B.K. EDUCATIONAL SERVICES PRIVATE LIMITED versus PARAG GUPTA AND ASSOCIATES on 11 October 2018

SUPREME COURT REPORTS[2018] 12 S.C.R. 794

[2018] 12 S.C.R.

AB. K. EDUCATIONAL SERVICES PRIVATE LIMITED

v.

PARAG GUPTA AND ASSOCIATES

(Civil Appeal No. 23988 of 2017)

BOCTOBER 11, 2018

[R. F. NARIMAN AND NAVIN SINHA, JJ.]

Insolvency and Bankruptcy Code, 2016 – s.238A (As insertedby Insolvency and Bankruptcy Code (Second Amendment) Act, 2018w.e.f. 06.06.2018) – s.238A, if retrospective in nature – Held: s.238ACbeing clarificatory of law and being procedural in nature, must beheld to be retrospective – Amendment of s.238A would not serve itsobject unless it is construed as being retrospective, as otherwise,applications seeking to resurrect time-barred claims would have tobe allowed, not being governed by the law of limitation – LimitationDAct, 1963.

Insolvency and Bankruptcy Code, 2016 – s.238A (As insertedby Insolvency and Bankruptcy Code (Second Amendment) Act, 2018w.e.f. 06.06.2018) and ss.7 & 9 – Application for initiation of‘Corporate Insolvency Resolution Process’ – Whether Limitation Act,1963 will apply to applications that are made u/s.7 and/or s.9 ofthe Code on and from its commencement on 01.12.2016 – Held:Since, Limitation Act is applicable to applications filed u/ss. 7 and9 of the Code from the inception of the Code, Art.137 of the LimitationAct gets attracted – “The right to sue”, therefore, accrues when adefault occurs – If the default has occurred over three years priorto the date of filing of the application, the application would bebarred u/Art.137 of the Limitation Act, save and except in thosecases where, in facts of the case, s.5 of the Limitation Act may beapplied to condone delay in filing such application – LimitationAct, 1963 – Art.137 and s.5.

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Remanding the appeals to NCLAT,the Court HELD: 1.1 In the present case, it is clear that theamendment of Section 238A Insolvency and Bankruptcy Code,2016 would not serve its object unless it is construed as beingretrospective, as otherwise, applications seeking to resurrect H

B. K. EDUCATIONAL SERVICES PVT. LTD. v. PARAG GUPTAAND ASSOCIATES

time-barred claims would have to be allowed, not being governedby the law of limitation. [Para 15] [815-D]

1.2 The Insolvency Law Committee Report of March, 2018reflected that the legislature did not contemplate enabling acreditor who has allowed the period of limitation to set in to allowsuch delayed claims through the mechanism of the Code. TheCode cannot be triggered in the year 2017 for a debt which wastime-barred, say, in 1990, as that would lead to the absurd andextreme consequence of the Code being triggered by a stale ordead claim, leading to the drastic consequence of instant removalof the present Board of Directors of the corporate debtorpermanently, and which may ultimately lead to liquidation and,therefore, corporate death. This being the case, the expression“debt due” in the definition sections of the Code would obviouslyonly refer to debts that are “due and payable” in law, i.e., thedebts that are not time-barred. [Para 21] [821-D-F]

3. It is clear that since the Limitation Act is applicable toapplications filed under Sections 7 and 9 of the Code from theinception of the Code, Article 137 of the Limitation Act getsattracted. “The right to sue”, therefore, accrues when a defaultoccurs. If the default has occurred over three years prior to thedate of filing of the application, the application would be barredunder Article 137 of the Limitation Act, save and except in thosecases where, in the facts of the case, Section 5 of the LimitationAct may be applied to condone the delay in filing such application.[Para 27] [828-B-C]

M.P. Steel Corporation v. CCE (2015) 7 SCC 58;AlliedMotors (P) Ltd. v. CIT(1997) 3 SCC 472 : [1997]2 SCR 780; Andhra Pradesh Power CoordinationCommittee and Ors. v. Lanco Kondapalli Power Ltd.and Ors.(2016) 3 SCC 468 – relied on.

State of Madhya Pradesh and Anr. v. Bhailal Bhai andOrs.[1964] 6 SCR 261;Innoventive Industries Ltd. v.ICICI Bank & Anr. (2018) 1 SCC 407 : [2017]8 SCR 33;National Sewing Thread Co. Ltd. v. JamesChadwick and Bros. Ltd.[1953] SCR 1028;State ofKerala v. V.R. Kalliyanikutty(1999) 3 SCC 657 : [1999]

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[2018] 12 S.C.R.

A2 SCR 372 ;Union of India v. Uttam Steels Ltd.(2015)13 SCC 209 : [2015]4 SCR 770;SBI v. V.Ramakrishnan(2018) SCC Online SC 963;State ofJharkhand v. Shivam Coke Industries(2011) 8 SCC656 : [2011] 9 SCR 1110 ;Bombay Dyeing & Mfg. Co.Ltd. v. State of Bombay[1958] SCR 1122;BhimsenBGupta v. Bishwanath Prasad Gupta(2004) 4 SCC 95 :[2004] 2 SCR 65;Bhogilal Chunilal Pandya v. Stateof Bombay[1959] Supp. (1) SCR 310; France B.Martins v. Mafalda Maria Teresa Rodrigues(1999) 6SCC 627: [1999] 1 Suppl. SCR 685 – referred to.CIn re Sir Harilal Nemchand Gosalia AIR 1950 Bom 74;Lachmeshwar Prasad Shukul and Ors. v. Keshwar LalChaudhuri and Ors. AIR 1941 FC 5 – referred to.

Case Law Reference

[1964] 6 SCR 261referred toPara 4D[2017] 8 SCR 33referred toPara 5[1953] SCR 1028referred toPara 10(2015) 7 SCC 58relied onPara 12[1999] 2 SCR 372referred toPara 13E[2015] 4 SCR 770referred toPara 14[1997] 2 SCR 780relied onPara 15[2011] 9 SCR 1110 referred toPara 17[1958] SCR 1122referred toPara 18[2004] 2 SCR 65referred toPara 20F(2016) 3 SCC 468relied onPara 21[1959] Supp. (1) SCR 310referred toPara 23[1999] 1 Suppl. SCR 685referred toPara 24CIVIL APPELLATE JURISDICTION : Civil Appeal No. 23988of 2017G

From the Judgment and Order dated 07.11.2017 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)Insolvency No. 76 of 2017

WITHCivil Appeal Nos. 439, 436, 3137, 4979, 5819, 7286 of 2018.H

B. K. EDUCATIONAL SERVICES PVT. LTD. v. PARAG GUPTAAND ASSOCIATES

Mohan Parasaran, Sr. Adv., Joydip Bhattacharya, Abid Ali BeeranP, Robin R.David, Pritpal Singh, Munawar Naseem, Ms. Ruchi Khurana,Febin V.Maihe, Dhiraj A. Philip, M/S. Dua Associates, K. BhimrajAchary, Abhishek Sarvaria, Sudhansu Palo, Dhruv Guptaa, Apruv,D. Abhinav Rao, R. Parthaasaraathy, Ashwin Kumar D.S., Ms. AditiDani, D. L. Chidananda, M. A.Venkat Subramanian, Rakesh K. Sharma,A. Leo George Rozario, Nishant, Sanchit Garga, Pahlad Singh Sharma,Advs. for the appellant.

Ashish Dholakia, Rohan Chawla, P. S.Sudheer, Rishi Maheshwari,Ms. Anne Mathew, Ms. Shruti Jose, Tanmay Mehta, Hasan Murtaza,Advs. for the respondent.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. The present appeals are concerned withSection 238A of the Insolvency and Bankruptcy Code, 2016 (“Code”),which was inserted by the Insolvency and Bankruptcy Code (SecondAmendment) Act, 2018 with effect from 06.06.2018. The said Sectionis as follows:

“238A. Limitation.—The provisions of the Limitation Act, 1963(36 of 1963) shall, as far as may be, apply to the proceedings orappeals before the Adjudicating Authority, the National CompanyLaw Appellate Tribunal, the Debt Recovery Tribunal or the DebtRecovery Appellate Tribunal, as the case may be.”

