SESH NATH SINGH & ANR. versus BAIDYABATI SHEORAPHULI CO-OPERATIVE BANK LTD. AND ANR. on 22 March 2021

ASESH NATH SINGH & ANR.

v.

BAIDYABATI SHEORAPHULI CO-OPERATIVE BANKLTD. AND ANR.

(Civil Appeal No. 9198 of 2019)

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MARCH 22, 2021

[INDIRA BANERJEE AND HEMANT GUPTA, JJ.]

Insolvency and Bankruptcy Code, 2016: Object and Reasonsof the enactment of the Code – Held : Is to consolidate and amendCthe laws relating to reorganisation and insolvency resolution ofcorporate persons, partnership firms and individuals in a time boundmanner, for maximization of the value of the assets of such persons,to promote entrepreneurship, availability of credit and to balancethe interest of all the stakeholders.

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DInsolvency and Bankruptcy Code, 2016: s.7 – Applicationunder – When any corporate debtor commits a default, a financialcreditor, an operational creditor or the corporate debtor itself mayinitiate corporate insolvency resolution process in respect of suchcorporate debtor, in such manner as provided in Chapter II of theIBC – A financial creditor may either by itself or jointly with otherEfinancial creditors, as may be notified by the Government, file anapplication for initiation of the corporate insolvency resolutionprocess against a corporate debtor before the AdjudicatingAuthority, when a default has occurred – The trigger point for anapplication under s.7 of the IBC is the occurrence of a default.F

Insolvency and Bankruptcy Code, 2016: Applicability ofLimitation Act to application made under the Code before the NCLT– Held: There is no specific period of limitation prescribed in theLimitation Act, 1963 for an application under the IBC before theNCLT – An application for which no period of limitation is providedGanywhere else in the Schedule, is governed by Art.137 of the Scheduleto the Limitation Act – Under Art.137 of the Schedule to theLimitation Act, the period of limitation prescribed for such anapplication is three years from the date of accrual of the right toapply – Limitation Act, 1963 – Art.137.

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Limitation Act, 1963: s.5 – Delay in filing appeal/anyapplication – s.5 of the Limitation Act provides that any appeal orany application, other than an application under any of theprovisions of Order XXI of the Code of Civil Procedure, 1908, maybe admitted after the prescribed period of limitation, if the appellantor the applicant satisfies the Court, that he had sufficient cause fornot preferring the appeal or making the application within suchperiod – Explanation in s.5 of the Limitation Act clarifies that, thefact that the appellant or the applicant may have been misled byany order, practice or judgment of the High Court in ascertainingor computing the prescribed period, may be sufficient cause withinthe meaning of this Section.

Limitation Act, 1963: s.5 – Condonation of delay in filing anapplication or appeal – The condition precedent for condonationof the delay in filing an application or appeal, is the existence ofsufficient cause – Whether the explanation furnished for the delaywould constitute ‘sufficient cause’ or not would depend upon factsof each case – There cannot be any straight jacket formula foraccepting or rejecting the explanation furnished by the applicant/appellant for the delay in taking steps – Acceptance of explanationfurnished should be the rule and refusal an exception, when nonegligence or inaction or want of bona fides can be imputed to thedefaulting party.

Limitation Act, 1963: s.5 – Requirement to file application,not mandatory – s.5 of the Limitation Act does not speak of anyapplication – Although, it is the general practice to make a formalapplication under s.5, in order to enable the Court or Tribunal toweigh the sufficiency of the cause for the inability of the appellant/applicant to approach the Court/Tribunal within the time prescribedby limitation, there is no bar to exercise by the Court/Tribunal of itsdiscretion to condone delay, in the absence of a formal application– A plain reading of s.5 makes it amply clear that it is not mandatoryto file an application in writing before relief can be granted underthe said section – Had such an application been mandatory, s.5 ofthe Limitation Act would have expressly provided so.

Limitation Act, 1963: s.14(2) – Exclusion of period forcommutation of limitation period – Held: In computing the periodof limitation for any application, the time during which the petitioner AB

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Ahad been prosecuting, with due diligence, another civil proceeding,whether in a court of first instance, or of appeal or revision, againstthe same party, for the same relief, shall be excluded, where suchproceeding is prosecuted in good faith in a Court which, from defectof jurisdiction or other cause of like nature, is unable to entertainit – The conditions for exclusion are that the earlier proceedingsBshould have been for the same relief, the proceedings should havebeen prosecuted diligently and in good faith and the proceedingsshould have been prosecuted in a forum which, from defect ofjurisdiction or other cause of a like nature, was unable to entertainit – Where such proceedings have ended, the outer limit to claimCexclusion under s.14 would be the date on which the proceedingsended.

Limitation Act, 1963: s.14 – Applicability to an applicationunder s.7 of the IBC – Held: Legislature has in its wisdom chosennot to make the provisions of the Limitation Act verbatim applicableDto proceedings in NCLT/NCLAT, but consciously used the words ‘asfar as may be’ – The words ‘as far as may be’ are not meant to beotiose – Those words are to be understood in the sense in whichthey best harmonise with the subject matter of the legislation andthe object which the Legislature has in view – The Courts would notgive an interpretation to those words which would frustrate theEpurposes of making the Limitation Act applicable to proceedings inthe NCLT/NCLAT ‘as far as may be’ – In other words, theprovisions of the Limitation Act would apply mutatis mutandis toproceedings under the IBC in the NCLT/NCLAT – Insolvency andBankruptcy Code, 2016 –s.238A – Securitisation andFReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002.

Insolvency and Bankruptcy Code, 2016: s.238A – Words ‘asfar as may be’ – meaning of – Held: The use of words ‘as far as maybe’, occurring in s.238A of the IBC tones down the rigour of theGwords ‘shall’ in the said Section which is normally considered asmandatory – The expression ‘as far as may be’ is indicative of thefact that all or any of the provisions of the Limitation Act may notapply to proceedings before the Adjudicating Authority (NCLT) orthe Appellate authority (NCLAT) if they are patently inconsistentwith some provisions of the IBC – At the same time, the words ‘asH

far as may be’ cannot be construed as a total exclusion of therequirements of the basic principles of s.14 of the Limitation Act,but permits a wider, more liberal, contextual and purposiveinterpretation by necessary modification, which is in harmony withthe principles of the said Section.

Conclusion

Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002: s.13(4) – The ChiefMetropolitan Magistrate or the Judicial Magistrate, as the casemay be, exercising powers under s.14 of the SARFAESI Act, functionsas a Civil Court/Executing Court – Proceedings under the SARFAESIAct would, therefore, be deemed to be civil proceedings in a Court– Moreover, proceedings under the SARFAESI Act under s.13(4)are appealable to the DRT under s.18 of the SARFAESI Act –Argument that proceedings under the SARFAESI Act would not qualifyfor exclusion under s.14 of the Limitation Act, because thoseproceedings were not conducted in a Civil Court, cannot besustained.

Limitation Act, 1963: s.14 – Keeping in mind the scope andambit of proceedings under the IBC before the NCLT/NCLAT, theexpression ‘Court’ in s.14(2) would be deemed to be any forum fora civil proceeding including any Tribunal or any forum under theSARFAESI Act – Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002.

Limitation Act, 1963: s.5 and s.14 – s.5 and s.14 of theLimitation Act are not mutually exclusive – Even in a case wheres.14 does not strictly apply, the principles of s.14 can be invoked togrant relief to an applicant under s.5 of the Limitation Act bypurposively construing ‘sufficient cause’ – It is well settled thatomission to refer to the correct section of a statute does not vitiatean order – Delay can be condoned irrespective of whether there isany formal application, if there are sufficient materials on recorddisclosing sufficient cause for the delay – NCLAT rightly refused tostay the proceedings before the NCLT – The judgment and order ofthe NCLT does not warrant interference.

Dismissing the appeal, the Court

HELD: 1. As stated in its Object and Reasons, the objectiveof the IBC is to consolidate and amend the laws relating to A

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Areorganisation and insolvency resolution of corporate persons,partnership firms and individuals in a time bound manner, formaximization of the value of the assets of such persons, topromote entrepreneurship, availability of credit and to balancethe interest of all the stakeholders. An effective legal frameworkfor timely resolution of insolvency and bankruptcy would supportBdevelopment of credit markets and encourage entrepreneurship.It would also ease business, and facilitate more investmentsleading to higher economic growth and development. The IBCseeks to designate the NCLT and DRT as the AdjudicatingAuthorities for resolution of insolvency, liquidation andCbankruptcy. [Para 35][829-A-C]

2.1 Section 6 of the IBC provides that, when any corporatedebtor commits a default, a financial creditor, an operationalcreditor or the corporate debtor itself may initiate corporateinsolvency resolution process in respect of such corporate debtor,Din such manner as provided in Chapter II of the IBC. A financialcreditor may either by itself or jointly with other financialcreditors, as may be notified by the Government, file an applicationfor initiation of the corporate insolvency resolution processagainst a corporate debtor before the Adjudicating Authority,when a default has occurred. The trigger point for an applicationEunder Section 7 of the IBC is the occurrence of a default.[Paras 36, 38][829-C-D; 831-F-G

Innoventive Industries Limited v. ICICI Bank andAnother (2018) 1 SCC 407 : [2017] 8 SCR 33 – reliedon.F

Statutes

2.2 The Limitation Act 1963, has been enacted toconsolidate and amend the law of limitation of suits and otherproceedings and for purposes connected therewith. The LimitationAct applies to “suits and other proceedings and for purposesconnected therewith” as stated in its preamble. The expressionG“other proceedings” are necessarily proceedings arising out ofand/or related to suits. Various statutes have, however, adoptedthe provisions of the Limitation Act, by incorporation orreference, either in its entirety or to a limited extent. For example,Section 37 of the Arbitration Act, 1940 provided that all the H

provisions of the Indian Limitation Act, 1908 would apply toarbitrations as they applied to proceedings in Court. Section 433of the Companies Act, 2013 provides that the provisions of theLimitation Act, 1963 shall, as far as may be, apply to proceedingsor appeals before the Tribunal or the Appellate Tribunal, as thecase may be. [Paras 45, 47][835-E-F; 836-A-B]

K. Venkateswara Rao And Anr. v. Bekkam NarasimhaReddi & Ors. AIR 1969 SC 872 : [1969] SCR 679;Nityananda M. Joshi and Others v. The Life InsuranceCorporation of India andothers (1969) 2 SCC199:[1970] 1 SCR 396 – referred to.

2.3 The insolvency Committee of the Ministry of CorporateAffairs, Government of India, in a report published in March 2018,stated that the intent of the IBC could not have been to give anew lease of life to debts which were already time barred.Thereafter Section 238A was incorporated in the IBC by theInsolvency and Bankruptcy Code (Second Amendment) Act, 2018(Act 26 of 2018), with effect from 6[th] June 2018. Section 238Areads that the provisions of the Limitation Act, 1963 shall, as faras may be, apply to proceedings or appeals inter alia before theNCLT/NCLAT. Section 238 gives overriding effect to the IBC,notwithstanding anything inconsistent therewith contained in anyother law, for the time being in force, or any instrument havingeffect, by virtue of any such law. [Paras 48, 49, 50][836-C-F]

3.1 There is no specific period of limitation prescribed inthe Limitation Act, 1963 for an application under the IBC beforethe NCLT. An application for which no period of limitation isprovided anywhere else in the Schedule, is governed by Article137 of the Schedule to the Limitation Act. Under Article 137 ofthe Schedule to the Limitation Act, the period of limitationprescribed for such an application is three years from the date ofaccrual of the right to apply. [Para 51][836-G]

3.2 There can be no dispute with the proposition that theperiod of limitation for making an application under Section 7 or9 of the IBC is three years from the date of accrual of the right tosue, that is, the date of default. [Para 52][836-H]

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812SUPREME COURT REPORTS

AGaurav Hargovindbhai Dave v. Asset ReconstructionCompany (India) Ltd. and Anr. (2019) 10 SCC 572:[2019] 13 SCR 224 – relied on.

