JIGNESH SHAH & ANR. versus UNION OF INDIA & ANR. on 25 September 2019

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[2019] 12 S.C.R. 678

SUPREME COURT REPORTS

[2019] 12 S.C.R.

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JIGNESH SHAH & ANR.

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UNION OF INDIA & ANR.

(Writ Petition (Civil) No. 455 of 2019)

SEPTEMBER 25, 2019

[R. F. NARIMAN, R. SUBHASH REDDYAND SURYA KANT, JJ.]

CInsolvency and Bankruptcy Code, 2016: s. 238A – Limitation– Application of Limitation Act, 1963 to applications u/s 7 underIBC – Execution of share purchase agreement between MCX, MCX–E and Financial Services Company in 2009 whereby FinancialServices Company agreed to purchase equity shares of MCX–Efrom MCX – Pursuant thereto, LF, a group company of MCX, issuedDa ‘Letter of Undertaking’ to Financial Services Company topurchase shares of MCX–SX after a period of one year, but beforea period of three years, from the date of investment – Expiry ofthe said period – In 2012 Financial Services Company exercisedits option to sell its entire holding of shares in MCX–SX – However,ELF’s case that it was under no legal or contractual obligation tobuy the said shares – Suit by Financial Services Company forspecific performance of the Letter of Undertaking by LF – HighCourt passing an injunction order by restraining LF from alienatingits assets pending disposal of the suit – In 2016, Financial ServicesFCompany filing winding up petition against LF u/s. 433(e) in theHigh Court – However, due to introduction of IBC, 2016, transferof the winding up petition to the NCLT as an application u/s. 7 –NCLT admitted the petition holding that the bar of limitation notattracted – Appeal by shareholders of LF – Dismissed by NCLAT– On appeal, held: Trigger point for the purpose of limitation forGfiling of a winding up petition would be the date of default inpayment of the debt – Though it is clear that a winding upproceeding is a proceeding ‘in rem’ and not a recovery proceeding,the trigger of limitation for the winding up petition would be thedate of default – On facts, statutory notice given on 03.11.2015

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does not refer to any facts as to the commercial insolvency of LF– Statutory notice only refers to the suit proceedings and attachmentby the Economic Offences Wing in December 2013 – Company’sinsolvency neither been pleaded nor is on facts – In Form-1, upontransfer of the winding up proceedings to the NCLT, date of defaultis 19.08.2012; making it clear that three-years from that date hadlong since elapsed when the winding up petition was filed in 2016– Thus, the winding up Petition being beyond the period of three-years mentioned in Article 137 of the Limitation Act is time-barred,and cannot therefore be proceeded with – Impugned judgment ofthe NCLAT and the judgment of the NCLT set aside – LimitationAct, 1963 – Article 137 – Companies Act, 1956 – ss. 433 and 434.

Disposing of Writ Petition (Civil) No.455 of 2019, SpecialLeave Petition (Diary No.13468 of 2019), Transfer Petition (Civil)No.817 of 2019 and allowing Civil Appeal (Diary No. 16521 of2019), the Court HELD: 1.1 A suit for recovery based upon a cause of actionthat is within limitation cannot in any manner impact the separateand independent remedy of a winding up proceeding. In law, whentime begins to run, it can only be extended in the mannerprovided in the Limitation Act. For example, anacknowledgement of liability under Section 18 of the LimitationAct would certainly extend the limitation period, but a suit forrecovery, which is a separate and independent proceedingdistinct from the remedy of winding up would, in no manner,impact the limitation within which the winding up proceeding isto be filed, by somehow keeping the debt alive for the purposeof the winding up proceeding. [Para 19] [701-B-D]

1.2 The Financial Services Company pursued withreasonable diligence the cause of action which arose in August,2012 by filing a suit against LF for specific performance of theLetter of Undertaking in June, 2013. What has been lost by thesaid party’s own inaction or laches, is the filing of the Windingup Petition long after the trigger for filing of the said petitionhad taken place; the trigger being the debt that became due toFinancial Services, in repayment of which default has takenplace. [Para 21] [703-D-E]

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A1.3 A reading of the Section 433(e) and Section 434 of theCompanies Act, 1956 would show that the starting point of theperiod of limitation is when the company is unable to pay itsdebts, and that Section 434 is a deeming provision which refersto three situations in which a Company shall be deemed to be“unable to pay its debts” under Section 433(e). In the firstBsituation, if a demand is made by the creditor to whom thecompany is indebted in a sum exceeding one lakh then due,requiring the company to pay the sum so due, and the companyhas for three weeks thereafter “neglected to pay the sum”, orto secure or compound for it to the reasonable satisfaction ofCthe creditor. “Neglected to pay” would arise only on default topay the sum due, which would clearly be a fixed date dependingon the facts of each case. Equally in the second situation, ifexecution or other process is issued on a decree or order ofany Court or Tribunal in favour of a creditor of the company, andis returned unsatisfied in whole or in part, default on the part ofDthe debtor company occurs. This again is clearly a fixed datedepending on the facts of each case. And in the third situation,it is necessary to prove to the “satisfaction of the Tribunal” thatthe company is unable to pay its debts. The trigger point is thedate on which default is committed, on account of which theECompany is unable to pay its debts. This again is a fixed datethat can be proved on the facts of each case. Thus, Section 433(e)read with Section 434 of the Companies Act, 1956 would showthat the trigger point for the purpose of limitation for filing of awinding up petition under Section 433(e) would be the date ofdefault in payment of the debt in any of the three situationsFmentioned in Section 434. [Para 22] [704-D-H; 705-A]