2. The question raised by the appellants in these appeals is as towhether the Limitation Act, 1963 will apply to applications that are madeunder Section 7 and/or Section 9 of the Code on and from itscommencement on 01.12.2016 till 06.06.2018. In all these cases, theAppellate Authority has held that the Limitation Act, 1963 does not soapply. Even on the assumption that Article 137 of the Limitation Act,1963 is attracted to such applications, in any case, such applicationsbeing filed only on or after commencement of the Code on 01.12.2016,since three years have not elapsed since this date, all these applications,in any event, could be said to be within time. Having held this, by theimpugned order dated 07.11.2017 in Civil Appeal No.23988 of 2017, theAppellate Tribunal went on to hold:

“68. In view of the settled principle, while we hold that theLimitation Act, 1963 is not applicable for initiation of ‘CorporateInsolvency Resolution Process’, we further hold that the Doctrine A

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of Limitation and Prescription is necessary to be looked into fordetermining the question whether the application under Section7 or Section 9 can be entertained after long delay, amounting tolaches and thereby the person forfeited his claim.

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69. If there is a delay of more than three years from the date ofcause of action and no laches on the part of the Applicant, theApplicant can explain the delay. Where there is a continuingcause of action, the question of rejecting any application on theground of delay does not arise.

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70. Therefore, if it comes to the notice of the AdjudicatingAuthority that the application for initiation of ‘CorporateInsolvency Resolution Process’ under section 7 or Section 9 hasbeen filed after long delay, the Adjudicating Authority may giveopportunity to the Applicant to explain the delay within a reasonableperiod to find out whether there are any laches on the part of theApplicant.

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71. The stale claim of dues without explaining delay, normallyshould not be entertained for triggering ‘Corporate InsolvencyResolution Process’ under Section 7 and 9 of the ‘I&B Code’.

72. However, the aforesaid principle for triggering an applicationunder Section 10 of the ‘I&B Code’ cannot be made applicableas the ‘Corporate Applicant’ does not claim money but prays forinitiation of ‘Corporate Insolvency Resolution Process’ againstitself, having defaulted to pay the dues of creditors. In so far itrelates to filing of claim before the ‘Insolvency ResolutionProfessional’, in case of stale claim, long delay and in absenceof any continuous cause of action, it is open to resolution applicantto decide whether such claim is to be accepted or not, and onsubmission of resolution plan, the Committee of Creditors maydecide such question. If any adverse decision is taken in regardto any creditor disputing the claim on ground of delay and laches,it will be open to the aggrieved creditor to file objection beforethe Adjudicating Authority against resolution plan and for itsnecessary correction who may decide the same in accordancewith the observations as made above.”

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3. By reason of this finding, the order of the Tribunal was setaside, and the matter was remanded for a hearing on all points otherHthan the point of limitation.

4. Learned counsel appearing on behalf of the appellants haveargued, relying upon the Report of the Insolvency Law Committee ofMarch, 2018, that the object of the Amendment Act which introducedSection 238A into the Code was to clarify the law and, thus, Section238A must be held to be retrospective. Further, according to them, inany case, the law of limitation, pertaining to the domain of procedure,must be held to apply retrospectively in any case. For this proposition,they cited several judgments which will be referred to later in this judgment.They also referred to and relied upon the definitions under Sections 3(11),3(12), and Section 5(6) of the Code, which, when contrasted with Section3(6), would show that though “claim” in Section 3(6) refers to a right topayment, the definitions of “debt” and “default” in Sections 3(11) and3(12) respectively, refer to liability or obligation in respect of a claimwhich is “due” and this being the case, a time-barred debt cannot besaid to be “due” so as to trigger the Code. The learned counsel furtherattacked the Appellate Tribunal judgment by stating that an applicationfiled in 2017 under Section 7 or 9 of the Code, praying that the Code betriggered for a debt that has become time-barred long back, say in 2011,would lead to absurdity as it could never have been the intention of thelegislature to resuscitate stale and dead claims leading to the drasticconsequence of the taking away of the management of the corporatedebtor, which may ultimately result in its corporate death. Also, accordingto learned counsel for the appellants, if one were to read the definition of“Adjudicating Authority” in Section 5(1) of the Code, together withSections 408, 424 and 433 of the Companies Act, 2013, it would becomeclear that proceedings before the National Company Law Tribunal(“NCLT”) arising under the Code would be covered by the LimitationAct via Section 433 of the Companies Act from the very inception orcommencement of the Code. According to them, it is important toremember that the Eleventh Schedule to the Code, which madeamendments in various Acts, did not introduce the limitation provision ofthe Companies Act so as to govern the Code as it was unnecessary, asSection 433 applied vide Section 5(1) of the Code read with Section 408of the Companies Act. In any event, they argued that even on theassumption that the Limitation Act does not apply to the applicationsreferred to above, the principle in State of Madhya Pradesh and Anr.v. Bhailal Bhai and Ors., (1964) 6 SCR 261 has to be followed, andthe doctrine of laches applies. In applying this doctrine, the periodprescribed by the Limitation Act will be taken to be a guide, and any A

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Aapplication filed relating to debts that are beyond what is prescribedunder the Limitation Act would be hit by this doctrine in any case.

5. On the other hand, Shri Ashish Dholakia, learned advocateappearing on behalf of some of the respondents, argued, based upon ourjudgment in Innoventive Industries Ltd. v. ICICI Bank & Anr.,B(2018) 1 SCC 407, that the Code is a complete Code dealing withinsolvency and not debt recovery and that, therefore, the periods oflimitation that are stated therein would show that the Limitation Actwould not apply. In any case, as has been held by various judgments ofthis Court, the Limitation Act cannot apply to the NCLT as it is a tribunaland not a court. He cited a number of judgments to point out theCdifference between amounts that are “due and payable” as opposed toamounts that are “due and recoverable”. According to him, since thelanguage used in Section 3(11) is “due” and in Section 3(12), “due andpayable”, it would be clear that a time-barred debt would be subsumedwithin the said expression as it is not a debt that is “due and recoverable”

Dunder the said provision. For this purpose, he relied upon a number ofjudgments and Sections 25(3), 60 and 61 of the Indian Contract Act,1872. He also handed up a chart in which, according to him, the followingTribunals, depending upon the particular Act in question, would either begoverned or not governed by the Limitation Act as follows:

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Also, according to the learned advocate, incongruous results would obtainif we were to hold that Section 433 of the Companies Act, would applyto provide a period of limitation to the NCLT deciding cases under theCode. He argued that the National Company Law Appellate TribunalF(“NCLAT”) is an appellate tribunal which is common to three statutes,namely, the Competition Act, 2002, the Companies Act, 2013, and theInsolvency and Bankruptcy Code, 2016. Under the Competition Act, noperiod of limitation is prescribed within which a complaint may be madeto the Competition Commission. Therefore, when the Appellate TribunalGdecides a case under the Competition Act, it will decide the case onmerits despite the period of limitation having elapsed, whereas, if theargument of the appellants is correct, the same Appellate Tribunal willdecide a case under the Code applying a period of limitation and barringapplications that fall outside such period. This is an incongruous situationwhich could not possibly have been intended by the legislature. He alsoH

Awent on to argue that Section 238A of the Code could not be retrospectiveas it would take away a vested right of the application filed under Section7 or Section 9 to be decided without applying the Limitation Act pre06.06.2018. He went on to argue that if the doctrine of laches were tobe applied, it would have to be applied along with other doctrines such asacquiescence and estoppel on the facts of each case, there being noBhard and fast rule that once a period of limitation was over, the applicationmust be dismissed. He also relied upon several decisions to buttress hiscontentions.

6. Having heard the learned counsel for both sides, it is importantto first set out the reason for the introduction of Section 238A into theCCode. This is to be found in the Report of the Insolvency Law Committeeof March, 2018, as follows:

“28. APPLICATION OF LIMITATION ACT, 1963

28.1 The question of applicability of the Limitation Act, 1963D(“Limitation Act”) to the Code has been deliberated upon inseveral judgments of the NCLT and the NCLAT. The existingjurisprudence on this subject indicates that if a law is a completecode, then an express or necessary exclusion of the LimitationAct should be respected.[1] In light of the confusion in this regard,the Committee deliberated on the issue and unanimously agreedEthat the intent of the Code could not have been to give a newlease of life to debts which are time-barred. It is settled law thatwhen a debt is barred by time, the right to a remedy is time-barred.[2] This requires being read with the definition of ‘debt’and ‘claim’ in the Code. Further, debts in winding up proceedingsFcannot be time-barred,[3] and there appears to be no rationale toexclude the extension of this principle of law to the Code.