3.3 Section 5 of the Limitation Act provides that any appealor any application, other than an application under any of theBprovisions of Order XXI of the Code of Civil Procedure, 1908,may be admitted after the prescribed period of limitation, if theappellant or the applicant satisfies the Court, that he had sufficientcause for not preferring the appeal or making the application withinsuch period. The explanation in Section 5 of the Limitation Actclarifies that, the fact that the appellant or the applicant may haveCbeen misled by any order, practice or judgment of the High Courtin ascertaining or computing the prescribed period, may besufficient cause within the meaning of this Section. [Para 53][837-B-D]

B.K. Educational Services Private Limited v. ParagDGupta and Associates (2019) 11 SCC 633 : [2018] 12SCR 794 – relied on.

Radha Export (India) Private Limited v. K.P. Jayaramand Anr. (2020) 10 SCC 538; Babulal Vardharji Gurjarv. Veer Gurjar Aluminium Industries Pvt. Ltd. andEanother (2020) 15 SCC 1 – referred to.

4.1 Section 238A of the IBC provides that the provisionsof the Limitation Act shall, as far as may be, apply to proceedingsbefore the Adjudicating Authority(NCLT) and the NCLAT. TheNCLT/NCLAT has the discretion to entertain an application/appeal after the prescribed period of limitation. The conditionFprecedent for exercise of such discretion is the existence ofsufficient cause for not preferring the appeal and/or the applicationwithin the period prescribed by limitation. [Paras 58, 59][838-D-E]

Ramlal Motilal and Chhotelal v. Rewa Coalfields Ltd.GAIR 1962 SC 361 : [1962] SCR 762; Madras HighCourt in Krishna v. Chattappan 1890 ILR Mad 269;Shakuntla Devi Jain vs. Kuntal Kumar AIR 1969 SC575 : [1969] SCR1006; State of West Bengal v.Administrator, Howrah Municipality and Others (1972)1 SCC 366: [1972] 2 SCR 874 – relied on.H

4.2 The condition precedent for condonation of the delayin filing an application or appeal, is the existence of sufficientcause. Whether the explanation furnished for the delay wouldconstitute ‘sufficient cause’ or not would dependent upon factsof each case. There cannot be any straight jacket formula foraccepting or rejecting the explanation furnished by the applicant/appellant for the delay in taking steps. Acceptance of explanationfurnished should be the rule and refusal an exception, when nonegligence or inaction or want of bona fides can be imputed tothe defaulting party. [Para 61][839-A-B]

4.3 It is true that a valuable right may accrue to the otherparty by the law of limitation, which should not lightly be defeatedby condoning delay in a routine manner. At the same time, whenstakes are high, the explanation should not be rejected by takinga pedantic and hyper technical view of the matter, causing therebyirreparable loss and injury to the party against whom the listerminates. The courts are required to strike a balance betweenthe legitimate rights and interests of the respective parties.[Para 62][839-A-B]

4.4 Section 5 of the Limitation Act, 1963 does not speak ofany application. The Section enables the Court to admit anapplication or appeal if the applicant or the appellant, as the casemay be, satisfies the Court that he had sufficient cause for notmaking the application and/or preferring the appeal, within thetime prescribed. Although, it is the general practice to make aformal application under Section 5 of the Limitation Act, 1963, inorder to enable the Court or Tribunal to weigh the sufficiency ofthe cause for the inability of the appellant/applicant to approachthe Court/Tribunal within the time prescribed by limitation, thereis no bar to exercise by the Court/Tribunal of its discretion tocondone delay, in the absence of a formal application. [Para63][839-D-F]

5.1 Section 238A of the IBC makes the provisions of theLimitation Act, as far as may be, applicable to proceedings beforethe NCLT and the NCLAT. The IBC does not exclude theapplication of Section 6 or 14 or 18 or any other provision of theLimitation Act to proceedings under the IBC in the NCLT/NCLAT. All the provisions of the Limitation Act are applicable AB

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Ato proceedings in the NCLT/NCLAT, to the extent feasible.There is no reason why Section 14 or 18 of the Limitation Act,1963 should not apply to proceeding under Section 7 or Section9 of the IBC. [Paras 67, 68][840-G-H; 841-A]

5.2 Section 14(2) of the Limitation Act provides that inBcomputing the period of limitation for any application, the timeduring which the petitioner had been prosecuting, with duediligence, another civil proceeding, whether in a court of firstinstance, or of appeal or revision, against the same party, for thesame relief, shall be excluded, where such proceeding isprosecuted in good faith in a Court which, from defect ofCjurisdiction or other cause of like nature, is unable to entertainit. The conditions for exclusion are that the earlier proceedingsshould have been for the same relief, the proceedings shouldhave been prosecuted diligently and in good faith and theproceedings should have been prosecuted in a forum which, fromDdefect of jurisdiction or other cause of a like nature, was unableto entertain it. [Para 70][841-D-E]

State of Goa v. Western Builders (2006) 6 SCC 239:[2006] 3 Suppl. SCR 288; Consolidated EngineeringEnterprises v. Principal Secretary, IrrigationEDepartment and Ors. (2008) 7 SCC 169 : [2008] 5 SCR1108; Commissioner, M.P. Housing Board and Ors. v.Mohanlal & Co. (2016) 14 SCC 199 – relied on.

Union of India v. Popular Construction Co. (2001) 8SCC 470 : [2001] 3 Suppl. SCR 619 – referred to.F

6.1 There can be little doubt that Section 14 applies to anapplication under Section 7 of the IBC. The IBC does not excludethe operation of Section 14 of the IBC. The question is whetherprior proceedings under the SARFAESI Act do not qualify forthe exclusion of time under Section 14, inasmuch as they are notGcivil proceedings in a Court. [Para 75][845-E-F]

6.2 Even if it were to be held that the benefit of Section 14would be available to an applicant under IBC, for proceedingsinitiated bona fide and prosecuted with due diligence under theSARFAESI Act, another question raised in this appeal is, whether H

exclusion of time under Section 14 of the Limitation Act, wouldonly be available if the proceedings which could not beentertained for defect of jurisdiction, or other cause of a likenature, had ended, in view of the Explanation at the end of Section14, which says that for the purposes of the said Section, the dayon which the earlier proceeding was instituted and the day onwhich it ended shall both be counted for exclusion of time.[Para 76][845-G-H; 846-A]

6.3 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) ofSection 14 makes it clear that an applicant who has prosecutedanother civil proceeding with due diligence, before a forum whichis unable to entertain the same on account of defect of jurisdictionor any other cause of like nature, is entitled to exclusion of thetime during which the applicant had been prosecuting suchproceeding, in computing the period of limitation. The substantiveprovisions of Sub-sections (1), (2) and (3) of Section 14 do notsay that Section 14 can only be invoked on termination ofthe earlier proceedings, prosecuted in good faith. [Para 77][846-B-D]

Bihta Co-operative Development Cane Marketing UnionLtd. and Anr. v. Bank of Bihar and Ors. AIR 1967 SC389: 1967 SCR 848; Sundaram Pillai and Others v.V.R. Pattabiraman and Others (1985) 1 SCC 591 :[1985] 2 SCR 643 – referred to.

7.1 Explanation (a) cannot be construed in a narrow pedanticmanner to mean that Section 14 can never be invoked until andunless the earlier proceedings have actually been terminated forwant of jurisdiction or other cause of such nature. Explanation(a), which is clarificatory, only restricts the period of exclusion tothe period between the date of initiation and the date oftermination. An applicant cannot claim any further exclusion.[Para 81][847-E]

7.2 Section 14 excludes the time spent in proceeding in awrong forum, which is unable to entertain the proceedings forwant of jurisdiction, or other such cause. Where such proceedingshave ended, the outer limit to claim exclusion under Section 14would be the date on which the proceedings ended. In the instant AB

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Acase, the proceedings under the SARFAESI Act may not haveformally been terminated. The proceedings have however beenstayed by the High Court by an interim order, on the prima faciesatisfaction that the proceedings initiated by the financial creditor,which is a cooperative bank, was without jurisdiction. The writpetition filed by the Corporate Debtor was not disposed of evenBafter almost four years. The carriage of proceedings was with theCorporate Debtor. The interim order was still in force, whenproceedings under Section 7 of the IBC were initiated, as a resultof which the Financial Creditor was unable to proceed furtherunder the SARFAESI Act. [Paras 84, 85][848-C-E]C

7.3 In the instant case, even if it is assumed that the rightto sue accrued on 31.3.2013 when the account of CorporateDebtor was declared NPA, the financial creditor initiatedproceedings under SARFAESI Act on 18[th] January 2014, that isthe date on which notice under Section 13(2) was issued,Dproceeded with the same, and even took possession of the assets,until the entire proceedings were stayed by the High Court byits order dated 24[th] July 2017. The proceedings under Section 7of the IBC were initiated on 10[th] July 2018. [Para 86][848-F]

7.4 Since the proceedings in the High Court were stillEpending on the date of filing of the application under Section 7 ofthe IBC in the NCLT, the entire period after the initiation ofproceedings under the SARFAESI Act could be excluded. If theperiod from the date of institution of the proceedings under theSARFAESI Act till the date of filing of the application underSection 7 of the IBC in the NCLT is excluded, the application inFthe NCLT is well within the limitation of three years. Even if theperiod between the date of the notice under Section 13(2) anddate of the interim order of the High Court staying theproceedings under the SARFAESI Act, on the prima facie groundof want of jurisdiction is excluded, the proceedings under SectionG7 of IBC are still within limitation of three years. [Para 87][848-G-H; 849-A-B]

7.5 An Adjudicating Authority under the IBC is not asubstitute forum for a collection of debt in the sense it cannotreopen debts which are barred by law, or debts, recovery whereofHhave become time barred. The Adjudicating Authority does not resolve disputes, in the manner of suits, arbitrations and similarproceedings. However, the ultimate object of an application underSection 7 or 9 of the IBC is the realization of a ‘debt’ by invocationof the Insolvency Resolution Process. In any case, since the causeof action for initiation of an application, whether under Section 7or under Section 9 of the IBC, is default on the part of theCorporate Debtor, and the provisions of the Limitation Act 1963,as far as may be, have been applied to proceedings under theIBC, there is no reason why Section 14 or 18 of the LimitationAct would not apply for the purpose of computation of the periodof limitation. [Para 88][849-B-D]

8.1 Unlike statutes like the Arbitration Act, 1940 and theArbitration and Conciliation Act 1996, which make the provisionsof the Limitation Act, as they apply to Court proceedings, alsoapplicable to arbitration proceedings, Section 238A of the IBCmakes the Limitation Act applicable to proceedings in NCLT/NCLAT ‘as far as may be’ and/or in other words, to the extentthey may be applied. [Para 90][849-F-G]

8.2 Legislature has in its wisdom chosen not to make theprovisions of the Limitation Act verbatim applicable toproceedings in NCLT/NCLAT, but consciously used the words‘as far as may be’. The words ‘as far as may be’ are not meant tobe otiose. Those words are to be understood in the sense inwhich they best harmonise with the subject matter of thelegislation and the object which the Legislature has in view. TheCourts would not give an interpretation to those words whichwould frustrate the purposes of making the Limitation Actapplicable to proceedings in the NCLT/NCLAT ‘as far as maybe’. In other words, the provisions of the Limitation Act wouldapply mutatis mutandis to proceedings under the IBC in theNCLT/NCLAT. [Paras 91, 92][849-H; 850-A-C]

New India Sugar Mill Limited v. Commissioner of SalesTax, Bihar AIR 1963 SC 1207 : [1963] Suppl. SCR 459; Busching Schmitz Private Ltd. v. P.T. MenghaniAIR 1977 SC 1569 : [1977] 3 SCR 312 – relied on.