1.4 Nowhere in the Winding up Petition is it alleged thatthe company sought to be wound–up has lost its substratum, inthe sense that there is no reasonable prospect of it ever makinga profit in the future, nor can it be said that the company hadGabandoned its business and is, therefore, unable to meet theoutstandings owed by it. On the other hand, what emerges, isthat it is not open for a company to say that a debt is undisputed,that it has ability to pay the debt, but will not pay the debt.Equally, where a debt is clearly owed, but the exact amount ofHdebt is disputed, the company will be held to be unable to pay

its debts. What has to be seen in each case is whether the debtis bona fide disputed. If so, without more, a winding up petitionwould then be dismissed. One other thing must be noticed atthis stage. The trigger for limitation is the inability of a companyto pay its debts. Undoubtedly, this trigger occurs when a defaulttakes place, after which the debt remains outstanding and is notpaid. It is this date alone that is relevant for the purpose oftriggering limitation for the filing of a winding up petition.Though it is clear that a winding up proceeding is a proceeding‘in rem’ and not a recovery proceeding, the trigger of limitation,so far as the winding up petition is concerned, would be the dateof default. Questions as to commercial solvency arise in casescovered by Sections 434(1)(c) of the Companies Act, 1956,where the debt has first to be proved, after which the Court willthen look to the wishes of the other creditors and commercialsolvency of the company as a whole. The stage at which theCourt, therefore, examines whether the company iscommercially insolvent is once it begins to hear the winding uppetition for admission on merits. Limitation attaches insofar aspetitions filed under Section 433(e) are concerned at the stagethat default occurs for, it is at this stage that the debt becomespayable. For this reason, it cannot be said that the cause of actionfor the purposes of limitation would include the commercialinsolvency or the loss of substratum of the company. [Para 25][706-G-H; 707-A-E]

1.5 Softsule (P) Ltd., Re states the law on winding uppetitions filed under Section 433(a) of the Companies Act, 1956,the primary test is that a winding up petition is not a legitimatemeans of seeking to enforce payment of a debt which is bonafide disputed by the Company. Absent such dispute, the petitionmay be admitted. Equally, where the debt is bona fide disputed,there cannot be ‘neglect to pay’ within the meaning of Section434(1)(a) of the Companies Act, 1956 so that the deemingprovision then does not come into play. Also, the moment thereis a bona fide dispute, the debt is then not ‘due’. The High Courtalso correctly appreciates that whether the company iscommercially solvent is one of the considerations in order todetermine whether the company is able to pay its debts or not.[Para 28] [709-D-F]

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[2019] 12 S.C.R.

ASoftsule (P) Ltd., Re (1977) 47 Comp Cas 438 (Bom)– approved.

1.6 Even on the facts of this case, the Winding up Petitionalleges that the ultimatumto the Respondent company assertingthat the Respondent company was legally obliged to purchaseBthe requisite shares in accordance with the terms of the Letterof Undertaking was on 7[th] January, 2013. By this date at the verylatest, the cause of action for filing a petition under Section433(e) certainly arose. Also, the statutory notice given on 3[rd]November, 2015 does not refer to any facts as to the commercialinsolvency of LF. The statutory notice only refers to the suitCproceedings and attachment by the EOW which had taken placelong before in December 2013. In the Winding up Petition itself,what is referred to is the fall in the assets of LF to being worthapproximately INR 200 crores as of October, 2016, which againdoes not correlate with 3[rd] November, 2015, being the date onwhich the statutory notice was itself issued. This again is onlyDfor the purpose of appointing an Officer of the Court as OfficialLiquidator in order to manage the day–to–day affairs andotherwise secure and safeguard the assets of the Respondentcompany. There is no averment in the petition that thanks tothese or other facts the Company’s substratum has disappeared,Eor that the Company is otherwise commercially insolvent. It isclear therefore that even on facts, the company’s substratumdisappearing or the commercial insolvency of the company hasnot been pleaded. Whereas, in Form–1, upon transfer of thewinding up proceedings to the NCLT, what is correctly statedis that the date of default is 19[th] August, 2012; making it clearFthat three–years from that date had long since elapsed when theWinding up Petition under Section 433(e) was filed on 21[st]October, 2016. [Para 29, 30] [709-G-H; 710-A-D]

1.7 The Winding up Petition filed on 21[st] October, 2016being beyond the period of three–years mentioned in Article 137Gof the Limitation Act is time–barred, and cannot therefore beproceeded with any further. Thus, impugned judgment of theNCLAT and the judgment of the NCLT is set aside. [Para 31][710-E-F]

Rajender Singh and Ors. v. Santa Singh and Ors.H(1973) 2 SCC 705 : [1974] 1 SCR 381 – relied on.

