 134(7). Equally, the auditor's report may als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act,1963then it shall not be entertainable by the Court and has to be dismissed in view of the obligation created vide Section 3 of Act, 1963. Section 5 specifically says that it is applicable to an appeal or in application but not to a suit. The suit instituted by filing a plaint and a plaint, in my view, would not be covered by the term "application"." 16. Submission No. 4: Uncertainty in the law concerning application of the Limitation Act to the Code is "sufficient cause" i. The provisions contained in Part II of the Code (IBC) pertaining to Insolvency for Corporate Persons, entitling the Applicant to file petition under Section 7 of the Code, came into force on 1.12.2016. ii. However, since the inception of the Code in 2016 till 2018, various conflicting judgments regarding the applicability of the Limitation Act to proceedings under the Code were passed by various benches of the Hon'ble NCLT and NCLAT. iii. Details of instances of such conflicting judgments are also set out in the List of Dates. The NCLT, in Sanjay Bagrodia v Satyam Green Power Pvt. Ltd (NCLT, Principal Bench) and State Bank of India, Colombo v. Western Refrigeration Pvt. Ltd. (NCLT, Ahmedabad) hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Legislature intended it to be a complete code by itself which alone should govern the several matters provided by it. 47. ....we hold that Section 433 which relates to limitation of the Companies Act, 2013 ipso facto will not be applicable to I &B Code' 60. ...the right to apply accrues under Section 7 or Section 9 or Section 10 only with effect from 1st December, 2016 when 786B Code' has come into force, therefore,...such applications cannot be rejected on the ground that the application is barred by limitation" viii. Judgment of NCLT Chandigarh in Visa Drugs and Pharmaceuticals Private Limited v M/s Swan Aluminiums Private Limited (04.09.2017): "26. With regard to the plea of limitation, the Hon'ble National Company Law Appellate Tribunal has held in "Neelkanth Township and Construction Pvt. Ltd. Vs. Urban Infrastructure Trustees Limited" Company Appeal (AT) (Insolvency) No.44 of 2017, decided on 11.08.2017, that the plea of claim being barred by limitation under the Code, is not based on law. It was further held that there is no provision under the Code to suggest that the law of limitation, 1963 is applicable to I &B Code. The Hon'ble Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant that the application is time barred" xiii. The Applicant's submission is supported by the following judgments in which courts/ tribunals have condoned the delay on account of uncertainty in the law under Section 5 of the Limitation Act, finding that the same was 'sufficient cause' for such delay: xiv. Bhagwan Swarup v Municipal Board, Ujhani [1970 All L.T 757 (FB)] "2. The question involved in the case is one of limitation and it arises in this way. The applicant Bhagwan Swarup filed a suit against the opposite parties for the recovery of Rs. 600/- by way of damages on the allegation that he had been maliciously retr enched from his position as Commanding Officer of No. 229, U.P.N.C.C.R. Company of Municipal Intermediate College, Ujhani. The learned Munsif decreed the suit of the applicant against defendants Nos. 1 and 2 on May 25, 1967. The Civil Courts closed for the summer vacation on June 2, 1967 and reopened after the vacation on July 3, 1967. The application for copies of the judgment and decree was made on the same date, that is to say on, July 3, 1967. Copies were ready and delivered on July 5, 1967 and the appeal was filed on July 6, 1967. A p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets mortgaged in favour of the Applicant. Order in favour of the Applicant was passed in the said proceedings, whereby the Tahsildar was appointed to take physical possession of the secured assets. xviii. The Applicant has conducted Forensic Audit on the Respondent's loan account, and based on the findings and observations in the Forensic Audit Report, the Respondent's loan account has been declared as Fraud. Accordingly, the Applicant has also lodged with the CBI, FIR bearing no. RC0682016E0014 against the Respondent. 17. Submission 5: A liberal approach should be adopted by courts under Section 5 of the Limitation Act to do substantial justice to parties i. The Applicant submits that courts have time and again adopted a liberal approach while condoning delay under Section 5 of the Limitation Act. The leading judgment in this regard is the judgment of the Supreme Court in Collector, Land Acquisition, Anantnag and Another v Mst. Katifi & Others. Relevant extracts are reproduced below for ease of reference: "3. The legislature has conferred the power to condone delay by enacting Section 5 [ Any appeal or any application, other than an application under any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical grounds but because it is capable of removing injustice and is expected to do so. Making a justice-oriented approach from this perspective, there was sufficient cause for condoning the delay in the institution of the appeal....The courts therefore have to be informed with the spirit and philosophy of the provision in the course of the interpretation of the expression "sufficient cause". So also the same approach has to be evidenced in its application to matters at hand with the end in view to do even-handed justice on merits in preference to the approach which scuttles a decision on merits." 