8.3 The Court should adopt an object oriented approachkeeping in mind the principle that legislative futility is to be ruled AB

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Aout so long as interpretative possibility permits. The objectoriented approach cannot be carried to the extent of doingviolence to the plain language used, by rewriting the section orsubstituting words in place of the actual words used byLegislature. [Para 93][850-D]

B9.1 The use of words ‘as far as may be’, occurring in Section238A of the IBC tones down the rigour of the words ‘shall’ in theaforesaid Section which is normally considered as mandatory. Theexpression ‘as far as may be’ is indicative of the fact that all orany of the provisions of the Limitation Act may not apply toproceedings before the Adjudicating Authority (NCLT) or theCAppellate authority (NCLAT) if they are patently inconsistentwith some provisions of the IBC. At the same time, the words‘as far as may be’ cannot be construed as a total exclusion of therequirements of the basic principles of Section 14 of the LimitationAct, but permits a wider, more liberal, contextual and purposive Dinterpretation by necessary modification, which is in harmony withthe principles of the said Section. [Para 94][850-E-G]

9.2 If, in the context of proceedings under Section 7 or 9 ofthe IBC, Section 14 were to be interpreted with rigid and pedanticadherence to its literal meaning, to hold that only civil proceedingsin Court would enjoy exclusion, the result would be that anEapplicant would not even be entitled to exclusion of the period oftime spent in bona fide invoking and diligently pursuing an earlierapplication under the same provision of IBC, for the same relief,before an Adjudicating Authority, lacking territorial jurisdictionThis could not possibly have been the legislative intent.

F[Para 95][850-G-H; 851-A-B]

S.A.L. Narayan Rao and Anr. v. Ishwarlal Bhagwandasand Anr. AIR 1965 SC 1818 :[1966] SCR 190 –followed.

9.3 The proceedings under the SARFAESI Act, 2002 areGundoubtedly civil proceedings. [Para 96][851-B]

9.4 There is no rationale for the view that the proceedingsinitiated by a secured creditor against a borrower under theSARFAESI Act for taking possession of its secured assets, wereintended to be excluded from the category of civil proceedings.[Para 97][851-H; 852-A]H

United Bank of India v. Satyawati Tandon and Ors.(2010) 8 SCC 110 : [2010] 9 SCR 1 – referred to.

9.5 Even though Section 13 of the SARFAESI Act enablesa secured creditor to enforce security interest created in its favour,without the intervention of the Court or Tribunal, the SARFAESIAct does not exclude the intervention of Courts and/or Tribunalsaltogether. [Para 98][852-D-E]

10.1 The Chief Metropolitan Magistrate or the JudicialMagistrate, as the case may be, exercising powers under Section14 of the SARFAESI Act, functions as a Civil Court/ExecutingCourt. Proceedings under the SARFAESI Act would, therefore,be deemed to be civil proceedings in a Court. Moreover,proceedings under the SARFAESI Act under Section 13(4) areappealable to the DRT under Section 18 of the SARFAESI Act.Argument that proceedings under the SARFAESI Act would notqualify for exclusion under Section 14 of the Limitation Act,because those proceedings were not conducted in a Civil Court,cannot be sustained. [Para 99][857-C-D]

10.2 Another civil proceeding whether in a Court of firstinstance or of appeal or revision, against the party, for the samerelief, would have to be construed to include any civil Proceedingin a forum, whether of first instance, or appellate, or revisional,against the same party for similar relief, more so, having regardto the language and tenor of Section 238A of the Limitation Actwhich applies the provisions of the Limitation Act “as far as maybe”, to proceedings in the NCLT/NCLAT. [Para 100][857-E]

10.3 Keeping in mind the scope and ambit of proceedingsunder the IBC before the NCLT/NCLAT, the expression ‘Court’in Section 14(2) would be deemed to be any forum for a civilproceeding including any Tribunal or any forum under theSARFAESI Act. [Para 101][857-F]

10.4 In any case, Section 5 and Section 14 of the LimitationAct are not mutually exclusive. Even in a case where Section 14does not strictly apply, the principles of Section 14 can be invokedto grant relief to an applicant under Section 5 of the LimitationAct by purposively construing ‘sufficient cause’. It is well settledthat omission to refer to the correct section of a statute does not A

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Avitiate an order. At the cost of repetition it is reiterated that delaycan be condoned irrespective of whether there is any formalapplication, if there are sufficient materials on record disclosingsufficient cause for the delay. [Para 102][857-G-H; 858-A]

10.5 The NCLAT rightly refused to stay the proceedingsBbefore the NCLT. The judgment and order of the NCLT does notwarrant interference. [Para 103][858-A]

Mobilox Innovations Private Limited v. Kirusa SoftwarePrivate Limited(2018) 1 SCC 353 : [2017]10 SCR 1006; M/s. Reliance Asset ReconstructionCCompany Limited v. M/s. Hotel Poonja InternationalPrivate Limited 2020 SCC Online NCLAT 920 –referred to.

Case Law Reference

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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9198Of 2019.

From the Judgment and Order dated 22.11.2019 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal(AT)(Insolvency) No. 672 of 2019.

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Siddhartha Dave, Sr. Adv., Ms. Pallavi Langar, Ms. PoushaliBanerjee, Aditya Vaibhav Singh, Advs for the appellants.

Pranay Agarwal, Ms. Ankita Baid, Rajeev Singh, J. Sai Deepak,Aavinash Kumar Sharma, Umang Srivastava, Ms. Anjali Gupta, RajeevSingh, Advs. for the respondents.

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The Judgment of the Court was delivered by INDIRA BANERJEE, J.

This appeal under Section 62 of the Insolvency and BankruptcyCode 2016, hereinafter referred to as the ‘IBC’, is against a judgmentand order dated 22[nd] November 2019, passed by the National CompanyLaw Appellate Tribunal (NCLAT), dismissing Company Appeal (AT)(Insolvency) No.672 of 2019, filed by the Appellants, challenging anorder dated 25[th] April 2019, of the National Company Law Tribunal(NCLT), Kolkata Bench, admitting the application filed by theRespondent No.1 as Financial Creditor, under Section 7 of the IBC beingCP(IB) No.1202/KB/2018, thereby initiating the Corporate InsolvencyResolution Process (CIRP) against the Corporate Debtor, Debi FabtechPrivate Ltd.

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2. The Corporate Debtor was inter alia engaged in the businessof export of textile and garments. On or about 8[th] February 2012, theCorporate Debtor requested the Financial Creditor for cash credit facilityof Rs.1,00,00,000/- (Rupees One Crore).

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3. By a letter of sanction dated 15[th] February, 2012, the FinancialCreditor granted Cash Credit Facility of Rs.1,00,00,000/- to the CorporateDebtor, after which a Cash Credit Account No.482 was opened in the H

Aname of the Corporate Debtor. The Corporate Debtor duly executed ahypothecation agreement with the Financial Creditor on 17[th] February,2012.

4. According to the Financial Creditor, in May 2012 itself theCorporate Debtor defaulted in repayment of its debt to the FinancialBCreditor, in terms of cash credit facility granted by the Financial Creditorto the Corporate Debtor. The said Cash Credit Account No.482 becameirregular. The Financial Creditor declared the said Account of theCorporate Debtor a Non Performing Asset (NPA) on 31[st] March 2013.

5. On or about 18[th] January 2014, the Financial Creditor issuedCnotice to the Corporate Debtor under Section 13(2) of the Securitizationand Reconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 hereinafter referred to, in short as the ‘SARFAESIAct’, calling upon the Corporate Debtor to discharge in full, its outstandingliability of Rs.1,07,88,536.00 inclusive of interest as on 28.09.2013 to theFinancial Creditor within sixty days from the date of notice, failing whichDaction would be taken under Section 13(4) of the said Act.

6. The Corporate Debtor made a representation dated 3.3.2014to the Financial Creditor under Section 13(3A) of the SARFAESI Actobjecting to the notice under Section 13(2) of the SARFAESI Act.

E7. By a letter dated 15[th] July 2014, the Financial Creditor rejectedthe aforesaid representation of the Corporate Debtor and once againrequested Corporate Debtor to clear the outstanding amount ofRs.1,07,88,536.00 as claimed in the notice dated 18[th] January 2014 underSection 13(2) of the SARFAESI Act, within 15 days from the date ofreceipt of the said letter, with further interest and other charges till dateFof payment and to regularize the Cash Credit Account No.482 in orderto avail better services from the Financial Creditor.

8. On 13[th] December 2014, the Financial Creditor issued a noticebeing Ref No. HC/1180/14-15 dated 13.12.2014 to the Corporate Debtorunder Section 13(4)(a) of the SARFAESI Act, calling upon the CorporateGDebtor to handover peaceful possession of the secured immovable assetsas detailed in the schedule, failing which the Financial Creditor would beforced to seek the assistance of the District Magistrate, Hooghly fortaking possession of the aforesaid secured assets.

9. On or about 19[th] December 2014, the Corporate Debtor filedHwrit application in the Calcutta High Court under Article 226 of the

Constitution of India being W.P. No.33799 (W) of 2014 inter aliachallenging the said notices issued by the Financial Creditor under Section13(2) and 13(4) of the SARFAESI Act.

10. While the said writ petition was pending in the High Court, theAuthorized Officer of the Financial Creditor issued a notice dated 24[th]December 2014, notifying the Corporate Debtor, the guarantors and thepublic in general, that the Authorized Officer of the Financial Creditorhad taken possession of the secured assets of the Corporate Debtor, asspecified in the Schedule to the said notice, on 24[th] December 2014,under Section 13(4) of the SARFAESI Act.

11. On 11[th] May 2017, the District Magistrate Hooghly issued anorder under the SARFAESI Act for possession by the Financial Creditorof the assets of the Corporate Debtor hypothecated to the FinancialCreditor.

12. On 24[th] July 2017, the High Court passed an interim orderrestraining the Financial Creditor from taking steps against the CorporateDebtor under the SARFAESI Act until further orders. The High Courtwas of the prima facie view that the Financial Creditor being aCooperative Bank, it could not invoke the provisions of the SARFAESIAct. It appears that the Writ Petition is still pending consideration in theHigh Court.

13. On or about 10[th] July 2018, the Financial Creditor filed anapplication in the Kolkata Bench of NCLT for initiation of the CorporateInsolvency Resolution Process (CIRP) against the Corporate Debtorunder Section 7 of the IBC.

14. Notice of the petition under Section 7 of the IBC was dulyserved on the Corporate Debtor. The Corporate Debtor appeared throughone Sesh Nath Singh, being the Appellant No.1, and opposed the petition.On behalf of the Corporate Debtor, it was contended that the Writ Petitionfiled by the Corporate Debtor, challenging the maintainability of theproceedings under the SARFAESI Act, was pending adjudication in theHigh Court.

15. The maintainability of the application under Section 7 of IBCwas also opposed before the NCLT, on the purported ground that aSpecial Officer had been appointed as Administrator over the FinancialCreditor, only to hold elections. Such Special Officer could not, therefore,initiate any proceeding on behalf of the Financial Creditor. The Corporate AB

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ADebtor did not oppose the application under Section 7 of the IBC in theNCLT on the ground of the same being barred by limitation.

16. By an order dated 25[th] April 2019, the Kolkata Bench of NCLTadmitted the application filed by the Financial Creditor under Section 7of IBC, initiated the CIRP, appointed Mr. Animesh Mukhopadhyay asBInsolvency Resolution Professional (IRP) and declared a moratoriumfor the purposes referred to under Section 14 of the IBC.

17. Being aggrieved by the order dated 25[th] April, 2019 passed bythe Kolkata Bench of NCLT, the Corporate Debtor filed an appeal beforethe NCLAT under Section 61 of the IBC, contending that the applicationCfiled by the Financial Creditor should not have been entertained, thesame being barred by limitation.

18. It was only in appeal before the NCLAT, that the CorporateDebtor, for the first time contended, that the account of the CorporateDebtor had been declared NPA on 31[st] March, 2013 whereas theDapplication under Section 7 of IBC had been filed on 27[th] August, 2018,after almost five years and five months from the date of accrual of thecause of action, and was therefore barred by limitation.

19. After considering the submissions of learned counsel, theNCLAT dismissed the appeal, with the observation that the ground ofElimitation had been taken by the Corporate Debtor for the first time, inthe appeal. There was no finding of the Adjudicating Authority on thisissue.