JIGNESH SHAH & ANR. v. UNION OF INDIA & ANR.

B.K. Educational Services Pvt. Ltd. v. Parag Gupta andAssociates(2018) SCC OnLine 1921 ;M.P. SteelCorporation v. CCE(2015) 7 SCC 58 ;HariomFirestock Limited v. Sunjal Engineering Pvt. Ltd.(1999) 96 Comp. Cas 349 ;Ferro Alloys CorporationLtd. v. Rajhans Steel Ltd.(2000) Comp Cas 426 ;Rameswar Prasad Kejriwal & Sons Ltd. v. M/s.Garodia Hardware Stores(2002) 108 Comp Cas 187;Dr. Dipankar Chakraborty v. Allahabad Bank & Ors.(2017) SCC OnLine Cal 8742 ;Indo Alusys Industriesv. Assotech Contracts (India) Ltd. (2009) 110 DRJ 384; M/s Madhusudan Gordhandas & Co. v. MadhuWoollen Industries Pvt. Ltd. (1971) 3 SCC 632 : [1972]2 SCR 201 ; Pradeshiya Industrial & InvestmentCorporation of U.P. v. North India Petrochemicals Ltd.and Anr.(1994) 3 SCC 348 ; Mediquip Systems (P)Ltd. v. Proxima Medical System GMBH(2005) 7 SCC42 : [2005] 2 SCR 1015 ; Re: Messrs: Bhimji Nanjiand Co. (1969) Mh.L.J. 827 – referred to.

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Board of Regents of the University of the State of NewYork et. al. v. Mary Tomanio100 S. Ct. 1790 ; MartizaAlamo–Hornedo v. Juan Carlos Puig and Jose Perez–Riera745 F.3d 578 ;Re Karnos Property Co. Ltd.(1989) 5 B.C.C. 14 – referred to.

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Case Law Reference

BCIVIL ORIGINAL/APPELLATE JURISDICTION : WritPetition (Civil) No. 455 of 2019.

[Under Article 32 of the Constitution of India.]

With

CT.P.(C) No. 817 of 2019, W.P.(C) No. 645 of 2019, C.A. Nos.7618-7619 of 2019, Diary No. 13468 of 2019.

Dr. A. M. Singhvi, Neeraj Kishan Kaul, Sr. Advs., Rajiv Raheja,Ms. Liz Mathew, Mahesh Agarwal, Arvind Lakhawat, Ankur Saigal,Himanshu Satija, Ms. Priyanka Vora, E. C.Agrawala, Shaishir S. DivatiaSamar Kachwaha, Ms. Dendri Neogi, Ms. C. Parwani, Navneet R.,DMs. Sunali Jain, Ms. Namisha Chadha, Ms. Pritha Suri, Nishant Rao,Ms. Diksha Rai, Ms. Palak Mahajan, Vaibhav Manu Srivastava, AnishR. Shah, Advs. for the appearing parties.

The Judgment of the Court was delivered by ER. F. NARIMAN, J.W.P.(C) No.645 OF 2019

1. The issues involved in Writ Petition (Civil) No.645 of 2019 areentirely different from the Writ Petition (Civil) No.455 of 2019 and itsother connected matters. This writ petition is accordingly de-tagged fromFWrit Petition (Civil) No.455 of 2019. The Registry is directed to listthis writ petition separately.

W.P.(C) No.455 of 2019 & Civil Appeal (Diary No.16521of 2019)

2. Delay is condoned. Civil Appeal (Diary No. 16521 of 2019)Gis admitted.

3. Writ Petition (Civil) No.455 of 2019 and Civil Appeal (DiaryNo. 16521 of 2019) have been filed by Shri Jignesh Shah and Smt.Pushpa Shah respectively, both of whom are shareholders of La-FinFinancial Services Pvt. Ltd. (hereinafter “La-Fin”) assailing the orderHof the National Company Law Tribunal, Mumbai Bench (hereinafter referred to as the “NCLT”) admitting a winding up petition that wasfiled by IL&FS Financial Services Ltd. (hereinafter referred to as“IL&FS”) against La-Fin before the High Court of Judicature atBombay (hereinafter referred to as the “Bombay High Court”), whichwas transferred to the NCLT and then heard as a Section 7 applicationunder the Insolvency and Bankruptcy Code, 2016 (hereinafter referredto the “the Code”).