28.2 Further, non-application of the law on limitation creates thefollowing problems: first, it re-opens the right of financial andoperational creditors holding time-barred debts under theLimitation Act to file for CIRP, the trigger for which is default onGa debt above INR one lakh. The purpose of the law of limitation 1 Ravula Subba Rao and Anr. v. The Commissioner of Income Tax, Madras, (1956) SCR

577. 2 Punjab National Bank and Ors. v. Surendra Prasad Sinha AIR 1992 SC 1815.3 Interactive Media and Communication Solution Private Limited v. Go Airlines, 199H (2013) DLT 267.

is “to prevent disturbance or deprivation of what may havebeen acquired in equity and justice by long enjoyment orwhat may have been lost by a party’s own inaction, negligenceor latches”[4]. Though the Code is not a debt recovery law, thetrigger being ‘default in payment of debt’ renders the exclusionof the law of limitation counter-intuitive. Second, it re-opens theright of claimants (pursuant to issuance of a public notice) to filetime-barred claims with the IRP/RP, which may potentially be apart of the resolution plan. Such a resolution plan restructuringtime-barred debts and claims may not be in compliance with theexisting laws for the time being in force as per section 30(4) ofthe Code.

28.3 Given that the intent was not to package the Code as afresh opportunity for creditors and claimants who did not exercisetheir remedy under existing laws within the prescribed limitationperiod, the Committee thought it fit to insert a specific sectionapplying the Limitation Act to the Code. The relevant entry underthe Limitation Act may be on a case to case basis. It was furthernoted that the Limitation Act may not apply to applications ofcorporate applicants, as these are initiated by the applicant forits own debts for the purpose of CIRP and are not in the form ofa creditor’s remedy.”

The Report of the Committee would indicate that it has applied its mindto judgments of the NCLT and the NCLAT. It has also applied its mindto the aspect that the law is a complete Code and the fact that theintention of such a Code could not have been to give a new lease of lifeto debts which are time-barred.

7. We will first take up the position in law of the applicability ofthe Limitation Act, on a reading of the Code together with a cognatelegislation, the Companies Act, 2013. Sections 3(6), 3(11), 3(12), and5(6) of the Code read as follows:

“3. Definitions.—In this Part, unless the context otherwiserequires,—

(6) “claim” means—

(a) a right to payment, whether or not such right is reducedto judgment, fixed, disputed, undisputed, legal, equitable,secured or unsecured; 4 Rajinder Singh v. Santa Singh, AIR 1973 SC 2537.

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(b) right to remedy for breach of contract under any lawfor the time being in force, if such breach gives rise to aright to payment, whether or not such right is reduced tojudgment, fixed, matured, unmatured, disputed, undisputed,secured or unsecured;”

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“(11) “debt” means a liability or obligation in respect of a claimwhich is due from any person and includes a financial debt andoperational debt;

(12) “default” means non-payment of debt when whole or anypart or installment of the amount of debt has become due andpayable and is not paid by the debtor or the corporate debtor, asthe case may be;”

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“5. Definitions.—In this Part, unless the context otherwiserequires,—

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(6) “dispute” includes a suit or arbitration proceedings relatingto—

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(b) the quality of goods or service; or

(c) the breach of a representation or warranty;”

Vide Section 3(37), words and expressions used, but not defined in theCode, but defined inter alia in the Companies Act, 2013 shall have themeanings respectively assigned to them in that Act. Section 5(1) of theFCode defines Adjudicating Authority as follows:

“5. Definitions.—In this Part, unless the context otherwiserequires,—

(1) “Adjudicating Authority”, for the purposes of this Part, meansNational Company Law Tribunal constituted under section 408of the Companies Act, 2013 (18 of 2013);”

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This Section, therefore, requires that we look at Section 408 of theCompanies Act. Section 408 of the Companies Act states:

“—408. Constitution of National Company Law Tribunal.The Central Government shall, by notification, constitute, with H

effect from such date as may be specified therein, a Tribunal tobe known as the National Company Law Tribunal consisting ofa President and such number of Judicial and Technical members,as the Central Government may deem necessary, to be appointedby it by notification, to exercise and discharge such powers andfunctions as are, or may be, conferred on it by or under this Actor any other law for the time being in force.”

It is important to notice that the NCLT is set up to discharge such powersand functions that are conferred on it not merely under the CompaniesAct but also under “any other law for the time being in force”. Section433 of the Companies Act states as follows:

“433. Limitation.—The provisions of the Limitation Act, 1963(36 of 1963) shall, as far as may be, apply to proceedings orappeals before the Tribunal or the Appellate Tribunal, as the casemay be.”

What is conspicuous by its absence in this Section are the expressions“under this Act” or “subject to the provisions of this Act”. By way ofcontrast, Section 424(2) uses the expression “under this Act” as follows:

“—424. Procedure before Tribunal and Appellate Tribunal.

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(2) The Tribunal and the Appellate Tribunal shall have, for thepurposes of discharging their functions under this Act or underthe Insolvency and Bankruptcy Code, 2016, the same powers asare vested in a civil court under the Code of Civil Procedure,1908 (5 of 1908) while trying a suit in respect of the followingmatters, namely:- (a) summoning and enforcing the attendance of any personand examining him on oath; (b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) subject to the provisions of sections 123 and 124 of theIndian Evidence Act, 1872 (1 of 1872), requisitioning any publicrecord or document or a copy of such record or documentfrom any office;

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A(e) issuing commissions for the examination of witnesses ordocuments; (f) dismissing a representation for default or deciding it ex parte; (g) setting aside any order of dismissal of any representationfor default or any order passed by it ex parte; and B

(h) any other matter which may be prescribed.”

(emphasis supplied)

Pertinently, the Eleventh Schedule (Amendments to the Companies Act,2013) to the Code reads as follows:

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“1. In Section 2,—

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(b) after clause (94), the following clause shall be inserted,namely—

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‘(94-A) “winding up” means winding up under this Act orliquidation under the Insolvency and Bankruptcy Code, 2016,as applicable.’”

8. It may also be noticed that under Section 434(1)(c) of theCompanies Act, all proceedings under the Companies Act, including theEproceedings relating to winding up of companies, pending immediatelybefore such date, before any District Court or High Court, shall standtransferred to the Tribunal and the Tribunal may proceed to deal withsuch proceedings from the stage before they are transferred. This Sectionis also important in that it indicates that proceedings under the CompaniesFAct relating to arbitration, compromise, arrangements and reconstructionand winding up of companies, that were pending before the DistrictCourt or the High Court, may now be transferred to the Tribunal. Eachof these proceedings would directly be governed by the Limitation Actas they are proceedings before Courts. Obviously, upon transfer of suchproceedings to the Tribunal, it cannot be stated that because theseGproceedings are now before the Tribunal, the Limitation Act will ceaseto apply. Also, in fresh applications that are made after the Code comesinto force, it cannot be said that to such applications, the Limitation Actwill not apply, but to applications that are transferred from the DistrictCourt or the High Court, the provisions of the Limitation Act will apply.HIn particular, winding up proceedings pending before a High Court are

liable to be transferred to the NCLT for further decision by applying theCode and not the Companies Act. This becomes clear on a reading ofRule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016,which reads as follows:

“5. Transfer of pending proceedings of Winding up on theground of inability to pay debts.—(1) All petitions relating towinding up of a company under clause (e) of section 433 of theAct[5] on the ground of inability to pay its debts pending before aHigh Court, and, where the petition has not been served on therespondent under rule 26 of the Companies (Court) Rules, 1959shall be transferred to the Bench of the Tribunal established undersub-section (4) of Section 419 of the Companies Act, 2013exercising territorial jurisdiction to be dealt with in accordancewith Part ll of the Code:

Provided that the petitioner shall submit all information,other than information forming part of the records transferred inaccordance with rule 7, required for admission of the petitionunder sections 7, 8 or 9 of the Code, as the case may be, includingdetails of the proposed insolvency professional to the Tribunalupto 15[th] day of July, 2017, failing which the petition shall standabated:

Provided further that any party or parties to the petitionsshall, after the 15[th] day of July, 2017, be eligible to file freshapplications under sections 7 or 8 or 9 of the Code, as the casemay be, in accordance with the provisions of the Code:

Provided also that where a petition relating to winding upof a company is not transferred to the Tribunal under this ruleand remains in the High Court and where there is another petitionunder clause (e) of section 433 of the Act for winding up againstthe same company pending as on 15[th] December, 2016, suchother petition shall not be transferred to the Tribunal, even if thepetition has not been served on the respondent.”