20. The NCLAT examined the issue of limitation and held that theRespondent had bona fide, within the period of limitation, initiatedFproceedings against the Corporate Debtor under the SARFAESI Actand was thus entitled to exclusion of time under Section 14(2) of theLimitation Act. The NCLAT, after exclusion of the period of about threeyears and six months till the date of the interim order of the High Court,during which the Financial Creditor had been proceeding underSARFAESI Act, found that the application of the Financial Creditor,Gunder Section 7 of the IBC, was within limitation. The appeal wasaccordingly dismissed.

21. As pointed out by Mr. Sai Deepak appearing for the FinancialCreditor, the Financial Creditor had, in its application filed in the NCLTunder Section 7 of the IBC, enclosed a synopsis of relevant facts andHsignificant dates, with supporting documents, which included the date of sanction of the loan, the date when the Cash Credit Account was declaredNPA, the dates of the Demand Notice under Section 13(2) of the Actand the notice under Section 13(4), notice of date of possession underSection 13(4), the date on which possession order was issued by theDistrict Magistrate, Hooghly, West Bengal and the date of the interimorder of the High Court.

22. The relevant dates reveal that the Cash Credit Account of theCorporate Debtor was declared NPA with effect from 31[st] March, 2013.Proceedings under the SARFAESI Act commenced on 18[th] January2014, when a Demand Notice was issued under Section 13(2) of theSARFAESI Act. In other words, proceedings were initiated under theSARFAESI Act, 2002, approximately 9 months and 18 days after thedate of accrual of the right to issue. The proceedings under theSARFAESI Act, 2002 were stayed by the Calcutta High Court, by anorder dated 24[th] July 2017, on the ground of want of jurisdiction. About11 months thereafter, while the writ petition filed by the Corporate Debtorwas still pending in the High Court, and the interim stay of SARFAESIAct proceedings still continuing, the Financial Creditor initiated theapplication under Section 7 of the IBC.

23. Mr. Siddhartha Dave appearing on behalf of the Appellantsubmitted that the application of the Financial Creditor, under Section 7of IBC, was barred by limitation and should have been dismissed on thatground.

24. Mr. Dave argued that the judgment and order under appealwas contrary to the law as declared by a larger Bench of the NCLAT inCompany Appeal (AT) (Insolvency) No. 1121 of 2019 titled Ishrat Aliv. Cosmos Cooperative Bank Limited and Anr., where the NCLATheld that in an application under Section 7 of the IBC, the applicant is notentitled to the benefit of Section 14 of the Limitation Act, 1963 in respectof proceedings under the SARFAESI Act.

25. In the aforesaid case, the NCLAT held:- “21. An action taken by the ‘Financial Creditor’ underSection13(2)orSection 13(4)of the ‘SARFAESI Act, 2002’ cannot betermed to be a civil proceeding before a Court of first instanceor appeal or revision before an Appellate Court and the otherforum. Therefore, action taken under Company Appeal (AT)(Insolvency) No. 1121 of 2019 Section 13(2)of the ‘SARFAESI

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AAct, 2002’ cannot be counted for the purpose of exclusion ofthe period of limitation underSection 14(2)of the LimitationAct, 1963.

In an application under Section 7 relief is sought for resolutionof a ‘Corporate Debtor’ or liquidation on failure. It is not aBmoney claim or suit. Therefore, no benefit can be given toany person underSection 14(2), till it is shown that theapplication under Section 7 was prosecuting with duediligence in a court of first instance or of appeal or revisionwhich has no jurisdiction.

C22. 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 theBench.

23. In the present case, the account of the ‘Corporate Debtor’Dwas classified as NPA on 30th March, 2014. Thereafter, on6th December, 2014, Demand Notice under Section 13(2)ofthe ‘SARFAESI Act, 2002’ was issued by the Respondent-‘Cosmos Co-operative Bank Ltd.’ The Bank also initiatedArbitration underSection 84of the Multi-State CooperativeSocieties Act on 4th December, 2015. The Bank had also takenEpossession 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 to theBench, we hold that application under Section 7filed by the‘Cosmos Co- Company Appeal (AT) (Insolvency) No. 1121 ofF2019 Operative Bank Limited’ was barred by limitation. We,accordingly, set aside the impugned order dated 23rdSeptember, 2019 passed by the Adjudicating Authority(National Company Law Tribunal), Mumbai Bench, Mumbai.”

26. Mr. Dave submitted that the account of Corporate DebtorGwith the Financial Creditor had been declared Non-Performing Asset(NPA) on 31[st] March, 2013. The cause of action thus accrued on 31[st]March 2013. The period of 3 years expired on 31[st] March, 2016. Mr.Dave argued that the application under Section 7 of the IBC, filed beforethe NCLT on 10[th] July, 2018, after five years and three months from the H

date of declaration of the account of the Corporate Debtor as NPA,was fatally time barred.

27. Mr. Dave further submitted that the Financial Creditor hadnot filed any application before the NCLT under Section 5 of theLimitation Act. The delay in filing the application under Section 7 of theIBC, could not, therefore, have been condoned.

28. Mr. Dave submitted that if the Corporate Debtors wereunsuccessful before the High Court, the Financial Creditor which is inpossession of the secured property, would be free to deal with it in amanner prescribed by law, to secure the defaulted amount. However, ifthe Financial Creditor is permitted to proceed with its time barred claimbefore the NCLT, the Corporate Debtor would have to contestproceedings in two different Forums, for the same defaulted amount. Inthe context of his submissions, Mr. Dave referred to the judgment of thisCourt in Mobilox Innovations Private Limited v. Kirusa SoftwarePrivate Limited[1],

29. Mr. Dave drew our attention to a recent judgment of thisCourt dated 21[st] January, 2021 in Civil Appeal 4221 of 2020 in M/s.Reliance Asset Reconstruction Company Limited v. M/s. Hotel PoonjaInternational Private Limited[2], where this Court observed:- “In Transmission Corporation of Andhra Pradesh Limited v.Equipment Conductors and Cables Limited reported in (2019)12 SCC 697, this Court followed its earlier judgment inMobilox Innovations Private Ltd. (supra) and observed ashereunder:- “In a recent judgment of this Court in Mobilox InnovationsPrivate Limited v. Kirusa Software Private Limited (2018)1 SCC 353, this Court has categorically laid down thatIBC is not intended to be substitute to a recovery forum. Itis also laid down that whenever there is existence of realdispute, the IBC provisions cannot be invoked…….”

30. Mr. Dave emphatically argued that the NCLT/NCLATconsidering an application under Section 7 of the IBC, not being a forumfor 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.

1. (2018) 1 SCC 3532. 2020 SCC Online NCLAT 920

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A31. Mr. Dave finally argued that, in any case, Section 14 of theLimitation Act could only be attracted, if any earlier proceedings initiatedby the applicant were dismissed for want of jurisdiction, or other causeof like nature. Referring to the Explanation in section 14(2) of theLimitation Act, Mr. Dave argued that, since the proceedings initiated bythe Financial Creditor under SARFAESI Act were still pending, it wasBnot open to the Financial Creditor to take the benefit of Section 14(2) ofthe Limitation Act, 1963. The explanation in Section 14 of the LimitationAct, is extracted hereinbelow:

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“Explanation: for the purposes of this section,- C(a) in excluding the time during which a former civilproceeding was pending, the day on which that proceedingwas instituted and the day on which it ended shall both becounted;”

32. The IBC was enacted to consolidate and amend the lawsDrelating to reorganisation and insolvency resolution of inter alia corporatepersons in a time-bound manner, for maximisation of the value of assetsof such corporate bodies, to promote entrepreneurship, availability ofcredit and to balance the interests of all stakeholders.

33. Prior to enactment of IBC, there was no single law in IndiaEthat dealt with insolvency and bankruptcy. Provisions relating toinsolvency and bankruptcy of companies were to be found in the SickIndustrial Companies (Special Provisions) Act, 1985, hereinafter referredto in short as “SICA”, the Recovery of Debt Due to Banks and FinancialInstitutions Act, 1993, now known as the Recovery of Debts andBankruptcy Act, 1993, and hereinafter referred to as the “Debt RecoveryFAct”, the SARFAESI Act, and the Companies Act, 2013.

34. These statutes provided for multiple forums, such as the Boardof Industrial and Financial Reconstruction (BIFR), Debt RecoveryTribunal (DRT) and National Company Law Tribunal (NCLT) and theirrespective Appellate Tribunals. Liquidation of companies was handledGby the High Courts under the provisions of Sections 271 and 272 of theCompanies Act, 2013 corresponding to Sections 433, 434 and 439 of theCompanies Act, 1956. Individual bankruptcy and insolvency was dealtwith under the Presidency Towns Insolvency Act, 1909 and the ProvincialInsolvency Act, 1920, which have been repealed by the IBC.

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35. As stated in its Object and Reasons, the objective of the IBCis to consolidate and amend the laws relating to reorganisation andinsolvency resolution of corporate persons, partnership firms andindividuals in a time bound manner, for maximization of the value of theassets of such persons, to promote entrepreneurship, availability of creditand to balance the interest of all the stakeholders. An effective legalframework for timely resolution of insolvency and bankruptcy wouldsupport development of credit markets and encourage entrepreneurship.It would also ease business, and facilitate more investments leading tohigher economic growth and development. The IBC seeks to designatethe NCLT and DRT as the Adjudicating Authorities for resolution ofinsolvency, liquidation and bankruptcy.

36. Section 6 of the IBC provides that, when any corporate debtorcommits a default, a financial creditor, an operational creditor or thecorporate debtor itself may initiate corporate insolvency resolution processin respect of such corporate debtor, in such manner as provided in ChapterII of the IBC. The sine qua non for initiation of the corporate insolvencyresolution process is the occurrence of default.

37. Section 7 of the IBC provides as follows:

“7. Initiation of corporate insolvency resolution process byfinancial creditor.—(1) A financial creditor either by itself orjointly with other financial creditors, or any other person onbehalf of the financial creditor, as may be notifiedby the CentralGovernment,] may file an application for initiating corporateinsolvency resolution process against a corporate debtorbefore 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 applicationfor initiating corporate insolvency resolution process againstthe corporate debtor shall be filed jointly by not less thanone hundred of such creditors in the same class or not lessthan ten per cent. of the total number of such creditors in thesame class, whichever is less:

Provided further that for financial creditors who are allotteesunder a real estate project, an application for initiatingcorporate insolvency resolution process against the corporatedebtor shall be filed jointly by not less than one hundred of A

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Asuch allottees under the same real estate project or not lessthan ten per cent. of the total number of such allottees underthe same real estate project, whichever is less:

Provided also that where an application for initiating thecorporate insolvency resolution process against a corporateBdebtor has been filed by a financial creditor referred to inthe first and second provisos and has not been admitted bythe Adjudicating Authority before the commencement of theInsolvency and Bankruptcy Code (Amendment) Act, 2020,such application shall be modified to comply with therequirements of the first or second proviso within thirty daysCof the commencement of the said Act, failing which theapplication shall be deemed to be withdrawn before itsadmission.

Explanation.—For the purposes of this sub-section, a defaultincludes a default in respect of a financial debt owed notDonly to the applicant financial creditor but to any otherfinancial creditor of the corporate debtor.

(2) The financial creditor shall make an application undersub-section (1) in such form and manner and accompaniedwith such fee as may be prescribed.E(3) The financial creditor shall, along with the applicationfurnish—

(a) record of the default recorded with the information utilityor such other record or evidence of default as may bespecified; F(b) the name of the resolution professional proposed to act asan interim resolution professional; and

(c) any other information as may be specified by the Board.