4. The brief facts necessary to appreciate the narrow controversythat arises in Writ Petition (Civil) No.455 of 2019 and its connectedmatters are as follows:

(i) On 20[th] August, 2009, a share purchase agreement wasexecuted between Multi-Commodity Exchange IndiaLimited (hereinafter referred to as “MCX”), MCX StockExchange Limited (hereinafter referred to as “MCX-SX”)and IL&FS, whereby IL&FS agreed to purchase 442 lakhequity shares of MCX-SX from MCX.

(ii) Pursuant to this agreement, La-Fin, as a group company ofMCX, issued a ‘Letter of Undertaking’ to IL&FS on 20[th]August, 2009 (hereinafter referred to as the “Letter ofUndertaking”) stating that La-Fin or its appointed nomineeswould offer to purchase from IL&FS the shares of MCX-SX after a period of one year, but before a period of threeyears, from the date of investment. On facts, this period ofthree years expired in August, 2012.

(iii) IL&FS, therefore, by its letter dated 3[rd] August, 2012,exercised its option to sell its entire holding of shares inMCX-SX, and called upon La-Fin to purchase these sharesin accordance with the Letter of Undertaking. On 16[th]August, 2012, La-Fin replied that it was under no legal orcontractual obligation to buy the aforesaid shares.

(iv) Thereafter, correspondence between the parties continued,until finally, on 19[th] June, 2013, IL&FS filed a Suit No.449of 2013 in the Bombay High Court for specific performanceof the Letter of Undertaking by La-Fin or, in the alternative,for damages. It is important to note that the cause of actionfor the suit - as stated in the plaint - arose on 16[th] August,2012, i.e. the day La-Fin purportedly refused to honour itsobligation under the Letter of Undertaking.

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A(v) On 13[th] October, 2014, a learned Single Judge of theBombay High Court passed an injunction order restrainingLa-Fin from alienating its assets pending disposal of the suit,subject to attachments of La-Fin’s properties that had beenmade by the Economic Offences Wing of the MumbaiPolice (hereinafter referred to as the “EOW”) during theBpendency of the suit. An appeal against this order wasdismissed by a Division Bench of the Bombay High Courton 11[th] September, 2015.

(vi) On 3[rd] November, 2015, a statutory notice under Section 433and 434 of the Companies Act, 1956 was issued by IL&FSCto La-Fin, referring to the attachment by the EOW, andstating that La-Fin was obviously in no financial position topay the sum of INR 232,50,00,000/- which, according toIL&FS, was owing to them as of 31[st] October, 2015. On18[th] November, 2015, a reply was promptly given by La-DFin to the aforesaid notice referring to the pending suit, andstoutly disputing the fact that any amount was due andpayable. The reply went on to state that La-Fin wasotherwise commercially sound and that the statutory noticeissued under Sections 433 and 434 of the Companies Act,1956 was only a pressure tactic.E

(vii) On 21[st] October, 2016, a winding up petition (hereinafterreferred to as the “Winding up Petition”) was then filed byIL&FS against La-Fin in the Bombay High Court underSection 433(e) of the Companies Act, 1956.

F(viii) The Code came into force on 1[st] December, 2016, and asa result, as per the Insolvency and Bankruptcy (Applicationto Adjudicating Authority) Rules, 2016, the Winding upPetition was transferred to the NCLT as a Section 7application under the Code. The statutory form under theseRules, namely, Form-1 was filled up by IL&FS indicatingGthat the date of default was 19[th] August, 2012.

(ix) On 28[th] August, 2018, the said Winding up Petition wasadmitted by the NCLT as an application under Section 7 ofthe Code, stating on a reading of the share purchaseagreement and the Letter of Undertaking that a financialHdebt had, in fact, been incurred by La-Fin. The National Company Law Appellate Tribunal (hereinafter referred toas the “NCLAT”) by an order dated 21[st] January, 2019dismissed the appeal filed by Shri Jignesh Shah against theaforesaid admission order, agreeing with the NCLT that theaforesaid transaction would fall within the meaning of“financial debt” under the Code, and that the bar oflimitation would not be attracted as the Winding up Petitionwas filed within three years of the date on which the Codecame into force, viz., 1[st] December, 2016.

(x) A Writ Petition was filed by Smt. Pushpa Shah against theseorders in the Bombay High Court, challenging certainprovisions of the Code, with which we are not directlyconcerned. Writ Petition (Civil) No.455 of 2019 was thenfiled in this Court on 4[th] April, 2019 challenging theconstitutionality of certain provisions of the Code, as wellas the NCLT and NCLAT orders, after which the CivilAppeal (Diary No. 16521 of 2019) was also filed againstthe NCLAT order under Section 62 of the Code.