9. It is thus clear that Section 433 of the Companies Act, 2013would apply to the Tribunal even when it decides applications underSections 7 and 9 of the Code.

5 Rule 2(2) of the Companies (Transfer of Pending Proceedings) Rules, 2016 definesthe “Act” as meaning the Companies Act, 1956.

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A10. The matter can be viewed from a slightly different angle. InNational Sewing Thread Co. Ltd. v. James Chadwick and Bros.Ltd., 1953 SCR 1028, this Court dealt with an appeal to the High Courtfrom any decision of the Registrar under Section 76 of the Trade MarksAct. It was argued that the provisions of clause 15 of the Letters Patentwould not be attracted to such an appeal preferred under Section 76.BThis was negatived by this Court stating:

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“……The Trade Marks Act does not provide or lay down anyprocedure for the future conduct or career of that appeal in theHigh Court, indeed Section 77 of the Act provides that the HighCourt can if it likes make rules in the matter. Obviously after theCappeal had reached the High Court it has to be determinedaccording to the rules of practice and procedure of that Courtand in accordance with the provisions of the charter under whichthat Court is constituted and which confers on it power in respectto the method and manner of exercising that jurisdiction. TheDrule is well settled that when a statute directs that an appealshall lie to a Court already established, then that appeal must beregulated by the practice and procedure of that Court. ……

Though the facts of the cases laying down the above rulewere not exactly similar to the facts of the present case, theprinciple enunciated therein is one of general application and hasan apposite application to the facts and circumstances of thepresent case. Section 76 of the Trade Marks Act confers a rightof appeal to the High Court and says nothing more about it. Thatbeing so, the High Court being seized as such of the appellatejurisdiction conferred by Section 76 it has to exercise thatjurisdiction in the same manner as it exercises its other appellatejurisdiction and when such jurisdiction is exercised by a SingleJudge, his judgment becomes subject to appeal under clause 15of the Letters Patent there being nothing to the contrary in theTrade Marks Act.”

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(at 1033-1034)

11. Given the fact that the “procedure” that would apply to theNCLT would be the procedure contained inter alia in the LimitationAct, it is clear that the NCLT would have to decide applications made toit under the Code in the same manner as it exercises its other jurisdictionHunder the Companies Act. This being the position in law, it is clear that

when various provisions of the Companies Act were amended by theEleventh Schedule to the Code, it was unnecessary to apply and adaptSection 433 of the Companies Act to the Code, as was done to variousother Sections of the Companies Act.

12. Coming to the next argument that, in any case, Section 238A,being clarificatory of the law and being procedural in nature, must beheld to be retrospective, it is necessary to refer to a few judgments ofthis Court. In M.P. Steel Corporation v. CCE, (2015) 7 SCC 58, thisCourt held:

“54. It is settled law that periods of limitation are procedural innature and would ordinarily be applied retrospectively. This,however, is subject to a rider. In New India Insurance Co. Ltd.v. Shanti Misra [(1975) 2 SCC 840 : (1976) 2 SCR 266], thisCourt held: (SCC p. 844, para 5)

5. ”On the plain language of Sections 110-A and 110-F thereshould be no difficulty in taking the view that the change in lawwas merely a change of forum i.e. a change of adjectival orprocedural law and not of substantive law. It is a well-established proposition that such a change of law operatesretrospectively and the person has to go to the new forumeven if his cause of action or right of action accrued prior tothe change of forum. He will have a vested right of action butnot a vested right of forum. If by express words the new forumis made available only to causes of action arising after thecreation of the forum, then the retrospective operation of thelaw is taken away. Otherwise the general rule is to make itretrospective.”

55. In answering a question which arose under Section 110-Aof the Motor Vehicles Act, this Court held: (Shanti Misra case[(1975) 2 SCC 840 : (1976) 2 SCR 266] , SCC p. 846, para 7)

7. ”… ‘(1) Time for the purpose of filing the application underSection 110-A did not start running before the constitution ofthe tribunal. Time had started running for the filing of the suitbut before it had expired the forum was changed. And for thepurpose of the changed forum, time could not be deemed tohave started running before a remedy of going to the new forumis made available.

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(2) Even though by and large the law of limitation has beenheld to be a procedural law, there are exceptions to this principle.Generally the law of limitation which is in vogue on the date ofthe commencement of the action governs it. But there arecertain exceptions to this principle. The new law of limitationproviding a longer period cannot revive a dead remedy. Norcan it suddenly extinguish a vested right of action byproviding for a shorter period of limitation.’”

(emphasis in original)

56. This statement of the law was referred to with approval inVinod Gurudas Raikar v. National Insurance Co. Ltd. [(1991)4 SCC 333] as follows: (SCC p. 337, para 7)

7. ”It is true that the appellant earlier could file an applicationeven more than six months after the expiry of the period oflimitation, but can this be treated to be a right which the appellanthad acquired. The answer is in the negative. The claim tocompensation which the appellant was entitled to, by reasonof the accident was certainly enforceable as a right. So far theperiod of limitation for commencing a legal proceeding isconcerned, it is adjectival in nature, and has to be governed bythe new Act—subject to two conditions. If under the repealingAct the remedy suddenly stands barred as a result of a shorterperiod of limitation, the same cannot be held to govern thecase, otherwise the result will be to deprive the suitor of anaccrued right. The second exception is where the newenactment leaves the claimant with such a short period forcommencing the legal proceeding so as to make it unpracticalfor him to avail of the remedy. This principle has been followedby this Court in many cases and by way of illustration wewould like to mention New India Insurance Co. Ltd. v. ShantiMisra [(1975) 2 SCC 840 : (1976) 2 SCR 266]. The husbandof the respondent in that case died in an accident in 1966. Aperiod of two years was available to the respondent for institutinga suit for recovery of damages. In March 1967 the ClaimsTribunal under Section 110 of the Motor Vehicles Act, 1939was constituted, barring the jurisdiction of the civil court andprescribed 60 days as the period of limitation. The respondentfiled the application in July 1967. It was held that not having

filed a suit before March 1967 the only remedy of therespondent was by way of an application before the Tribunal.So far the period of limitation was concerned, it was observedthat a new law of limitation providing for a shorter period cannotcertainly extinguish a vested right of action. In view of thechange of the law it was held that the application could be filedwithin a reasonable time after the constitution of the Tribunal;and, that the time of about four months taken by the respondentin approaching the Tribunal after its constitution, could be heldto be either reasonable time or the delay of about two monthscould be condoned under the proviso to Section 110-A(3).”

Both these judgments were referred to and followed in Unionof India v. Harnam Singh [(1993) 2 SCC 162 : 1993 SCC (L&S)375 : (1993) 24 ATC 92], see para 12.

57. The aforesaid principle is also contained in Section 30(a) ofthe Limitation Act, 1963:

30. ”Provision for suits, etc., for which the prescribed periodis shorter than the period prescribed by the IndianLimitation Act, 1908.—Notwithstanding anything containedin this Act—

(a) any suit for which the period of limitation is shorter thanthe period of limitation prescribed by the Indian LimitationAct, 1908, may be instituted within a period of seven yearsnext after the commencement of this Act or within the periodprescribed for such suit by the Indian Limitation Act, 1908,whichever period expires earlier.”

58. The reason for the said principle is not far to seek. Thoughperiods of limitation, being procedural law, are to be appliedretrospectively, yet if a shorter period of limitation is provided bya later amendment to a statute, such period would render thevested right of action contained in the statute nugatory as suchright of action would now become time-barred under the amendedprovision.