(4) The Adjudicating Authority shall, within fourteen days ofGthe receipt of the application under sub-section (2), ascertainthe existence of a default from the records of an informationutility or on the basis of other evidence furnished by thefinancial creditor under sub-section (3):

Provided that if the Adjudicating Authority has not ascertainedHthe existence of default and passed an order under sub-section

(5) within such time, it shall record its reasons in writing forthe 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 disciplinaryproceedings pending against the proposed resolutionprofessional, 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 ispending against the proposed resolution professional, it may,by order, reject such application:

Provided that the Adjudicating Authority shall, beforerejecting the application under clause (b) of sub-section (5),give a notice to the applicant to rectify the defect in hisapplication within seven days of receipt of such notice fromthe Adjudicating Authority.

(6) The corporate insolvency resolution process shallcommence from the date of admission of the application undersub-section (5).

(7) The Adjudicating Authority shall communicate—

(a) the order under clause (a) of sub-section (5) to the financialcreditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financialcreditor, within seven days of admission or rejection of suchapplication, as the case may be.”

38. A financial creditor may either by itself or jointly with otherfinancial creditors, as may be notified by the Government, file anapplication for initiation of the corporate insolvency resolution processagainst a corporate debtor before the Adjudicating Authority, when adefault has occurred. The trigger point for an application under Section7 of the IBC is the occurrence of a default. The restrictions stipulated inthe three provisos to Section 7 are not applicable in this case.

39. As observed by this Court (Rohinton Nariman, J.) inInnoventive Industries Limited v. ICICI Bank and Another[3], the3. (2018) 1 SCC 407

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Ascheme of the IBC is to ensure that when a default takes place, in thesense that the debt becomes due and is not paid, the insolvency resolutionprocess begins. Default is defined in Section 3(12) in very wide terms asmeaning non-payment of a debt, once it becomes due and payable, whichincludes non-payment of even part thereof or an instalment amount.The Code gets triggered the moment default is of rupees one lakh orBmore (Section 4).

40. In Innoventive Industries Limited (supra), this Court furtherheld that a debt may not be due if it is not payable in law or in fact. In thecase of a corporate debtor, who commits a default of a financial debt,the Adjudicating Authority has merely to see the records of the informationCutility or other evidence produced by the financial creditor, to satisfyitself that a default has occurred. It is of no matter that the debt isdisputed, so long as the debt is, “due” i.e. payable, unless interdicted bysome law or has not yet become due in the sense that it is payable atsome future date. It is only when this is proved to the satisfaction of theDAdjudicating Authority that the Adjudicating Authority may reject anapplication and not otherwise.

41. The judgment of this Court in Mobilox Innovations PrivateLimited (supra)was rendered in the context of an application for initiationof Corporate Insolvency Resolution Process by an operational creditor,Eunder Section 9 of the IBC.

42. Noticing the difference between Section 7 and Section 9 ofthe IBC, this Court held:-

51. It is clear, therefore, that once the operational creditorhas filed an application, which is otherwise complete, theFadjudicating authority must reject the application underSection 9(5)(2)(d) if notice of dispute has been received bythe operational creditor or there is a record of dispute in theinformation utility. It is clear that such notice must bring tothe notice of the operational creditor the “existence” of aGdispute or the fact that a suit or arbitration proceedingrelating to a dispute is pending between the parties. Therefore,all that the adjudicating authority is to see at this stage iswhether there is a plausible contention which requires furtherinvestigation and that the “dispute” is not a patently feeblelegal argument or an assertion of fact unsupported by H

evidence. It is important to separate the grain from the chaffand to reject a spurious defence which is mere bluster.However, in doing so, the Court does not need to be satisfiedthat the defence is likely to succeed. The Court does not atthis stage examine the merits of the dispute except to the extentindicated above. So long as a dispute truly exists in fact andis not spurious, hypothetical or illusory, the adjudicatingauthority has to reject the application.”

43. In enacting the IBC, the legislature has, in its wisdom,differentiated between an application for initiation of corporate insolvencyresolution process by a financial creditor, which is filed under Section 7of the IBC, and an application for initiation of insolvency resolution processby an operational creditor, which is under Section 9 of the IBC, set outhereinbelow:-

9. Application for initiation of corporate insolvency resolution process by operational creditor.—(1) After the expiry of theperiod of ten days from the date of delivery of the notice orinvoice demanding payment under sub-section (1) of Section8, if the operational creditor does not receive payment fromthe corporate debtor or notice of the dispute under sub-section(2) of Section 8, the operational creditor may file anapplication before the Adjudicating Authority for initiating acorporate insolvency resolution process.

(2) The application under sub-section (1) shall be filed insuch form and manner and accompanied with such fee asmay be prescribed.

(3) The operational creditor shall, along with theapplication furnish—

(a) a copy of the invoice demanding payment or demandnotice delivered by the operational creditor to thecorporate debtor; (b) an affidavit to the effect that there is no notice givenby the corporate debtor relating to a dispute of theunpaid operational debt;

(c) a copy of the certificate from the financial institutionsmaintaining accounts of the operational creditor AB

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Aconfirming that there is no payment of an unpaidoperational debt by the corporate debtor, if available; (d) a copy of any record with information utilityconfirming that there is no payment of an unpaidoperational debt by the corporate debtor, if available;Band (e) any other proof confirming that there is no paymentof an unpaid operational debt by the corporate debtoror such other information, as may be prescribed.

(4) An operational creditor initiating a corporate insolvencyCresolution process under this section, may propose a resolutionprofessional to act as an interim resolution professional.

(5) The Adjudicating Authority shall, within fourteen days ofthe receipt of the application under sub-section (2), by anorder—

D(i) admit the application and communicate such decision tothe operational creditor and the corporate debtor if,—

(a) the application made under sub-section (2) is complete; (b) there is no payment of the unpaid operational debt; E(c) the invoice or notice for payment to the corporate debtorhas been delivered by the operational creditor; (d) no notice of dispute has been received by the operationalcreditor or there is no record of dispute in the informationutility; andF

(e) there is no disciplinary proceeding pending against anyresolution professional proposed under sub-section (4), ifany.

(ii) reject the application and communicate such decisionGto the operational creditor and the corporate debtor, if—

(a) the application made under sub-section (2) isincomplete; (b) there has been payment of the unpaid operational debt; H

(c) the creditor has not delivered the invoice or notice forpayment to the corporate debtor; (d) notice of dispute has been received by the operationalcreditor or there is a record of dispute in the informationutility; or (e) any disciplinary proceeding is pending against anyproposed resolution professional:

Provided that Adjudicating Authority, shall before rejectingan application under sub-clause (a) of clause (ii) give a noticeto the applicant to rectify the defect in his application withinseven days of the date of receipt of such notice from theAdjudicating Authority.

(6) The corporate insolvency resolution process shallcommence from the date of admission of the application undersub-section (5) of this section.

44. Under Section 9(5)(i)(d) of the IBC, the Adjudicating Authorityhas to reject an application made by an operational creditor, if notice ofdispute has been received by the operational creditor and there is norecord of dispute in the information utility. There is no such provision insection 7 of the IBC.

45. The Limitation Act 1963, has been enacted to consolidate andamend the law of limitation of suits and other proceedings and for purposesconnected therewith. The Limitation Act applies to “suits and otherproceedings and for purposes connected therewith” as stated in itspreamble. The expression “other proceedings” are necessarilyproceedings arising out of and/or related to suits.

46. In K. Venkateswara Rao And Anr. v. Bekkam NarasimhaReddi & Ors[4], this Court held that the Limitation Act did not apply to anelection petition under the Representation of People Act, 1950, which isa complete Code. In Nityananda M. Joshi and Others v. The LifeInsurance Corporation of India and others[5], a three Judge Bench ofthis Court speaking through Sikri, J. held that Article 137 of the LimitationAct only contemplates applications to Courts.

4. AIR 1969 SC 872

5. (1969) 2 SCC 199

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A47. Various statutes have, however, adopted the provisions of theLimitation Act, by incorporation or reference, either in its entirety or to alimited extent. For example, Section 37 of the Arbitration Act, 1940provided that all the provisions of the Indian Limitation Act, 1908 wouldapply to arbitrations as they applied to proceedings in Court. Section 433of the Companies Act, 2013 provides that the provisions of the LimitationBAct, 1963 shall, as far as may be, apply to proceedings or appeals beforethe Tribunal or the Appellate Tribunal, as the case may be.

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48. The insolvency Committee of the Ministry of Corporate Affairs,Government of India, in a report published in March 2018, stated thatthe intent of the IBC could not have been to give a new lease of life toCdebts which were already time barred. Thereafter Section 238A wasincorporated in the IBC by the Insolvency and Bankruptcy Code (SecondAmendment) Act, 2018 (Act 26 of 2018), with effect from 6[th] June2018. Section 238A provides as follows:- “238A. The provisions of the Limitation Act, 1963 (36 of 1963)Dshall, as far as may be, apply to the proceedings or appealsbefore the Adjudicating Authority, the National Company LawAppellate Tribunal, the Debt Recovery Tribunal or the DebtRecovery Appellate Tribunal, as the case may be.”

49. The language and tenor of Section 238A is significant. TheESection reads that the provisions of the Limitation Act, 1963 shall, as faras may be, apply to proceedings or appeals inter alia before the NCLT/NCLAT.

50. Section 238 gives overriding effect to the IBC, notwithstandinganything inconsistent therewith contained in any other law, for the timeFbeing in force, or any instrument having effect, by virtue of any suchlaw.

51. There is no specific period of limitation prescribed in theLimitation Act, 1963 for an application under the IBC before the NCLT.An application for which no period of limitation is provided anywhereelse in the Schedule, is governed by Article 137 of the Schedule to theGLimitation Act. Under Article 137 of the Schedule to the Limitation Act,the period of limitation prescribed for such an application is three yearsfrom the date of accrual of the right to apply.

52. There can be no dispute with the proposition that the period oflimitation for making an application under Section 7 or 9 of the IBC isH

three years from the date of accrual of the right to sue, that is, the dateof default. In Gaurav Hargovindbhai Dave v. Asset ReconstructionCompany (India) Ltd. And Anr.[6], this Court held:- “6. …...The present case being “an application” which is filedunder Section 7, would fall only within the residuary Article137.”

53. Section 5 of the Limitation Act provides that any appeal orany application, other than an application under any of the provisions ofOrder XXI of the Code of Civil Procedure, 1908, may be admitted afterthe prescribed period of limitation, if the appellant or the applicant satisfiesthe Court, that he had sufficient cause for not preferring the appeal ormaking the application within such period. The explanation in Section 5of the Limitation Act clarifies that, the fact that the appellant or theapplicant may have been misled by any order, practice or judgment ofthe High Court in ascertaining or computing the prescribed period, maybe sufficient cause within the meaning of this Section.

54. In B.K. Educational Services Private Limited v. ParagGuptaand Associates[7], this Court held:- “42. It is thus clear that since the Limitation Act is applicableto applications filed under Sections 7 and 9 of the Code fromthe inception of the Code, Article 137 of the Limitation Actgets attracted. “The right to sue”, therefore, accrues when adefault occurs. If the default has occurred over three yearsprior to the date of filing of the application, the applicationwould be barred under Article 137 of the Limitation Act, saveand except in those cases where, in the facts of the case,Section 5 of the Limitation Act may be applied to condone thedelay in filing such application.”

55. In Radha Export (India) Private Limited v. K.P. Jayaramand Anr.[8], this Court referred to B.K. Educational Services (P)Ltd. v. Parag Gupta & Associates (supra)and held the application underSection 7 of the IBC to be barred by limitation.

56. In Babulal Vardharji Gurjar v. Veer Gurjar AluminiumIndustries Pvt. Ltd. and another[9],this Court held that limitation of

6. (2019) 10 SCC 5727. (2019) 11 SCC 6338. (2020) 10 SCC 5389. (2020) 15 SCC 1

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Athree years as provided by Article 137 of the Limitation Act, whichcommenced from the date of the default, was extendable under Section5 of the Limitation Act.

57. The issues involved in this appeal are:-

(i) Whether delay beyond three years in filing an applicationBunder Section 7 of IBC can be condoned, in the absence ofan application for condonation of delay made by the applicantunder Section 5 of the Limitation Act, 1963?