5. Dr. Abhishek Manu Singhvi, learned Senior Advocateappearing on behalf of the Petitioners/Appellants, did not go into themerits of the case, but has raised only the statutory bar of limitationagainst IL&FS. According to the learned Senior Advocate, after thisCourt’s judgment in B.K. Educational Services Pvt. Ltd. v. ParagGupta and Associates 2018 SCC OnLine 1921, it is clear that theLimitation Act, 1963 (hereinafter referred to as the “Limitation Act”)would apply to all Section 7 applications that are filed under the Codeand that the residuary Article, i.e., Article 137 of the Limitation Actwould be attracted to the facts of this case. Inasmuch as the Windingup Petition that has been transferred to the NCLT was filed on 21[st]October, 2016, i.e., beyond the period of three years prescribed (as thecause of action had arisen in August, 2012), it is clear that a time-barredwinding up petition filed under Section 433 of the Companies Act, 1956would not suddenly get resuscitated into a Section 7 petition under theCode filed within time, by virtue of the transfer of such petition. Herelied heavily on B.K. Educational Services Pvt. Ltd. (supra) which,according to him, covered this case on all fours. In addition, he reliedupon High Court judgments, Judgments from the United States ofAmerica, and one English judgment to buttress the proposition that the A

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Amere filing of a suit for specific performance would not in any mannerimpact the limitation period for a winding up petition, which as a separateand independent remedy, must fall or stand on its own legs. He alsopainstakingly took us through the statutory notice under Sections 433and 434 sent by IL&FS, as well as the Winding up Petition filed byBIL&FS, and relied heavily on the fact that the Form-1 (which was filledby IL&FS in order to transfer the aforesaid Winding up Petition to theNCLT) itself stated that the date of default was 19[th] August, 2012,clearly indicating that the Winding up Petition, being beyond three yearsof the cause of action, was time-barred.

C6. On the other hand, Shri Neeraj Kishan Kaul, learned SeniorAdvocate appearing on behalf of the Respondents IL&FS, argued thatthe cause of action for the suit and the cause of action for the Windingup Petition filed were separate and distinct. He argued that it is well-settled that a winding up petition cannot be filed in order to recover adebt, but is a proceeding ‘in rem’, which involves commercial insolvencyDof the company sought to be wound up. Therefore, according to thelearned Senior Advocate, the cause of action for filing the Winding upPetition arose only in 2015/2016, after Shri Jignesh Shah (the Petitionerbefore us) was arrested; after attachment of the assets of La-Fin; andas stated in the Winding up Petition, after La-Fin’s assets had fallenEfrom being worth around INR 1000 crores in 2013, to only being wortharound INR 200 crores in October, 2016. He relied on several judgmentsto support this argument. According to him, the suit that was filed byIL&FS for specific performance of the Letter of Undertaking on 19[th]June, 2013 kept alive the debt that was owed to his client and, therefore,in any event, the Winding up Petition filed after such debt was keptFalive would be in time, notwithstanding that it was filed at a subsequentperiod after the suit. According to him, in any event, limitation being amixed question of fact and law, at best the matter ought to be remandedto the NCLT for a determination on this mixed question.

7. Having heard the learned Senior Counsel for the parties, it isGimportant to first advert to this Court’s decision in B.K. EducationalServices Pvt. Ltd. (supra) in which Section 238A of the Code wasreferred to, which states as follows:

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

8. In paragraph 7 of the said judgment, the Report of theInsolvency Law Committee of March, 2018 was referred to as follows:

“7. Having heard the learned counsel for both sides, it isimportant to first set out the reason for the introduction of Section238A into the Code. This is to be found in the Report of theInsolvency Law Committee of March, 2018, as follows:

“28. APPLICATION OF LIMITATION ACT, 1963

28.1 The question of applicability of the Limitation Act, 1963(“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 agreedthat 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 proceedingscannot 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 defaulton a debt above INR one lakh. The purpose of the law oflimitation is “to prevent disturbance or deprivation of whatmay have been acquired in equity and justice by longenjoyment or what may have been lost by a party’s own”[4]inaction, negligence or latches. Though the Code is not adebt recovery law, the trigger being ‘default in payment of debt’renders the exclusion of the law of limitation counter-intuitive.Second, it re-opens the right of claimants (pursuant to issuanceof a public notice) to file time-barred claims with the IRP/RP,which may potentially be a part of the resolution plan. Such a A

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resolution plan restructuring time-barred debts and claims maynot be in compliance with the existing laws for the time being inforce as per section 30(4) of the Code.

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28.3 Given that the intent was not to package the Code as a freshopportunity for creditors and claimants who did not exercise theirBremedy under existing laws within the prescribed limitation period,the Committee thought it fit to insert a specific section applyingthe Limitation Act to the Code. The relevant entry under theLimitation 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 forCits own debts for the purpose of CIRP and are not in the formof a creditor’s remedy.”