59. This aspect of the matter is brought out rather well inThirumalai Chemicals Ltd. v. Union of India [(2011) 6 SCC739 : (2011) 3 SCC (Civ) 458] as follows: (SCC pp. 748-49,paras 22-26)

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22. ”Law is well settled that the manner in which the appealhas to be filed, its form and the period within which the samehas to be filed are matters of procedure, while the rightconferred on a party to file an appeal is a substantive right.The question is, while dealing with a belated appeal underSection 19(2) of FEMA, the application for condonation ofdelay has to be dealt with under the first proviso to sub-section(2) of Section 52 of FERA or under the proviso to sub-section(2) of Section 19 of FEMA. For answering that question it isnecessary to examine the law on the point.

Substantive and procedural law

23. Substantive law refers to a body of rules that creates,defines and regulates rights and liabilities. Right conferred ona party to prefer an appeal against an order is a substantiveright conferred by a statute which remains unaffected bysubsequent changes in law, unless modified expressly or bynecessary implication. Procedural law establishes a mechanismfor determining those rights and liabilities and a machinery forenforcing them. Right of appeal being a substantive right alwaysacts prospectively. It is trite law that every statute is prospectiveunless it is expressly or by necessary implication made to haveretrospective operation.

24. Right of appeal may be a substantive right but the procedurefor filing the appeal including the period of limitation cannot becalled a substantive right, and an aggrieved person cannot claimany vested right claiming that he should be governed by the oldprovision pertaining to period of limitation. Procedural law isretrospective meaning thereby that it will apply even to acts ortransactions under the repealed Act.

25. Law on the subject has also been elaborately dealt with bythis Court in various decisions and reference may be made toa few of those decisions. This Court in Garikapati Veerayav. N. Subbiah Choudhry [AIR 1957 SC 540], New IndiaInsurance Co. Ltd. v. Shanti Misra [(1975) 2 SCC 840 :(1976) 2 SCR 266], Hitendra Vishnu Thakur v. State ofMaharashtra [(1994) 4 SCC 602 : 1994 SCC (Cri) 1087],Chintamani Saran Nath Shahdeo v. State of Bihar [(1999)8 SCC 16] and Shyam Sunder v. Ram Kumar [(2001) 8 SCC

24], has elaborately discussed the scope and ambit of anamending legislation and its retrospectivity and held that everylitigant has a vested right in substantive law but no such rightexists in procedural law. This Court has held that the law relatingto forum and limitation is procedural in nature whereas lawrelating to right of appeal even though remedial is substantivein nature.

26. Therefore, unless the language used plainly manifests inexpress terms or by necessary implication a contrary intentiona statute divesting vested rights is to be construed asprospective, a statute merely procedural is to be construed asretrospective and a statute which while procedural in itscharacter, affects vested rights adversely is to be construed asprospective.”

60. This judgment was strongly relied upon by Shri A.K. Sanghifor the proposition that the law in force on the date of the institutionof an appeal, irrespective of the date of accrual of the cause ofaction for filing an appeal, will govern the period of limitation.Ordinarily, this may well be the case. As has been noticed above,periods of limitation being procedural in nature would applyretrospectively. On the facts in the judgment in Thirumalai case[(2011) 6 SCC 739 : (2011) 3 SCC (Civ) 458], it was held thatthe repealed provision contained in the Foreign ExchangeRegulation Act, namely, Section 52 would not apply to an appealfiled long after 1-6-2000 when the Foreign ExchangeManagement Act came into force, repealing the ForeignExchange Regulation Act. It is significant to note that Section52(2) of the repealed Act provided a period of limitation of 45plus 45 days and no more whereas Section 19(2) of FEMAprovided for 45 days with no cap thereafter provided sufficientcause to condone delay is shown. On facts, in that case, theappeal was held to be properly instituted under Section 19, whichas has been stated earlier, had no cap to condonation of delay. Itwas, therefore, held that the Appellate Tribunal in that case couldentertain the appeal even after the period of 90 days had expiredprovided sufficient cause for the delay was made out.”

A perusal of this judgment would show that limitation, being proceduralin nature, would ordinarily be applied retrospectively, save and except A

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Athat the new law of limitation cannot revive a dead remedy. This wassaid in the context of a new law of limitation providing for a longerperiod of limitation than what was provided earlier. In the present case,these observations are apposite in view of what has been held by theAppellate Tribunal. An application that is filed in 2016 or 2017, after theCode has come into force, cannot suddenly revive a debt which is noBlonger due as it is time-barred.

13. In State of Kerala v. V.R. Kalliyanikutty, (1999) 3 SCC657, (“V.R. Kalliyanikutty”), this Court dealt with whether a time-barred debt can be recovered by resorting to recovery proceedings underthe Kerala Revenue Recovery Act of 1968. In stating that the said ActCcannot extend to recovery of a time-barred debt, this Court stated inparagraph 8, “8. …… In every case the exact meaning of the word “due”will depend upon the context in which that word appears.”

DIt was held in that case that Section 17(3) of the Kerala RevenueRecovery Act, 1968 made it clear that a person making payment underprotest will have a right to institute a suit for refund of the whole or partof the sum paid by him under protest. It was thus held that when theright to file such a suit is expressly preserved, there is a necessaryimplication that the shield of limitation available to a debtor in a suit isEalso preserved, as a result of which, a wide interpretation of theexpression “amount due” to include time-barred debts would destroy animportant defence available to a debtor in a suit against him by thecreditor, and may fall foul of Article 14 of the Constitution of India.

14. Another judgment referred to by learned counsel for theFappellants is contained in Union of India v. Uttam Steels Ltd., (2015)13 SCC 209. Here the question was whether Section 11-B of the CentralExcise Act as amended on 12.05.2000 would apply to the fact situationin that case. Section 11-B provided a longer period of limitation bysubstituting “six months” with “one year”. Since the rebate applicationGwas filed within a period of one year, the respondent contended thatthey were within time. This Court held, in paragraph 10, that limitation,being procedural law, would ordinarily be retrospective in nature. This ishowever with one proviso superadded, which is that the claim madeunder the amended provision should not itself have been a dead claim inthe sense that it was time-barred before the amending Act came intoH

force, bringing a larger period of limitation with it. On the facts of thatcase, it was held that since the claim for rebate was made beyond theperiod of six months but within the extended period of one year, suchextended period would not avail the respondent in that case.

15. In Allied Motors (P) Ltd. v. CIT,(1997) 3 SCC 472, thisCourt took the view that the amendment made to Section 43-B in theIncome Tax Act was retrospective, holding:

“14. …… As observed by G.P. Singh in his Principles ofStatutory Interpretation, 4[th] Edn. at p. 291: “It is well settledthat if a statute is curative or merely declaratory of the previouslaw retrospective operation is generally intended.” In fact theamendment would not serve its object in such a situation unlessit is construed as retrospective……”

In the present case also, it is clear that the amendment of Section 238Awould not serve its object unless it is construed as being retrospective,as otherwise, applications seeking to resurrect time-barred claims wouldhave to be allowed, not being governed by the law of limitation.

16. We may also refer to a recent decision of this Court in SBIv. V. Ramakrishnan, (2018) SCC Online SC 963, where this Court,after referring to the selfsame Insolvency Law Committee Report, heldthat the amendment made to Section 14 of the Code, in which themoratorium prescribed by Section 14 was held not to apply to guarantors,was held to be clarificatory, and therefore, retrospective in nature, theobject being that an overbroad interpretation of Section 14 ought to beset at rest by clarifying that this was never the intention of Section 14from the very inception.

17. We now come to some of the judgments cited by ShriDholakia. In State of Jharkhand v. Shivam Coke Industries, (2011)8 SCC 656, this Court, in construing Section 46(4) of the Bihar FinanceAct, 1981, held that the Limitation Act could not be read into the exerciseof a suo motu power of revision. This was for the reason that theLimitation Act applies to courts and not to quasi-judicial bodies. In soholding, the Court went on to hold:

“46. We would, however, agree with the position that such apower cannot be exercised by the revisional authority indefinitely.In our considered opinion, such extraordinary power i.e. suo motu

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power of initiation of revisional proceeding has to be exercisedwithin a reasonable period of time and what is a reasonable periodof time would depend on the facts and circumstances of eachcase. For this proposition, a number of decisions of this Courtcan be referred to on which reliance was placed even by thecounsel appearing for the respondent.”