(ii) Whether Section 14 of the Limitation Act, 1963 applies toapplications under Section 7 of the IBC? If so, is theCexclusion of time under Section 14 is available, only afterthe proceedings before the wrong forum terminate?

58. For the sake of convenience, and to avoid prolixity andunnecessary repetition, all the aforesaid issues are dealt with together.Section 238A of the IBC provides that the provisions of the LimitationAct shall, as far as may be, apply to proceedings before the AdjudicatingDAuthority(NCLT) and the NCLAT.

59. It is well settled by a plethora of judgments of this Court asalso different High Courts and, in particular, the judgment of this Courtin B.K. Educational Services Private Limited v. Parag GuptaAssociates and Ors. (supra)the NCLT/NCLAT has the discretion toEentertain an application/appeal after the prescribed period of limitation.The condition precedent for exercise of such discretion is the existenceof sufficient cause for not preferring the appeal and/or the applicationwithin the period prescribed by limitation.

60. In Ramlal Motilal and Chhotelal v. Rewa Coalfields Ltd.[10]Fthis Court affirmed the view taken by Madras High Court in Krishna v.Chattappan[11] and held that Section 5 of the Limitation Act gives theCourts a discretion, which is to be exercised in the way in which judicialpower and discretion ought to be exercised, upon principles which arewell understood. The expression ‘sufficient cause’ should be construedliberally to advance substantial justice, as held by this Court, inter alia,Gin Shakuntla Devi Jain vs. Kuntal Kumar[12] and in State of West Bengalv. Administrator, Howrah Municipality and Others[13].

10. AIR 1962 SC 36111. 1890 ILR Mad 26912. AIR 1969 SC 575H13. (1972) 1 SCC 366

61. The condition precedent for condonation of the delay in filingan application or appeal, is the existence of sufficient cause. Whetherthe explanation furnished for the delay would constitute ‘sufficient cause’or not would dependent upon facts of each case. There cannot be anystraight jacket formula for accepting or rejecting the explanation furnishedby the applicant/appellant for the delay in taking steps. Acceptance ofexplanation furnished should be the rule and refusal an exception, whenno negligence or inaction or want of bona fides can be imputed to thedefaulting party.

62. It is true that a valuable right may accrue to the other party bythe law of limitation, which should not lightly be defeated by condoningdelay in a routine manner. At the same time, when stakes are high, theexplanation should not be rejected by taking a pedantic and hyper technicalview of the matter, causing thereby irreparable loss and injury to theparty against whom the lis terminates. The courts are required to strikea balance between the legitimate rights and interests of the respectiveparties.

63. Section 5 of the Limitation Act, 1963 does not speak of anyapplication. The Section enables the Court to admit an application orappeal if the applicant or the appellant, as the case may be, satisfies theCourt that he had sufficient cause for not making the application and/orpreferring the appeal, within the time prescribed. Although, it is the generalpractice to make a formal application under Section 5 of the LimitationAct, 1963, in order to enable the Court or Tribunal to weigh the sufficiencyof the cause for the inability of the appellant/applicant to approach theCourt/Tribunal within the time prescribed by limitation, there is no bar toexercise by the Court/Tribunal of its discretion to condone delay, in theabsence of a formal application.

64. A plain reading of Section 5 of the Limitation Act makes itamply clear that, it is not mandatory to file an application in writing beforerelief can be granted under the said section. Had such an applicationbeen mandatory, Section 5 of the Limitation Act would have expresslyprovided so. Section 5 would then have read that the Court might condonedelay beyond the time prescribed by limitation for filing an application orappeal, if on consideration of the application of the appellant or theapplicant, as the case may be, for condonation of delay, the Court issatisfied that the appellant/applicant had sufficient cause for not preferringthe appeal or making the application within such period. Alternatively, a A

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Aproviso or an Explanation would have been added to Section 5, requiringthe appellant or the applicant, as the case may be, to make an applicationfor condonation of delay. However, the Court can always insist that anapplication or an affidavit showing cause for the delay be filed. Noapplicant or appellant can claim condonation of delay under Section 5 ofthe Limitation Act as of right, without making an application.B

65. As observed above, Section 238A makes the provisions of theLimitation Act applicable to proceedings under the IBC before theAdjudicating authority and the Appellate Authority (NCLAT) ‘as far asmay be’. Section 14(2) of the Limitation Act which provides for exclusionof time in computing the period of limitation in certain circumstances,Cprovides as follows:

“14. Exclusion of time of proceeding bona fide in courtwithout jurisdiction. —

(1) …..D(2) In computing the period of limitation for any application,the time during which the applicant has been prosecuting withdue diligence another civil proceeding, whether in a court offirst instance or of appeal or revision, against the same partyfor the same relief shall be excluded, where such proceedingEis prosecuted in good faith in a court which, from defect ofjurisdiction or other cause of a like nature, is unable toentertain it.”

66. Similarly under Section 18 of the Limitation Act, anacknowledgement of present subsisting liability, made in writing in respectFof any right claimed by the opposite party and signed by the party againstwhom the right is claimed, has the effect of commencing of a freshperiod of limitation, from the date on which the acknowledgment is signed.However, the acknowledgment must be made before the period oflimitation expires.

67. As observed above, Section 238A of the IBC makes theGprovisions of the Limitation Act, as far as may be, applicable toproceedings before the NCLT and the NCLAT. The IBC does notexclude the application of Section 6 or 14 or 18 or any other provision ofthe Limitation Act to proceedings under the IBC in the NCLT/NCLAT.All the provisions of the Limitation Act are applicable to proceedings inHthe NCLT/NCLAT, to the extent feasible.

68. We see no reason why Section 14 or 18 of the Limitation Act,1963 should not apply to proceeding under Section 7 or Section 9 of theIBC. Of course, Section 18 of the Limitation Act is not attracted in thiscase, since the impugned order of the NCLAT does not proceed on thebasis 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 inJuly 2018 was found, on facts, to be hopelessly barred by limitation, asthe account of the Corporate Debtor had been declared NPA in 1993,after which recovery proceedings had been initiated, a RecoveryCertificate issued in 2003 and amended in 2001. This Court found thatthe documents relied upon by the Financial Creditor to claim the benefitof Section 18 of the Limitation Act, could not be construed as admissionor acknowledgment of liability.

70. Section 14 (2) of the Limitation Act provides that in computingthe period of limitation for any application, the time during which thepetitioner had been prosecuting, with due diligence, another civilproceeding, whether in a court of first instance, or of appeal or revision,against the same party, for the same relief, shall be excluded, wheresuch proceeding is prosecuted in good faith in a Court which, from defectof jurisdiction or other cause of like nature, is unable to entertain it. Theconditions for exclusion are that the earlier proceedings should havebeen for the same relief, the proceedings should have been prosecuteddiligently and in good faith and the proceedings should have beenprosecuted in a forum which, from defect of jurisdiction or other causeof a like nature, was unable to entertain it.

71. In State of Goa v. Western Builders[14], this Court held thatSection 14 of the Limitation Act would apply to an application for settingaside of an arbitral award under Section 34 of the Arbitration andConciliation Act, 1996 by virtue of Section 43 of the said Act, whichmade the Limitation Act applicable to arbitrations as it applies toproceedings in Court. This Court found that in the absence of any provisionin the Arbitration and Conciliation Act, 1996 excluding the applicabilityof Section 14, a party was legitimately entitled to exclusion of the timespent in bona fide prosecution of proceedings with due diligence in awrong forum. Distinguishing the earlier judgment of this Court in Union A

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Aof India v. Popular Construction Co.[15], the Court held that exclusionof time under Section 14 of the Limitation Act in computation of limitationwas different from condonation of delay under Section 5 of the said Act.

72. In Consolidated Engineering Enterprises v. PrincipalSecretary, Irrigation Department and Ors.[16], a three-Judge BenchBof this Court unanimously held that in the absence of any provision in theArbitration and Conciliation Act, 1996 which excluded the applicabilityof Section 14 of the Limitation Act, there was no reason why Section 14of the Limitation Act should not apply to an application for setting asidean arbitral award. This Court held:

C“19. A bare reading of sub-section (3) of Section 34 readwith the proviso makes it abundantly clear that the applicationfor setting aside the award on the grounds mentioned in sub-section (2) of Section 34 will have to be made within threemonths. The period can further be extended, on sufficientcause being shown, by another period of 30 days but notDthereafter. It means that as far as application for setting asidethe award is concerned, the period of limitation prescribed isthree months which can be extended by another period of 30days, on sufficient cause being shown to the satisfaction ofthe court.

E20. Section 29(2) of the Limitation Act inter alia provides thatwhere any special or local law prescribes for any suit, appealor application a period of limitation different from the periodof limitation prescribed by the Schedule, the provisions ofSection 3 shall apply as if such period was the periodFprescribed by the Schedule and for the purpose of determiningany period of limitation prescribed for any suit, appeal orapplication by any special or local law, the provisionscontained in Sections 4 to 24 shall apply only insofar as, andto the extent, they are not expressly excluded by such specialor local law. When any special statute prescribes certainGperiod of limitation as well as provision for extension up tospecified time-limit, on sufficient cause being shown, then theperiod of limitation prescribed under the special law shallprevail and to that extent the provisions of the Limitation Act 15 (2001) 8 SCC 470H16 (2008) 7 SCC 169

shall stand excluded. As the intention of the legislature inenacting sub-section (3) of Section 34 of the Act is that theapplication for setting aside the award should be made withinthree months and the period can be further extended onsufficient cause being shown by another period of 30 daysbut not thereafter, this Court is of the opinion that theprovisions of Section 5 of the Limitation Act would not beapplicable because the applicability of Section 5 of theLimitation Act stands excluded because of the provisions ofSection 29(2) of the Limitation Act. However, merely becauseit is held that Section 5 of the Limitation Act is not applicableto an application filed under Section 34 of the Act for settingaside an award, one need not conclude that provisions ofSection 14 of the Limitation Act would also not be applicableto an application submitted under Section 34 of the Act of1996.

21. Section 14 of the Limitation Act deals with exclusion oftime of proceeding bona fide in a court without jurisdiction.On analysis of the said section, it becomes evident that thefollowing conditions must be satisfied before Section 14 canbe pressed into service:

(1) Both the prior and subsequent proceedings arecivil proceedings prosecuted by the same party;

(2) The prior proceeding had been prosecuted withdue diligence and in good faith;

(3) The failure of the prior proceeding was due todefect of jurisdiction or other cause of like nature;

(4) The earlier proceeding and the latter proceedingmust relate to the same matter in issue and;

(5) Both the proceedings are in a court.

22. The policy of the section is to afford protection to a litigantagainst the bar of limitation when he institutes a proceedingwhich by reason of some technical defect cannot be decidedon merits and is dismissed. While considering the provisionsof Section 14 of the Limitation Act, proper approach will haveto be adopted and the provisions will have to be interpreted AB

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so as to advance the cause of justice rather than abort theproceedings. It will be well to bear in mind that an element ofmistake is inherent in the invocation of Section 14. In fact,the section is intended to provide relief against the bar oflimitation in cases of mistaken remedy or selection of a wrongforum. On reading Section 14 of the Act it becomes clear thatthe legislature has enacted the said section to exempt a certainperiod covered by a bona fide litigious activity. Upon thewords used in the section, it is not possible to sustain theinterpretation that the principle underlying the said section,namely, that the bar of limitation should not affect a personhonestly doing his best to get his case tried on merits butfailing because the court is unable to give him such a trial,would not be applicable to an application filed under Section34 of the Act of 1996. The principle is clearly applicable notonly to a case in which a litigant brings his application in thecourt, that is, a court having no jurisdiction to entertain itbut also where he brings the suit or the application in thewrong court in consequence of bona fide mistake or (sic of)law or defect of procedure. Having regard to the intention ofthe legislature this Court is of the firm opinion that the equityunderlying Section 14 should be applied to its fullest extentand 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 oftime of proceeding bona fide in court without jurisdiction.

……..