(emphasis supplied)

9. After referring to Rule 5 of the Companies (Transfer ofDPending Proceedings) Rules, 2016, the Court extracted passages fromthe judgment in M.P. Steel Corporation v. CCE (2015) 7 SCC 58and then concluded:

“20. A perusal of this judgment would show that limitation, beingprocedural in nature, would ordinarily be applied retrospectively,Esave and except that the new law of limitation cannot revive adead remedy. This was said in the context of a new law oflimitation providing for a longer period of limitation than what wasprovided earlier. In the present case, these observations areapposite in view of what has been held by the Appellate Tribunal.FAn application that is filed in 2016 or 2017, after the Code hascome into force, cannot suddenly revive a debt which is no longerdue as it is time-barred.

21. In State of Kerala v. V.R. Kalliyanikutty, (1999) 3 SCC657, (“V.R. Kalliyanikutty”), this Court dealt with whether a time-Gbarred debt can be recovered by resorting to recoveryproceedings under the Kerala Revenue Recovery Act of 1968.In stating that the said Act cannot extend to recovery of a time-barred debt, this Court stated in paragraph 8, “8. …… In every case the exact meaning of the word “due”will depend upon the context in which that word appears.”

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22. It was held in that case that Section 17(3) of the KeralaRevenue Recovery Act, 1968 made it clear that a person makingpayment under protest will have a right to institute a suit forrefund of the whole or part of the sum paid by him under protest.It was thus held that when the right to file such a suit is expresslypreserved, there is a necessary implication that the shield oflimitation available to a debtor in a suit is also preserved, as aresult of which, a wide interpretation of the expression “amountdue” to include time-barred debts would destroy an importantdefence available to a debtor in a suit against him by the creditor,and may fall foul of Article 14 of the Constitution of India.

23. Another judgment referred to by learned counsel for theappellants is contained in Union of India v. Uttam Steels Ltd.,(2015) 13 SCC 209. Here the question was whether Section 11-B of the Central Excise Act as amended on 12.05.2000 wouldapply to the fact situation in that case. Section 11-B provided alonger period of limitation by substituting “six months” with “oneyear”. Since the rebate application was filed within a period ofone year, the respondent contended that they were within time.This Court held, in paragraph 10, that limitation, being procedurallaw, would ordinarily be retrospective in nature. This is howeverwith one proviso superadded, which is that the claim made underthe amended provision should not itself have been a dead claimin the sense that it was time-barred before the amending Actcame into force, bringing a larger period of limitation with it. Onthe facts of that case, it was held that since the claim for rebatewas made beyond the period of six months but within the extendedperiod of one year, such extended period would not avail therespondent in that case.

24. In Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472, thisCourt took the view that the amendment made to Section 43-Bin the Income 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 theprevious law retrospective operation is generally intended.”In fact the amendment would not serve its object in such asituation unless it is construed as retrospective……”

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25. In the present case also, it is clear that the amendment ofSection 238A would not serve its object unless it is construed asbeing retrospective, as otherwise, applications seeking to resurrecttime-barred claims would have to be allowed, not being governedby the law of limitation.”

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“38. This case is most apposite. As in the present case, andas is reflected in the Insolvency Law Committee Report ofMarch, 2018, the legislature did not contemplate enabling acreditor who has allowed the period of limitation to set into allow such delayed claims through the mechanism of theCode. The Code cannot be triggered in the year 2017 for adebt which was time-barred, say, in 1990, as that would leadto the absurd and extreme consequence of the Code beingtriggered by a stale or dead claim, leading to the drasticconsequence of instant removal of the present Board ofDirectors of the corporate debtor permanently, and whichmay ultimately lead to liquidation and, therefore, corporatedeath. This being the case, the expression “debt due” in thedefinition sections of the Code would obviously only referto debts that are “due and payable” in law, i.e., the debtsthat are not time-barred.”

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Finally, the Court held:

“48. It is thus clear that since the Limitation Act is applicableto applications filed under Sections 7 and 9 of the Codefrom the inception of the Code, Article 137 of the LimitationAct gets attracted. “The right to sue”, therefore, accrueswhen a default occurs. If the default has occurred overthree years prior to the date of filing of the application, theapplication would be barred under Article 137 of theLimitation Act, save and except in those cases where, inthe facts of the case, Section 5 of the Limitation Act maybe applied to condone the delay in filing such application.”

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10. This judgment clinches the issue in favour of the Petitioner/Appellant. With the introduction of Section 238A into the Code, theprovisions of the Limitation Act apply to applications made under theHCode. Winding up petitions filed before the Code came into force are now converted into petitions filed under the Code. What has, therefore,to be decided is whether the Winding up Petition, on the date that itwas filed, is barred by lapse of time. If such petition is found to betime-barred, then Section 238A of the Code will not give a new leaseof life to such a time-barred petition. On the facts of this case, it isclear that as the Winding up Petition was filed beyond three years fromAugust, 2012 which is when, even according to IL&FS, default inrepayment had occurred, it is barred by time.