18. Submission 6: Consideration should be given to the fact that the Applicant is a public sector undertaking of the Government of India and a liberal approach should be adopted in considering any delay in filing legal proceedings by any such public sector undertaking for the advancement of public interest i. The Applicant submits that the Supreme Court of India, in State of Haryana v Chandra Mani ((1996) 3 SCC 132) has taken cognizance of the fact that State and its agencies are prone to red tapism and considerable delay of such procedural red tape in the process of decision maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate party was altogether irrelevant. The doctrine of equality before law demands that all litigants, including the State as a litigant, are accorded the same treatment and the law is administered in an even-handed manner. There is no warrant for according a step-motherly treatment when the State is the applicant. The delay was accordingly condoned." 19. In G. Ramegowda, Major v. Spl. Land Acquisition Officer [(1988) 2 SCC 142] , it was held that no general principle saving the party from all mistakes of its counsel could be laid. The expression "sufficient cause" must receive a liberal construction so as to advance substantial justice and generally delays in preferring the appeals are required to be condoned in the interest of justice where no gross negligence or deliberate inaction or lack of bona fides is imputable to the party seeking condonation of delay. In litigations to which Government is a party, there is yet another aspect which, perhaps, cannot be ignored. If appeals brought by Government are lost for such defaults, No person is individually affected; but what, in the ultimate analysis suffers is public interest. The decisions of Government are collective and institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling may be condoned and a similar view was adopted in the case of Gaurav Hargovindbhai Dave V. Asset Reconstruction Co. (India) Ltd. (Civil Appeal No. 4952 of 2019, Para6@Pg-3), wherein the Hon'ble Supreme Court stated that the intent of the code could not have been to give a new lease of life to debts which are already time barred. 24. The Hon'ble NCLAT in the judgement of Jagdish Prasad Sarada V. Allahabad, (Company Appeal (AT) (Insolvency) No. 183/2020, Para11@Pg-6), wherein it was held that the determining factor is three years period from the date of default/NPA. The Applicant has admitted to the original date of default is 31.03.2013 whereas the Corporate Debtor's account was categorized as an NPA on 28.06.2013. 25. That in the Rajendra Kumar Tekriwal V. Bank of Baroda (Company Appeal (AT) (Insolvency) No. 225/2020, Para-11@Pg-6) the CIRP process was deemed to unsustainable as the same had been filed well beyond the period of three years from the date of the account of the corporate debtor being classified as an NPA. 26. The Hon'ble Supreme Court in the judgement of Jignesh Shah and Anr. v. Union of India and Anr. (2019) 10 SCC 750 stated that enforcement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d learned counsel for the parties. The only issue raised in this appeal is that the claim of Respondent No.1- "State Bank of India" -("Financial Creditor") was barred by limitation as default occurred in the year 2013. After hearing learned counsel for the parties briefly, we find that the account of Corporate Debtor was classified as NPA on 17thJune, 2013. The Corporate Insolvency Resolution Process (CIRP) was triggered by the Financial Creditor by filing application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("I &B Code" for short) on 1st April, 2019. It is by now well settled by a catena of judicial pronouncements from the Hon'ble Apex Court as also by this Appellate Tribunal that the application under Section 7 is governed by Article 137 of the Limitation Act providing for limitation period of three years which has to be reckoned from the date of default viz. the date on which the account of Corporate Debtor was classified as NPA. That being the position of law established through a series of Judgments of the Hon'ble Apex Court in "B.K. Educational Services Private Limited Vs. Parag Gupta and Associates- (2019) 11 Supreme Court Cases 633";"Gaurav Hargovindbha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the sides and hearing the counsels on record. 33. The Term Loan and Cash Credit Facility at the applicable rates of interest the total due as on 30.11.2019 stands at Rs. 681.87Crores. The date of default is 31.03.2013 and date of NPA is 28.06.2013. This Bench notes that the facts relating to the amount of debt, the date of default and the date of NPA has not been disputed by the Respondent, i.e., M/s. Shreem Corporation Ltd. However, the only point of dispute is that the said Company Petition, i.e., CP No. 1382 of 2020, has been filed on 22.01.2020 after a delay of 1,392 days . The additional affidavit filed by the Petitioner however, sought to bring in the balance sheet for the year 31.03.2015 which records the liability of the Financial Creditor in the balance sheet. thus, a fresh period of limitation is accrued from 31.03.2015 and continues till 31.03.2018 therefore the period of delays is reduced from 1392 days to 662 days. 34. The delay in filing the application from 662 days was caused primarily due to uncertainty in law pertaining to the applicability of limitation Act to the proceedings under the Code, which prevented the applicant from preferring the Company Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an Application filed under Sec7 of IBC? (b) Whether the Petitioner has shown sufficient cause for condonation of delay? 