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This judgment has no direct bearing on the controversy before us exceptthat even where the Limitation Act was held not to apply, the power ofthe revisional authority cannot be exercised at any point of time but hadto be exercised within a reasonable period, otherwise, it would be barredby a doctrine akin to limitation, namely, delay.

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18. Learned counsel for the respondents then referred to andrelied upon Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay,1958 SCR 1122 (“Bombay Dyeing”). In this case, the Court wasconcerned with the Bombay Labour Welfare Fund Act in which thewell-known distinction between the loss of a right and the loss of aDremedy was reiterated thus:

“It will be observed that the definition of “unpaid accumulations”takes in only payments due to the employees remaining unpaidwithin a period of three years after they become due. The intentionof the Legislature obviously was that claims of the employeeswhich are within time should be left to be enforced by them inthe ordinary course of law, and that it is only when they becometime-barred and useless to them that the State should step in andtake them over. On this, the question arises for considerationwhether a debt which is time-barred can be the subject oftransfer, and if it can be, how it can benefit the Board to take itover if it cannot be realised by process of law. Now, it is thesettled law of this country that the statute of Limitation only barsthe remedy but does not extinguish the debt. Section 28 of theLimitation Act provides that when the period limited to a personfor instituting a suit for possession of any property has expired,his right to such property is extinguished. And the authoritieshave held — and rightly, that when the property is incapable ofpossession, as for example, a debt, the section has no application,and lapse of time does not extinguish the right of a person thereto.Under Section 25(3) of the Contract Act, a barred debt is goodconsideration for a fresh promise to pay the amount. When a E

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B. K. EDUCATIONAL SERVICES PVT. LTD. v. PARAG GUPTA817AND ASSOCIATES [R. F. NARIMAN, J.]

debtor makes a payment without any direction as to how it is tobe appropriated, the creditor has the right to appropriate it towardsa barred debt. (Vide Section 60 of the Contract Act). It has alsobeen held that a creditor is entitled to recover the debt from thesurety, even though a suit on it is barred against the principaldebtor. Vide Mahant Singh v. U Ba Yi [(1939) LR 66 IA198], Subramania Aiyar v. Gopala Aiyar [(1910) ILR 33 Mad308] and Dil Muhammad v. Sain Das [AIR 1927 Lah 396].And when a creditor has a lien over goods by way of securityfor a loan, he can enforce the lien for obtaining satisfaction ofthe debt, even though an action thereon would be time-barred.Vide Narendra Lal Khan v. Tarubala Dasi [(1921) ILR 48Cal 817, 823]. ……”[6]

Section 25(3) of the Contract Act was referred to by this judgment. ThisSection is based on the fact that under the Indian Contract Act, 1872,“consideration” is defined in Section 2(d) as including past consideration,a notion that was unknown to English law. This doctrine came fromField’s Draft Civil Code, 1862,[7] which was one of the sources for theenactment of the Indian Contract Act, 1872. Section 572 of Field’s DraftCivil Code reads as follows:

“§ 572. An existing legal or moral obligation resting upon thepromiser, is also a good consideration for a promise, to an extentcorresponding with the extent of the obligation, but no further orotherwise.”[8]

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6 Similarly, in Punjab National Bank v. S. Sinha, 1993 Supp (1) SCC 499, this Courtreiterated the well-known difference between the right to recover a debt remaining eventhough the remedy to do so may be barred by the law of limitation (see paragraph 5).7 DRAFTOFA CIVIL CODEFORTHE STATEOF NEW YORK, PREPAREDBYTHE COMMISSIONERSOFTHE CODE, ANDSUBMITTEDTOTHE JUDGESANDOTHERSFOREXAMINATION, PRIORTOREVISIONBYTHE COMMISSIONERS (Weed, Parsons and Company Printers 1862) [“Field’s Draft CivilCode”].

8 David Dudley Field Jr., the draftsman of the Draft Civil Code for the State of NewYork, was one of three celebrated brothers. Stephen Field, one of the brothers, was thesecond-longest serving Justice of the U.S. Supreme Court, having served for over 34years. He was the only Justice to have been appointed as the tenth sitting Justice of theU.S. Supreme Court by President Lincoln. Another brother, Cyrus Field, was famousfor connecting two continents by laying the Atlantic Cable, after several failed attempts,in 1866, and was immortalized in Stefan Zweig’s ‘The Tide of Fortune’.

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A19. Shri Dholakia also referred to and relied upon Section 60 and61 of the Contract Act which are set out hereunder:

“60. Application of payment where debt to be dischargedis not indicated.—Where the debtor has omitted to intimate,and there are no other circumstances indicating to which debtBthe payment is to be applied, the creditor may apply it at hisdiscretion to any lawful debt actually due and payable to himfrom the debtor, whether its recovery is or is not barred by thelaw in force for the time being as to the limitation of suits.

61. Application of payment where neither partyappropriates.—Where neither party makes any appropriationCthe payment shall be applied in discharge of the debts in order oftime, whether they are or are not barred by the law in force forthe time being as to the limitation of suits. If the debts are ofequal standing, the payment shall be applied in discharge of eachproportionably.”

DThese Sections also recognize the fact that limitation bars the remedybut not the right. In the context in which Section 60 appears, it is interestingto note that Section 60 uses the phrase “actually due and payable tohim….” whether its recovery is or is not barred by the limitation law.The expression “actually” makes it clear that in fact a debt must be dueEand payable notwithstanding the law of limitation. From this, it is verydifficult to infer that in the context of the Contract Act, the expression“due and payable” by itself would connote an amount that may be dueeven though it is time-barred, for otherwise, it would be unnecessary forSection 60 to contain the word “actually” together with the later words,“whether its recovery is or is not barred by the law in force for the timeFbeing as to the limitation of suits”.

20. Shri Dholakia went on to cite Bhimsen Gupta v.Bishwanath Prasad Gupta, (2004) 4 SCC 95, and In re Sir HarilalNemchand Gosalia, AIR 1950 Bom 74 for the proposition that debts“due and payable” must be differentiated from debts “due andGrecoverable”.

In the former case, Section 11(1)(d) of the Bihar Buildings (Lease, Rentand Eviction) Control Act, 1982 provided for eviction of a tenant wherethe amount of two months’ rent “lawfully payable by the tenant and duefrom him” was in arrears. This Court followed Bombay Dyeing (supra),Hstating as follows:

“6. Section 11 of the said Act, 1982 deals with eviction of tenants.It begins with non obstante clause. It states that notwithstandinganything contained in any contract or law to the contrary, notenant shall be liable to be evicted except in execution of a decreepassed by the court on one or more of the grounds mentioned inSections 11(1)(a) to (f). In this case we are concerned with theground of default which falls under Section 11(1)(d) and whichstates that where the amount of two months’ rent, lawfully payableby the tenant and due from him is in arrears by reason of non-payment within the time fixed by the contract or in the absenceof such contract by the last day of the month next following thatfor which rent is payable then such default would constituteground for eviction. It is interesting to note that the expressionused in Section 11(1)(d) is “lawfully payable” and not “lawfullyrecoverable” and therefore, Section 11(1)(d) has nothing to dowith recovery of arrears of rent. On the contrary, Section 11(1)(d)provides a ground for eviction of the tenant in the eviction suit. Itis well settled that law of limitation bars the remedy of theclaimant to recover the rent for the period beyond three yearsprior to the institution of the suit, but that cannot be a ground fordefeating the claim of the landlord for decree of eviction onsatisfaction of the ingredients of Section 11(1)(d) of the saidAct, 1982. In the case of Bombay Dyeing & Mfg. Co. Ltd. v.State of Bombay [AIR 1958 SC 328] it has been held that whenthe debt becomes time-barred the amount is not recoverablelawfully through the process of the court, but it will not meanthat the amount has become not lawfully payable. Law does notbar a debtor to pay nor a creditor to accept a barred debt.”