11. Dr. Singhvi relied upon a number of judgments in whichproceedings under Section 433 of the Companies Act,1956 had beeninitiated after suits for recovery had already been filed. These judgmentshave held that the existence of such suit cannot be construed as havingeither revived a period of limitation or having extended it, insofar asthe winding up proceeding was concerned. Thus, in Hariom FirestockLimited v. Sunjal Engineering Pvt. Ltd. (1999) 96 Comp Cas 349,a Single Judge of the Karnataka High Court, in the fact situation of asuit for recovery being filed prior to a winding up petition being filed,opined:

“8…To my mind, there is a fallacy in this argument because thetest that is required to be applied for purposes of ascertainingwhether the debt is in existence at a particular point of time isthe simple question as to whether it would have been permissibleto institute a normal recovery proceeding before a civil court inrespect of that debt at that point of time. Applying this test andde hors that fact that the suit had already been filed, the questionis as to whether it would have been permissible to institute arecovery proceeding by way of a suit for enforcing that debt inthe year 1995, and the answer to that question has to be in thenegative. That being so, the existence of the suit cannot beconstrued as having either revived the period of limitation orextended it. It only means that those proceedings are pendingbut it does not give the party a legal right to institute any otherproceedings on that basis. It is well settled law that the limitationis extended only in certain limited situations and that the existenceof a suit is not necessarily one of them. In this view of the matter,the second point will have to be answered in favour of therespondents and it will have to be held that there was noenforceable claim in the year 1995, when the present petition wasinstituted.”

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A12. Likewise, a Single Judge of the Patna High Court in FerroAlloys Corporation Ltd. v. Rajhans Steel Ltd. (2000) Comp Cas426 also held:

“12….In my opinion, the contention lacks merit. Simply becausea suit for realisation of the debt of the petitioner-company againstBopposite party No. 1 was instituted in the Calcutta High Courton its original side, such institution of the suit and the pendencythereof in that court cannot enure for the benefit of the presentwinding up proceeding. The debt having become time-barredwhen this petition was presented in this court, the same couldnot be legally recoverable through this court by resorting toCwinding up proceedings because the same cannot legally beproved under section 520 of the Act. It would have beenaltogether a different matter if the petitioner-companyapproached this court for winding up of opposite party No. 1 afterobtaining a decree from the Calcutta High Court in Suit No. 1073of 1987, and the decree remaining unsatisfied, as provided inDclause (b) of sub-section (1) of section 434. Therefore, since thedebt of the petitioner-company has become time-barred andcannot be legally proved in this court in course of the presentproceedings, winding up of opposite party No. 1 cannot beordered due to non-payment of the said debt.”

E13. In Rameswar Prasad Kejriwal & Sons Ltd. v. M/s.Garodia Hardware Stores (2002) 108 Comp Cas 187, a money suitthat was filed in 1994 was decreed in 1997, after which a winding uppetition under Section 433 of the Companies Act, 1956 was filed in 2001.In this fact situation, the learned Single Judge held:F“13. It is an admitted position that the cause of action of thecompany arose in 1992. The suit was filed in 1994 and the decreewas obtained in 1997. But on the basis of the said debt which issaid to be merged in the decree, the winding up petition cannotbe filed after the period of limitation that means after a periodof three years.G

14. It is not in dispute that in the instant case, the period oflimitation is covered by residuary article namely Article 137 ofLimitation Act. A special Bench of this Court, in the case of HariMohan Dalai v. Parmeshwar Shau, reported in 56 Indian LawReports, 61, has made certain observations on how the residuaryHarticle is to be construed.

15. Construing the provisions of Article 181 the residuary articleunder the old Act, Chief Justice Rankin, speaking for the SpecialBench, held that “In Article 181 the legislature makes provisionsnot for any definite type of cases but for an unknown numberof cases of all kinds. The provision which it makes specific asregard the period of limitation, but as regarded the terminus aquo it is content to state in general language and quite simplythe fundamental principle that, for the purposes of any particularapplication, time is to run from the moment at which the applicantfirst had the right to make it.”

16. This Court goes by the same principle and holds that periodof limitation should be counted from 1992. But assuming it is notcounted from 1992, it has to be counted from 1997. Therefore,considering the matter from all possible angles, this Court is ofthe view that instant winding up petition has become barred onthe date on which it is presented. It cannot be held that in caseof winding up petition, limitation period will be 12 years whichmay be the case in matters of execution of a decree.

17. Therefore, this winding up petition is, therefore, dismissedbut in the facts of this case, there will be no order as to costs.”