53. Sub-section (3) of Section 34 of the AC Act prescribes theperiod of limitation for filing an application for setting asidean award as three months from the date on which the applicanthas received the arbitral award. The proviso thereto vests inthe court discretion to extend the period of limitation by afurther period not exceeding thirty days if the court is satisfiedthat the applicant was prevented by sufficient cause for notmaking the application within three months. The use of thewords “but not thereafter” in the proviso makes it clear that

even if a sufficient cause is made out for a longer extension,the extension cannot be beyond thirty days. The purpose ofproviso to Section 34(3) of the AC Act is similar to that ofSection 5 of the Limitation Act which also relates to extensionof the period of limitation prescribed for any application orappeal. It vests a discretion in a court to extend the prescribedperiod of limitation if the applicant satisfies the court that hehad sufficient cause for not making the application withinthe prescribed period. Section 5 of the Limitation Act doesnot place any outer limit in regard to the period of extension,whereas the proviso to sub-section (3) of Section 34 of theAC Act places a limit on the period of extension of the periodof limitation. Thus the proviso to Section 34(3) of the AC Actis also a provision relating to extension of period of limitation,but differs from Section 5 of the Limitation Act, in regard toperiod of extension, and has the effect of excluding Section 5alone of the Limitation Act.”

74. As held by this Court in Commissioner, M.P. Housing Boardand Ors. v. Mohanlal & Co.,[17], Section 14 of the Limitation Acthas to be interpreted liberally to advance the cause of justice.Section 14 would be applicable in cases of mistaken remedy orselection of a wrong forum.

75. There can be little doubt that Section 14 applies to an applicationunder Section 7 of the IBC. At the cost of repetition, it is reiterated thatthe IBC does not exclude the operation of Section 14 of the IBC. Thequestion is whether prior proceedings under the SARFAESI Act do notqualify for the exclusion of time under Section 14, inasmuch as they arenot civil proceedings in a Court, as argued by Mr. Dave.

76. Even if it were to be held that the benefit of Section 14 wouldbe available to an applicant under IBC, for proceedings initiated bonafide and prosecuted with due diligence under the SARFAESI Act, anotherquestion raised in this appeal is, whether exclusion of time under Section14 of the Limitation Act, would only be available if the proceedings whichcould not be entertained for defect of jurisdiction, or other cause of alike nature, had ended, in view of the Explanation at the end of Section14, which says that for the purposes of the said Section, the day on ABC

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Awhich the earlier proceeding was instituted and the day on which it endedshall both be counted for exclusion of time. Much emphasis has beenplaced by Mr. Dave on the explanation at the end of Section 14, to arguethat the Financial Creditor would not be entitled to the benefit of Section14 of the Limitation Act since the proceedings under the SARFAESIAct are still pending, as also the writ petition in the High Court.B

77. Section 14 of the Limitation Act is to be read as a whole. Aconjoint and careful reading of Sub-Sections (1), (2) and (3) of Section14 makes it clear that an applicant who has prosecuted another civilproceeding with due diligence, before a forum which is unable to entertainthe same on account of defect of jurisdiction or any other cause of likeCnature, is entitled to exclusion of the time during which the applicant hadbeen prosecuting such proceeding, in computing the period of limitation.The substantive provisions of Sub-sections (1), (2) and (3) of Section 14do not say that Section 14 can only be invoked on termination of theearlier proceedings, prosecuted in good faith.

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78. In Bihta Co-operative Development Cane Marketing UnionLtd. and Anr. v. Bank of Bihar and Ors.[18], this Court held that theexplanation must be read so as to harmonize with and clear up anyambiguity in the main section. It should not be so construed as to widenthe ambit of the section.

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79. As held in S. Sundaram Pillai and Others v. V.R.Pattabiraman and Others[19], it is well settled that an explanation addedto a statutory provision is not a substantive provision in any sense of theterm but is meant to explain or clarify certain ambiguities, which mayhave crept into statutory provisions.F80. In Sundaram Pillai Sarathi’s

80. In Sundaram Pillai (supra), this Court referred to Sarathi’sInterpretation of Statutes; Swarup’s Legislation and Interpretation,Interpretation of statues (5[th] edition) by Bindra as also variousjudgments of this Court including those referred to above and held:- “53. Thus, from a conspectus of the authorities referred toGabove, it is manifest that the object of an Explanation to astatutory provision is—

“(a) to explain the meaning and intendment of the Actitself, 18 AIR 1967 SC 389

H19 (1985) 1 SCC 591

(b) where there is any obscurity or vagueness in themain enactment, to clarify the same so as to make itconsistent with the dominant object which it seems tosubserve,

(c) to provide an additional support to the dominantobject of the Act in order to make it meaningful andpurposeful,

(d) an Explanation cannot in any way interfere with orchange the enactment or any part thereof but where somegap is left which is relevant for the purpose of theExplanation, in order to suppress the mischief and advancethe object of the Act it can help or assist the Court ininterpreting the true purport and intendment of theenactment, and (e) it cannot, however, take away a statutory right withwhich any person under a statute has been clothed or setat naught the working of an Act by becoming an hindrancein the interpretation of the same.”

81. In our considered view, Explanation (a) cannot be construedin a narrow pedantic manner to mean that Section 14 can never beinvoked until and unless the earlier proceedings have actually beenterminated for want of jurisdiction or other cause of such nature.Explanation (a), which is clarificatory, only restricts the period of exclusionto 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 wrongforum, to enforce payment of money secured by a mortgage or chargeupon immovable property, for which the prescribed period of limitation istwelve years, after expiry of three years from the date of accrual of theright to sue, and then file an application under Section 7 of the IBC afterdismissal of the suit for want of jurisdiction, that application under Section7 of the IBC would be time barred since such party would not be entitledto exclusion of any period of time beyond the date of institution and dateof termination of the earlier proceeding. If after exclusion of the timebetween the initiation and termination of the proceedings instituted bonafide and in good faith and prosecuted with due diligence, an applicationwas still beyond three years, Section 14 would not help save limitation.

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A83. To cite another example, if civil proceedings were initiated ina wrong forum in good faith and prosecuted with due diligence, but afterthe proceedings ended, time was wasted by making frivolous, meritlessapplications, the applicant would only be entitled to exclusion of timefrom the date of initiation till the end of the proceedings initiated in goodfaith and bona fide and pursued diligently, and no more. The applicantBwould not be entitled to exclusion of any further time spent in pursuingfrivolous further proceedings, or otherwise.

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84. To sum up, Section 14 excludes the time spent in proceedingin a wrong forum, which is unable to entertain the proceedings for wantof jurisdiction, or other such cause. Where such proceedings have ended,Cthe outer limit to claim exclusion under Section 14 would be the date onwhich the proceedings ended.

85. In the instant case, the proceedings under the SARFAESIAct may not have formally been terminated. The proceedings havehowever been stayed by the High Court by an interim order, on theDprima facie satisfaction that the proceedings initiated by the financialcreditor, which is a cooperative bank, was without jurisdiction. The writpetition filed by the Corporate Debtor was not disposed of even afteralmost four years. The carriage of proceedings was with the CorporateDebtor. The interim order was still in force, when proceedings underESection 7 of the IBC were initiated, as a result of which the FinancialCreditor was unable to proceed further under the SARFAESI Act.

86. In the instant case, even if it is assumed that the right to sueaccrued on 31.3.2013 when the account of Corporate Debtor wasdeclared NPA, the financial creditor initiated proceedings underFSARFAESI Act on 18[th] January 2014, that is the date on which noticeunder Section 13(2) was issued, proceeded with the same, and eventook possession of the assets, until the entire proceedings were stayedby the High Court by its order dated 24[th] July 2017. The proceedingsunder Section 7 of the IBC were initiated on 10[th] July 2018.

87. In our view, since the proceedings in the High Court were stillpending on the date of filing of the application under Section 7 of theIBC in the NCLT, the entire period after the initiation of proceedingsunder the SARFAESI Act could be excluded. If the period from thedate of institution of the proceedings under the SARFAESI Act till thedate of filing of the application under Section 7 of the IBC in the NCLT

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is excluded, the application in the NCLT is well within the limitation ofthree years. Even if the period between the date of the notice underSection 13(2) and date of the interim order of the High Court staying theproceedings under the SARFAESI Act, on the prima facie ground ofwant of jurisdiction is excluded, the proceedings under Section 7 of IBCare still within limitation of three years.

88. An Adjudicating Authority under the IBC is not a substituteforum for a collection of debt in the sense it cannot reopen debts whichare barred by law, or debts, recovery whereof have become time barred.The Adjudicating Authority does not resolve disputes, in the manner ofsuits, arbitrations and similar proceedings. However, the ultimate objectof 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 underSection 7 or under Section 9 of the IBC, is default on the part of theCorporate Debtor, and the provisions of the Limitation Act 1963, as faras may be, have been applied to proceedings under the IBC, there is noreason why Section 14 or 18 of the Limitation Act would not apply forthe purpose of computation of the period of limitation.

89. To quote V. Sudhish Pai from his book ‘ConstitutionalSupremacy - A Revisit’ “Judgments and observations in judgmentsare not to be read as Euclid’s theorems or as provisions of statute.Judicial utterances/pronouncements are in the setting of the factsof a particular case. To interpret words and provisions of a statuteit may become necessary for judges to embark upon lengthydiscussions, but such discussion is meant to explain not define.Judges interpret statutes, their words are not to be interpreted asstatutes.”

90. As observed above, unlike statutes like the Arbitration Act,1940 and the Arbitration and Conciliation Act 1996, which make theprovisions of the Limitation Act, as they apply to Court proceedings, alsoapplicable to arbitration proceedings, Section 238A of the IBC makesthe Limitation Act applicable to proceedings in NCLT/NCLAT ‘as faras may be’ and/or in other words, to the extent they may be applied.

91. Legislature has in its wisdom chosen not to make the provisionsof the Limitation Act verbatim applicable to proceedings in NCLT/NCLAT, but consciously used the words ‘as far as may be’. The words A

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A‘as far as may be’ are not meant to be otiose. Those words are to beunderstood in the sense in which they best harmonise with the subjectmatter of the legislation and the object which the Legislature has inview. The Courts would not give an interpretation to those words whichwould frustrate the purposes of making the Limitation Act applicable toproceedings in the NCLT/NCLAT ‘as far as may be’.B

92. In other words, the provisions of the Limitation Act wouldapply mutatis mutandis to proceedings under the IBC in the NCLT/NCLAT. To quote Shah J. in New India Sugar Mill Limited v.Commissioner of Sales Tax, Bihar[20], “It is a recognised rule ofinterpretation of statutes that expression used therein should ordinarilyCbe understood in a sense in which they best harmonise with the object ofthe statute, and which effectuate the object of the Legislature”.

93. As held by this Court in Busching Schmitz Private Ltd. v.P.T. Menghani[21], the Court should adopt an object oriented approachkeeping in mind the principle that legislative futility is to be ruled out soDlong as interpretative possibility permits. Needless to mention that theobject oriented approach cannot be carried to the extent of doing violenceto the plain language used, by rewriting the section or substituting wordsin place of the actual words used by Legislature.

94. The use of words ‘as far as may be’, occurring in SectionE238A of the IBC tones down the rigour of the words ‘shall’ in the aforesaidSection which is normally considered as mandatory. The expression ‘asfar as may be’ is indicative of the fact that all or any of the provisions ofthe Limitation Act may not apply to proceedings before the AdjudicatingAuthority (NCLT) or the Appellate authority (NCLAT) if they are patentlyFinconsistent with some provisions of the IBC. At the same time, thewords ‘as far as may be’ cannot be construed as a total exclusion of therequirements of the basic principles of Section 14 of the Limitation Act,but permits a wider, more liberal, contextual and purposive interpretationby necessary modification, which is in harmony with the principles ofthe said Section.G95. If, in the context of proceedings under Section 7 or 9 of theIBC, Section 14 were to be interpreted with rigid and pedantic adherenceto its literal meaning, to hold that only civil proceedings in Court would 20 AIR 1963 SC 1207 (P.1213)H21 AIR 1977 SC 1569

enjoy exclusion, the result would be that an applicant would not even beentitled to exclusion of the period of time spent in bona fide invokingand diligently pursuing an earlier application under the same provision ofIBC, for the same relief, before an Adjudicating Authority, lackingterritorial jurisdiction This could not possibly have been the legislativeintent.