39. Keeping in view the fact that the 'debt' and 'default' have not been disputed by the Respondent side, the only issue of consideration before the Bench is as mentioned in the above paragraph, i.e. regarding applicability of limitation to the proceedings of the Code and if so, whether under Section 5 of the Limitation Act, 1963, there is sufficient cause to condone the delay of less than 2 years in filing the Company Petition. 40. The Bench has no doubt in its mind that the Limitation Act, 1963 in entirety is applicable to the proceedings under the Code. Here, the Bench would like to draw attention to Section 238A of the Code which was inserted in the year 2018 and provides for applicability of Limitation Act, 1963 to the proceedings under the Code. The Section 238A of the Code reads as under:- "Section 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Uncertainty in law with regard to applicability of the Limitation Act is a 'sufficient cause' under Section 5 of the Limitation Act. The provisions of part II of IBC came in to the force on 01.12.2016, a plethora of conflicting judgements of NCLT namely in Sanjay Bagrodia v Satyam Green Power Pvt. Ltd., wherein it was held that the limitation act was applicable and contrary to that view, the Hon'ble NCLAT in Neelkanth Township & Construction Pvt. Ltd. v. Urban Infrastructure Trustees Ltd., held that the provisions of the Limitation Act are not applicable under the proceedings of the Code. Further, section 238 -A was inserted on 06.06.2018 which provided that provisions of the Limitation Act, 1963, shall as far as may be, apply to the proceedings or appeals before the Adjudicating Authority. Later, the Hon'ble Supreme Court in B K Education Society case held that where the default has occurred over three years prior to the date of filing of the application, the application could be barred under article 137 of the Limitation Act, save and except in those case where, in the facts of the case section 5 of the Limitation Act may be applied to condone the delay in filing such applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge Bench of this Court has observed that: (SCC p. 465, para 14) "14. ... The law of limitation is founded on public policy. The legislature does not prescribe limitation with the object of destroying the rights of the parties but to ensure that they do not resort to dilatory tactics and seek remedy without delay. The idea is that every legal remedy must be kept alive for a period fixed by the legislature. To put it differently, the law of limitation prescribes a period within which legal remedy can be availed for redress of the legal injury. At the same time, the courts are bestowed with the power to condone the delay, if sufficient cause is shown for not availing the remedy within the stipulated time." 48. This bench also relies on the settled principles of law as culled out by the Hon'ble Supreme Court in dealing with sufficient cause to condone the delay under sec.5 of Limitation Act, in B. Madhuri Goud v. B. Damodar Redely reported in (2012)12 SCC 693 and the same is extracted below: (i) There should be a liberal, pragmatic,. justice-oriented, nonpedantic approach while dealing with an application for condonation of delay, for the courts are not supposed to legalise inju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a collective cause should be given some acceptable latitude. 49. This bench also relies on the Hon'ble Supreme Court in the matter of Dena Bank(now Bank of Baroda) v. C Shivkumar Reddy and Anr. judgement dated 4.08.2021 at para 140 held as follows: "while it is true that default in payment of a debt triggers the right to initiate the corporate Resolution Process, and a petition under Sec7 & 9 of IBC is required to be filed within the period of limitation prescribed by law, which in this case would be three years from the date of default by virtue of sEc.238 A of IBC read with Article 137 of the Schedule to the Limitation Act 1963, the delay in filing a petition in NCLT is condonable under Sec 5 of the Limitation Act unlike delay in filing suit." 50. Drawing a reference to aforesaid principles of law and in BK Education Society's case, Babulal Gurjar case, Gaurav Hargovind Dave, Jignesh Shah and the recent judgement of Dena Bank on 04.08.2021, with regard to applicability of Limitation Act and Article 137 of Limitation Act 1963, this bench is bound to conclude that an application under Sec.7 is to be filed within three years as construed under Article 137 save and except in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Debtor. (II) That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period. (III) That the provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (IV) That the order of moratorium shall have effect from the date of pronouncement of this order till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of Corporate Debtor under Section 33, as the case may be. (V) That the public announcement of the corporate insolvency resolution process shal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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