It is clear that this judgment will have no application to the present caseas Section 11(1)(d) had nothing to do with recovery of arrears of rent,but furnished a ground for evicting the tenant, this being the context inwhich the words “lawfully payable by the tenant and due from him” hadbeen used. This Court correctly held that the right to evict the tenantcannot be affected as the law of limitation has reference only to theremedy of recovery of arrears of rent, and such law cannot be held tostand in the way of the right to evict the tenant.

Similarly, in Sir Harilal Nemchand Gosalia (supra), the expressionused is “amount of debts due and owing from the deceased, payable by A

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820SUPREME COURT REPORTS

Alaw out of the estate” which appeared in the third schedule of the CourtFee Act, 1870. It was held that an executor of a will is entitled to paytime-barred debts and cannot be confused with a creditor who may suethe executor in relation to those debts. The creditor would fail in hisaction because although the debt subsists, the remedy has beenextinguished due to the law of limitation. Since the executor is duty boundBto pay the amounts due and owing under the will without going to Court,he is entitled to pay a time-barred debt. This, the Court held, is madeclear by Section 323 of the Succession Act, 1925, which made no exceptionin case of time-barred debts. It is in this context that the Court noted thedifference between “payable” and “recoverable”.C

21. It is important to remember that interpretation is the art ofmatching the text with the context. In a slightly different context, underSection 86 of the Electricity Act, this Court, in Andhra Pradesh PowerCoordination Committee and Ors. v. Lanco Kondapalli PowerLtd. and Ors., (2016) 3 SCC 468, refused to apply the principle of Dthese cases stating:

“30. …… In the absence of any provision in the Electricity Actcreating a new right upon a claimant to claim even monies barredby law of limitation, or taking away a right of the other side totake a lawful defence of limitation, we are persuaded to holdEthat in the light of nature of judicial power conferred on theCommission, claims coming for adjudication before it cannot beentertained or allowed if it is found legally not recoverable in aregular suit or any other regular proceeding such as arbitration,on account of law of limitation. We have taken this view not onlybecause it appears to be more just but also because unlike labourFlaws and the Industrial Disputes Act, the Electricity Act has nopeculiar philosophy or inherent underlying reasons requiringadherence to a contrary view.

31. We have taken the aforesaid view to avoid injustice as wellas the possibility of discrimination. We have already extracted apart of para 11 of the judgment in State of Kerala v. V.R.Kalliyanikutty [State of Kerala v. V.R. Kalliyanikutty, (1999)3 SCC 657] wherein the Court considered the matter also in thelight of Article 14 of the Constitution. In that case the possibilityof Article 14 being attracted against the statute was highlightedto justify a particular interpretation as already noted. It was also G

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observed that it would be ironic if in the name of speedy recoverycontemplated by the statute, a creditor is enabled to recoverclaims beyond the period of limitation. In this context, it wouldbe fair to infer that the special adjudicatory role envisaged underSection 86(1)(f) also appears to be for speedy resolution so thata vital developmental factor — electricity and its supply is notadversely affected by delay in adjudication of even ordinary civildisputes by the civil court. Evidently, in the absence of any reasonor justification the legislature did not contemplate to enable acreditor who has allowed the period of limitation to set in, torecover such delayed claims through the Commission. Hencewe hold that a claim coming before the Commission cannot beentertained or allowed if it is barred by limitation prescribed foran ordinary suit before the civil court. ……”

(emphasis supplied)

(emphasis supplied)

This case is most apposite. As in the present case, and as is reflected inthe Insolvency Law Committee Report of March, 2018, the legislaturedid not contemplate enabling a creditor who has allowed the period oflimitation to set in to allow such delayed claims through the mechanismof the Code. The Code cannot be triggered in the year 2017 for a debtwhich was time-barred, say, in 1990, as that would lead to the absurdand extreme consequence of the Code being triggered by a stale ordead claim, leading to the drastic consequence of instant removal of thepresent Board of Directors of the corporate debtor permanently, andwhich may ultimately lead to liquidation and, therefore, corporate death.This being the case, the expression “debt due” in the definition sectionsof the Code would obviously only refer to debts that are “due andpayable” in law, i.e., the debts that are not time-barred. That this is thecase has already been held by us in the Innoventive Industries Ltd.(supra) as follows:

“28. When it comes to a financial creditor triggering the process,Section 7 becomes relevant. Under the Explanation to Section7(1), a default is in respect of a financial debt owedto any financial creditor of the corporate debtor — it need notbe a debt owed to the applicant financial creditor. Under Section7(2), an application is to be made under sub-section (1) in suchform and manner as is prescribed, which takes us to the Insolvencyand Bankruptcy (Application to Adjudicating Authority) Rules, A

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2016. Under Rule 4, the application is made by a financial creditorin Form 1 accompanied by documents and records requiredtherein. Form 1 is a detailed form in 5 parts, which requiresparticulars of the applicant in Part I, particulars of the corporatedebtor in Part II, particulars of the proposed interim resolutionprofessional in Part III, particulars of the financial debt in PartIV and documents, records and evidence of default in Part V.Under Rule 4(3), the applicant is to dispatch a copy of theapplication filed with the adjudicating authority by registered postor speed post to the registered office of the corporate debtor.The speed, within which the adjudicating authority is to ascertainthe existence of a default from the records of the informationutility or on the basis of evidence furnished by the financialcreditor, is important. This it must do within 14 days of the receiptof the application. It is at the stage of Section 7(5), where theadjudicating authority is to be satisfied that a default has occurred,that the corporate debtor is entitled to point out that a default hasnot occurred in the sense that the “debt”, which may also includea disputed claim, is not due. A debt may not be due if it is notpayable in law or in fact. The moment the adjudicating authorityis satisfied that a default has occurred, the application must beadmitted unless it is incomplete, in which case it may give noticeto the applicant to rectify the defect within 7 days of receipt of anotice from the adjudicating authority. Under sub-section (7),the adjudicating authority shall then communicate the order passedto the financial creditor and corporate debtor within 7 days ofadmission or rejection of such application, as the case may be.”

(emphasis supplied)

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“30. On the other hand, as we have seen, in the case of acorporate debtor who commits a default of a financial debt, theadjudicating authority has merely to see the records of theinformation utility or other evidence produced by the financialcreditor to satisfy itself that a default has occurred. It is of nomatter that the debt is disputed so long as the debt is “due” i.e.payable unless interdicted by some law or has not yet becomedue in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authoritythat the adjudicating authority may reject an application and nototherwise.”

(emphasis supplied)

22. We have already seen from the judgment in V.R.Kalliyanikutty (supra), that the expression “due” will depend upon thecontext in which that word appears. It will be seen from a reading of thedefinition of “debt” in Section 3(11) of the Code, that “debt” is said tomean a liability or obligation in respect of a claim which is “due” fromany person, and includes a financial debt and an operational debt.“Financial debt” is defined in Section 5(8) as follows:

“5. Definitions.—In this Part, unless the context otherwiserequires,—

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(8) “financial debt” means a debt along with interest, if any, whichis disbursed against the consideration for the time value of moneyand includes—

(a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptancecredit facility or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facilityor the issue of bonds, notes, debentures, loan stock or anysimilar instrument; (d) the amount of any liability in respect of any lease or hirepurchase contract which is deemed as a finance or capitallease under the Indian Accounting Standards or such otheraccounting standards as may be prescribed; (e) receivables sold or discounted other than any receivablessold on non-recourse basis; (f) any amount raised under any other transaction, includingany forward sale or purchase agreement, having the commercialeffect of a borrowing; Explanation.—For the purposes of this sub-clause,—

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(i) any amount raised from an allottee under a real estateproject shall be deemed to be an amount having thecommercial effect of a borrowing; and A

(ii) the expressions, “allottee” and “real estate project” shallhave the meanings respectively assigned to them in clauses(d) and (zn) of Section 2 of the Real Estate (Regulationand Development) Act, 2016 (16 of 2016); B

(g) any derivative transaction entered into in connection withprotection against or benefit from fluctuation in any rate orprice and for calculating the value of any derivative transaction,only the market value of such transaction shall be taken intoCaccount; (h) any counter-indemnity obligation in respect of a guarantee,indemnity, bond, documentary letter of credit or any otherinstrument issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guaranteeDor indemnity for any of the items referred to in sub-clauses (a)to (h) of this clause;”

Operational debt is defined in Section 5(21) as follows:

“5. Definitions.—In this Part, unless the context otherwiserequires,—E

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(21) “operational debt” means a claim in respect of the provisionof goods or services including employment or a debt in respectof the payment of dues arising under any law for the time beingin force and payable to the Central Government, any StateFGovernment or any local authority;”

The definition of “default” in Section 3(12) uses the expression “due andpayable” followed by the expression “and is not paid by the debtor or thecorporate debtor……”. “Due and payable” in Section 3(12), therefore,only refers to the whole or part of a debt, which when referring to theGdate on which it becomes “due and payable”, is not in fact paid by thecorporate debtor. The context of this provision is therefore actual non-payment by the corporate debtor when a debt has become due andpayable.