96. In our considered opinion, the judgment of the NCLAT in thecase of Ishrat Ali is unsustainable in law. The proceedings under theSARFAESI Act, 2002 are undoubtedly civil proceedings. In S.A.L.Narayan Rao and Anr. v. Ishwarlal Bhagwandasand Anr.[22], theConstitution Bench of this Court held:-

“…..The expression “civil proceeding” is not defined in theConstitution, nor in the General Clauses Act. The expressionin our judgment covers all proceedings in which a partyasserts the existence of a civil right conferred by the civil lawor by statute, and claims relief for breach thereof. A criminalproceeding on the other hand is ordinarily one in which ifcarried to its conclusion it may result in the imposition ofsentences such as death, imprisonment, fine or forfeiture ofproperty. It also includes proceedings in which in the largerinterest of the State, orders to prevent apprehended breach ofthe peace, orders to bind down persons who are a danger tothe maintenance of peace and order, or orders aimed atpreventing vagrancy are contemplated to be passed. But thewhole area of proceedings, which reach the High Courts isnot exhausted by classifying the proceedings as civil andcriminal. There are certain proceedings which may beregarded as neither civil nor criminal. For instance, proceedingfor contempt of court, and for exercise of disciplinaryjurisdiction against lawyers or other professionals, such asChartered Accountants may not fall within the classificationof proceedings, civil or criminal. But there is no warrant forthe view that from the category of civil proceedings, it wasintended to exclude proceedings relating to or which seekrelief against enforcement of taxation laws of the State.”

97. On a parity of reasoning, there is no rationale for the view thatthe proceedings initiated by a secured creditor against a borrower under A

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Athe SARFAESI Act for taking possession of its secured assets, wereintended to be excluded from the category of civil proceedings. In thiscontext, reference may be made to the judgment of this Court in UnitedBank of India v. Satyawati Tandon and Ors.[23] cited by Mr. DeepakSai, where this Court observed:

B“11. ….The Government of India accepted therecommendations of the two Committees and that led toenactment of the Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act,2002 (for short “the SARFAESI Act”), which can be termed asone of the most radical legislative measures taken byCParliament for ensuring that dues of secured creditorsincluding banks, financial institutions are recovered from thedefaulting borrowers without any obstruction. For the firsttime, the secured creditors have been empowered to take stepsfor recovery of their dues without intervention of the courts ortribunals.”D

98. Even though Section 13 of the SARFAESI Act enables asecured creditor to enforce security interest created in its favour, withoutthe intervention of the Court or Tribunal, the SARFAESI Act does notexclude the intervention of Courts and/or Tribunals altogether. Somerelevant provisions of the SARFAESI Act are set out hereinbelow:

E“14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.—(1) Where the possession of any secured assets is required tobe taken by the secured creditor or if any of the secured assetis required to be sold or transferred by the secured creditorFunder the provisions of this Act, the secured creditor may, forthe purpose of taking possession or control of any suchsecured assets, request, in writing, the Chief MetropolitanMagistrate or the District Magistrate within whose jurisdictionany such secured asset or other documents relating theretomay be situated or found, to take possession thereof, and theGChief Metropolitan Magistrate or as the case may be, theDistrict Magistrate shall, on such request being made to him—(a) take possession of such asset and documents relatingthereto; and

(b) forward such asset and documents to the secured creditor:Provided that any application by the secured creditor shallbe accompanied by an affidavit duly affirmed by theauthorised officer of the secured creditor, declaring that—

(i) the aggregate amount of financial assistance granted andthe total claim of the Bank as on the date of filing theapplication;

(ii) the borrower has created security interest over variousproperties and that the Bank or Financial Institution is holdinga valid and subsisting security interest over such propertiesand the claim of the Bank or Financial Institution is withinthe limitation period;

(iii) the borrower has created security interest over variousproperties giving the details of properties referred to in sub-clause (ii)above;

(iv) the borrower has committed default in repayment of thefinancial assistance granted aggregating the specifiedamount; (v) consequent upon such default in repayment ofthe financial assistance the account of the borrower has beenclassified as a non-performing asset;

(vi) affirming that the period of sixty days notice as requiredby the provisions of sub-section (2) of section 13, demandingpayment of the defaulted financial assistance has been servedon the borrower;

(vii) the objection or representation in reply to the noticereceived from the borrower has been considered by the securedcreditor and reasons for non-acceptance of such objectionor representation had been communicated to the borrower;

(viii) the borrower has not made any repayment of the financialassistance in spite of the above notice and the AuthorisedOfficer is, therefore, entitled to take possession of the securedassets under the provisions of sub-section (4) of section 13read with section 14 of the principal Act;

(ix) that the provisions of this Act and the rules madethereunder had been complied with:

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Provided further that on receipt of the affidavit from theAuthorised Officer, the District Magistrate or the ChiefMetropolitan Magistrate, as the case may be, shall aftersatisfying the contents of the affidavit pass suitable ordersfor the purpose of taking possession of the secured assetswithin a period of thirty days from the date of application:

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B

Provided also that if no order is passed by the ChiefMetropolitan Magistrate or District Magistrate within the saidperiod of thirty days for reasons beyond his control, he may,after recording reasons in writing for the same, pass the orderwithin such further period but not exceeding in aggregatesixty days. Provided also that the requirement of filing affidavitstated in the first proviso shall not apply to proceeding pendingbefore any District Magistrate or the Chief MetropolitanMagistrate, as the case may be, on the date of commencementof this Act. (1A) The District Magistrate or the ChiefMetropolitan Magistrate may authorise any officersubordinate to him,—

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(i) to take possession of such assets and documents relatingthereto; and

(ii) to forward such assets and documents to the securedcreditor.

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(2) For the purpose of securing compliance with theprovisions of sub-section (1), the Chief MetropolitanMagistrate or the District Magistrate may take or cause to betaken such steps and use, or cause to be used, such force, asFmay, in his opinion, be necessary.

(3) No act of the Chief Metropolitan Magistrate or the DistrictMagistrate1 [any officer authorised by the Chief MetropolitanMagistrate or District Magistrate] done in pursuance of thissection shall be called in question in any court or before anyauthority.

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17. Application against measures to recover secured debts.—(1) Any person (including borrower), aggrieved by any ofthe measures referred to in sub-section (4) of section 13 takenby the secured creditor or his authorised officer under this H

Chapter, may make an application along with such fee, asmay be prescribed,]to the Debts Recovery Tribunal havingjurisdiction in the matter within forty five days from the dateon which such measure had been taken:

…….

(2) The Debts Recovery Tribunal shall consider whether anyof the measures referred to in sub-section (4) of section 13taken by the secured creditor for enforcement of security arein accordance with the provisions of this Act and the rulesmade thereunder.

(3) If, the Debts Recovery Tribunal, after examining the factsand circumstances of the case and evidence produced by theparties, comes to the conclusion that any of the measuresreferred to in sub-section

(4) of section 13, taken by the secured creditor are not inaccordance with the provisions of this Act and the rules madethereunder, and require restoration of the management orrestoration of possession, of the secured assets to the borroweror other aggrieved person, it may, by order,—

(a) declare the recourse to any one or more measures referredto in sub-section (4) of section 13 taken by the secured creditoras invalid; and (b) restore the possession of secured assets or managementof secured assets to the borrower or such other aggrievedperson, who has made an application under sub-section (1),as the case may be; and

(c) pass such other direction as it may consider appropriateand necessary in relation to any of the recourse taken by thesecured creditor under sub-section (4) of section 13.

(4) If, the Debts Recovery Tribunal declares the recourse takenby a secured creditor under sub-section (4) of section 13, isin accordance with the provisions of this Act and the rulesmade thereunder, then, notwithstanding anything containedin any other law for the time being in force, the securedcreditor shall be entitled to take recourse to one or more of A

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the measures specified under sub-section (4) of section 13 torecover his secured debt.

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(4A) Where—

(i) any person, in an application under sub-section (1), claimsany tenancy or leasehold rights upon the secured asset, theDebt Recovery Tribunal, after examining the facts of the caseand evidence produced by the parties in relation to such claimsshall, for the purposes of enforcement of security interest,have the jurisdiction to examine whether lease or tenancy,—

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(a) has expired or stood determined; or

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(b) is contrary to section 65A of the Transfer of Property Act,1882 (4 of 1882); or

(c) is contrary to terms of mortgage; or (d) is created after the issuance of notice of default and demandby the Bank under subsection (2) of section 13 of the Act;and D

(ii) the Debt Recovery Tribunal is satisfied that tenancy rightor leasehold rights claimed in secured asset falls under thesub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) of clause (i), then notwithstanding anything to thecontrary contained in any other law for the time being inforce, the Debt Recovery Tribunal may pass such order as itdeems fit in accordance with the provisions of this Act.

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18. Appeal to Appellate Tribunal.—(1) Any person aggrieved,Fby any order made by the Debts Recovery Tribunal undersection 17, may prefer an appeal along with such fee, as maybe prescribed]to the Appellate Tribunal within thirty days fromthe date of receipt of the order of Debts Recovery Tribunal.

Provided that different fees may be prescribed for filing anappeal by the borrower or by the person other than theborrower: Provided further that no appeal shall be entertainedunless the borrower has deposited with the Appellate Tribunalfifty per cent. of the amount of debt due from him, as claimedby the secured creditors or determined by the Debts RecoveryTribunal, whichever is less: Provided also that the Appellate G

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Tribunal may, for the reasons to be recorded in writing, reducethe amount to not less than twenty-five per cent. of debtreferred to in the second proviso.

(2) Save as otherwise provided in this Act, the AppellateTribunal shall, as far as may be, dispose of the appeal inaccordance with the provisions of the Recovery of Debts Dueto Banks and Financial Institutions Act, 1993 (51 of 1993)and rules made thereunder.

99. The Chief Metropolitan Magistrate or the Judicial Magistrate,as the case may be, exercising powers under Section 14 of theSARFAESI Act, functions as a Civil Court/Executing Court. Proceedingsunder the SARFAESI Act would, therefore, be deemed to be civilproceedings in a Court. Moreover, proceedings under the SARFAESIAct under Section 13(4) are appealable to the DRT under Section 18 ofthe SARFAESI Act. Mr. Dave’s argument that proceedings under theSARFAESI Act would not qualify for exclusion under Section 14 of theLimitation Act, because those proceedings were not conducted in a CivilCourt, cannot be sustained.

100. Another civil proceeding whether in a Court of first instanceor of appeal or revision, against the party, for the same relief, wouldhave to be construed to include any civil Proceeding in a forum, whetherof first instance, or appellate, or revisional, against the same party forsimilar relief, more so, having regard to the language and tenor of Section238A of the Limitation Act which applies the provisions of the LimitationAct “as far as may be”, to proceedings in the NCLT/NCLAT.

101. In our considered view, keeping in mind the scope and ambitof proceedings under the IBC before the NCLT/NCLAT, the expression‘Court’ in Section 14(2) would be deemed to be any forum for a civilproceeding including any Tribunal or any forum under the SARFAESIAct.

102. In any case, Section 5 and Section 14 of the Limitation Actare not mutually exclusive. Even in a case where Section 14 does notstrictly apply, the principles of Section 14 can be invoked to grant reliefto an applicant under Section 5 of the Limitation Act by purposivelyconstruing ‘sufficient cause’. It is well settled that omission to refer tothe correct section of a statute does not vitiate an order. At the cost ofrepetition it is reiterated that delay can be condoned irrespective of ABC

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Awhether there is any formal application, if there are sufficient materialson record disclosing sufficient cause for the delay.

103. In our considered opinion, the NCLAT rightly refused to staythe proceedings before the NCLT. The judgment and order of the NCLTdoes not warrant interference. This appeal is accordingly dismissed.

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Devika Gujral

Appeal dismissed.

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