23. Section 7 applies to a financial creditor who may file anHapplication for initiating a corporate insolvency resolution process against

a corporate debtor when a “default” has occurred. The same expressionis used when it comes to an operational creditor, who may on theoccurrence of a “default” under Section 8, deliver a demand notice asmay be prescribed. What throws considerable light on the expression“default” is Section 8(2)(a) which reads as follows:

“8. Insolvency resolution by operational creditor.—

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(2) The corporate debtor shall, within a period of ten days of thereceipt of the demand notice or copy of the invoice mentioned insub-section (1) bring to the notice of the operational creditor—

(a) existence of a dispute, if any, or record of the pendency ofthe suit or arbitration proceedings filed before the receipt ofsuch notice or invoice in relation to such dispute;”

It will be seen from a reading of Section 8(2)(a) that the corporate debtorshall, within a period of 10 days of the receipt of the demand notice,bring to the notice of the operational creditor the existence of a “dispute”.We have seen that “dispute” as defined in Section 5(6) includes a suit orarbitration proceeding relating to certain matters. Again, under Section8(2)(a), the corporate debtor may, in the alternative, disclose the pendencyof a suit or arbitration proceedings filed before the receipt of the demandnotice. It is clear therefore, that at least in the case of an operationalcreditor, “default” must be non-payment of amounts that have becomedue and payable in law. The “dispute” or pendency of a suit or arbitrationproceedings would necessarily bring in the Limitation Act, for if a suit orarbitration proceeding is time-barred, it would be liable to be dismissed.This again is an important pointer to the fact that when the expression“due” and “due and payable” occur in Sections 3(11) and 3(12) of theCode, they refer to a “default” which is non-payment of a debt that isdue in law, i.e., that such debt is not barred by the law of limitation. It iswell settled that where the same word occurs in a similar context, thedraftsman of the statute intends that the word bears the same meaningthroughout the statute (seeBhogilal Chunilal Pandyav.State ofBombay, 1959 Supp. (1) SCR 310 at 313-314). It is thus clear that theexpression “default” bears the same meaning in Sections 7 and 8 of theCode, making it clear that the corporate insolvency resolution processagainst a corporate debtor can only be initiated either by a financial oroperational creditor in relation to debts which have not become time-barred.

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A24. Strong reliance was placed by Shri Dholakia on France B.Martins v. Mafalda Maria Teresa Rodrigues, (1999) 6 SCC 627, bywhich Section 24A was inserted in the Consumer Protection Act, 1986by a 1993 amendment, making the provisions of the Limitation Actapplicable to the Consumer Protection Act. In turning down the pleathat Section 24A would cover the period from 1986 to 1993, this CourtBheld that the legislature in its wisdom thought it appropriate not to prescribea period of limitation for proceedings under the Act as the object of thatAct was for the better protection of the interest of consumers. TheCourt, therefore, held that the addition of Section 24A in the Act showsthat initially, the legislature did not intend to prescribe any period ofClimitation for filing complaints under the Act as it would stultify thebeneficent social legislation contained therein. This case is again whollydistinguishable in that the Court found that the Consumer Protection Actis a beneficial social legislation, whose object was not to apply theLimitation Act when it was first enacted. On the contrary, in the presentcase, we find that the object of the Code was subserved by applyingDSection 433 of the Companies Act from the very inception of the Code.Also, the Insolvency Law Committee Report of March, 2018 makes itclear that the object of the Code from the very beginning was not toallow dead or stale claims to be resuscitated. In this view of the matter,we are afraid that this judgment also would have no bearing.E

25. The chart handed up by Shri Dholakia, in which he wished todemonstrate that various tribunals under different Acts either apply ordo not apply the Limitation Act, again leads us nowhere. Dependingupon the intention of the legislature in each of the enactments mentionedin the chart, either the legislature thought it fit to apply the LimitationFAct, or it did not, depending upon the subject matter of the Act in question.We have held that at least insofar as the Code is concerned, the intentionof the legislature, from the very beginning, was to apply the LimitationAct to the NCLT and the NCLAT while deciding applications filed underSections 7 and 9 of the Code and appeals therefrom. Section 433 of theCompanies Act, which applies to the Tribunal and the Appellate Tribunal,Gexpressly applies the Limitation Act to the Appellate Tribunal, the NCLAT,as well. Also, the argument that the NCLAT is an appellate tribunalwhich is common to three statutes, under one of which, viz., theCompetition Act, no period of limitation has been prescribed, would notlead to any anomalous situation. When the Appellate Tribunal, i.e., theHNCLAT decides an appeal under the Competition Act, since an appeal

is a continuation of the application filed before the CompetitionCommission (SeeLachmeshwar Prasad Shukul and Ors. v. KeshwarLal Chaudhuri and Ors., AIR 1941 FC 5), the NCLAT will decide theappeal on the footing that the Limitation Act did not apply to an applicationmade before the Competition Commission. On the other hand, insofaras applications are filed under Section 7 or 9 of the Code, or petitions orapplications filed under the Companies Act, the NCLAT will decide suchpetitions/applications on the footing that the Limitation Act will apply tosuch petitions/applications. Merely because appeals under differentstatutes are sent to one appellate tribunal would make no difference tothe position in law. Undoubtedly, if three separate appellate tribunals hadbeen constituted under the three enactments in question, this argumentwould have no legs to stand on. Merely because, from the point of viewof convenience, appeals are filed before one appellate forum would notmean that any anomalous situation would arise as each appeal would bedecided keeping in mind the provisions of the particular Act in question.Therefore, this argument also must be rejected.

26. Shri Dholakia argued that the Code being complete in itself,an intruder such as the Limitation Act must be shut out also by applicationof Section 238 of the Code which provides that, “notwithstanding anythinginconsistent therewith contained in any other law for the time being inforce”, the provisions of the Code would override such laws. In fact,Section 60(6) of the Code specifically states as follows:

“—60. Adjudicating Authority for corporate persons.

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(6) Notwithstanding anything contained in the Limitation Act,1963 (36 of 1963) or in any other law for the time being in force,in computing the period of limitation specified for any suit orapplication by or against a corporate debtor for which an orderof moratorium has been made under this Part, the period duringwhich such moratorium is in place shall be excluded.”

This provision would have been wholly unnecessary if the LimitationAct was otherwise excluded either by reason of the Code being completein itself or by virtue of Section 238 of the Code. Both, Section 433 of theCompanies Act as well as Section 238A of the Code, apply the provisionsof the Limitation Act “as far as may be”. Obviously, therefore, whereperiods of limitation have been laid down in the Code, these periods will A

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Aapply notwithstanding anything to the contrary contained in the LimitationAct. From this, it does not follow that the baby must be thrown out withthe bathwater. This argument, therefore, must also be rejected.

27. It is thus clear that since the Limitation Act is applicable toapplications filed under Sections 7 and 9 of the Code from the inceptionBof the Code, Article 137 of the Limitation Act gets attracted. “The rightto sue”, therefore, accrues when a default occurs. If the default hasoccurred over three years prior to the date of filing of the application,the application would be barred under Article 137 of the Limitation Act,save and except in those cases where, in the facts of the case, Section 5of the Limitation Act may be applied to condone the delay in filing suchCapplication.

28. In view of our finding that the Limitation Act has in fact beenapplied from the inception of the Code, it is unnecessary for us to go intothe arguments based on the doctrine of laches. The appeals are thereforeremanded to the NCLAT to decide the appeals afresh in the light of thisDjudgment.

Ankit Gyan

Appeals remanded to NCLAT.

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