14. In Dr. Dipankar Chakraborty v. Allahabad Bank & Ors.2017 SCC OnLine Cal 8742, the fact situation was that a suit had beenfiled by the petitioner in the City Court at Calcutta for damages againstthe Allahabad Bank. The Bank, in turn, filed a proceeding under Section19 of the Recovery of Debts Due to Banks and Financial InstitutionsAct, 1993 in 2001 before the Debt Recovery Tribunal, Calcutta. TheCivil Suit was also transferred to the Debt Recovery Tribunal, Calcuttawhere both proceedings were pending adjudication. Meanwhile, underthe Securitisation and Restructure of Financial Assets and Enforcementof Securities Interest Act, 2002 (hereinafter referred to as the“SARFAESI Act”), a notice dated 3[rd] March, 2016 was issued underSection 13(2) of the SARFAESI Act. The question which arose beforethe Court was whether the invocation of the SARFAESI Act, beingbeyond limitation, would be saved because of the pending proceedingsunder Section 19 of the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993. The Court negatived the plea of the Bank, stating:

“22. Section 14 of the Limitation Act, 1963 permits exclusion ofthe time taken to proceed bona fide in a Court without jurisdiction.

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Such section permits a plaintiff to present the same suit, if theCourt of the first instance, returns a plaint from defect ofjurisdiction or other causes of like nature, being unable to entertainit. In the present case, a secured creditor is not withdrawing aproceeding pending before the Debts Recovery Tribunal underSection 19 of the Act of 1993 to invoke the provisions of theAct of 2002. Rather the secured creditor is proceeding,independent of its right to proceed under the Act of 1993, whileinvoking the provisions of the Act of 2002. This choice of thesecured creditor to invoke the Act of 2002 is independent of anddespite the pendency of the proceedings under the Act of 1993,has to be looked at from the perspective of whether or not suchan action meets the requirement of Section 36 of the Act of 2002,when the secured creditor is proposing to take a measure underSection 13(4) of the Act of 2002. Although, a secured creditor,as held in Transcore (supra), is entitled to take a remedy or ameasure as available in the Act of 2002, despite the pendencyof other proceedings, including a proceeding under Section 19of the Act of 1993, in respect of the self-same cause of action,in my view, the invocation of such independent right under theAct of 2002, has to be done within the period of limitationprescribed under the Limitation Act, 1963 in terms of Section 36of the Act of 2002. The Act of 2002 gives an independent rightto a secured creditor to proceed against its financial assets andin respect of which such asset the secured creditor has securityinterest. The right to proceed, however, is subject to the adherenceto the provisions of limitation as enshrined in the Limitation Act,1963. The provisions of the Limitation Act, 1963 are, therefore,attracted to a proceeding initiated under the Act of 2002. Thatbeing the legal position, the invocation of the provisions of theAct of 2002 in the facts of the present case, on July 5, 2011,without there being an extension of the period of limitation bythe act of the parties cannot be sustained.

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25. The issues raised are, therefore, answered by holding that,the initiation of the proceedings by the bank was barred by thelaws of limitation on July 5, 2011 and all proceedings taken bythe bank consequent upon and pursuant to the notice under Section 13(2) of the Act of 2002 dated July 5, 2011 are quashedincluding such notice.”

15. In Indo Alusys Industries v. Assotech Contracts (India)Ltd. 2009 (110) DRJ 384, a learned Single Judge of the Delhi HighCourt opined that a suit for recovery and a winding up proceeding aredistinct and independent remedies, as follows:

“12. So far as the objection that the petitioner has filed a suitdisentitling it to maintain the present petition is concerned, it iswell settled that the right to bring a winding up action is statutoryconferred under Section 433 of the Companies Act, 1956.However, no person has a statutory right to winding up of acompany incorporated under the Companies Act, 1956. Actionto recover amounts and to winding up of the company are twowholly distinct and independent remedies. It is not necessary thatevery petition under Section 433 of the Companies Act, 1956 endsup in an order of winding up. Several essential factors as publicinterest, justice and convenience enter into the considerationbefore the prayed for order results. The nature of the defenceand extent of dispute raised by the respondent also impactadjudication in winding up action. At the same time, limitation forseeking the remedy of recovery against the company continuesto run. The two remedies are not alternative remedies. Moreoften than not, as a matter of abundant caution, parties do notwait for final decision in one remedy before invoking the other.

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14. In view of the above, mere filing of the suit by the petitionerin order to protect its right and by way of abundant cautioncertainly would not prohibit filing of the winding up petition orpreclude the petitioner from maintaining the same.”

16. In Board of Regents of the University of the State ofNew York et. al. v. Mary Tomanio 100 S. Ct. 1790, the SupremeCourt of the United States of America held that a federal action underthe Civil Rights Act of 1871 was barred by the application of a three-year New York statute of limitations. What was argued was that thefederal remedy became available only as a consequence of the Stateremedy being denied, as the Respondent had commenced a proceedingin the New York states courts attacking a decision of the Board of A

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ARegents not to grant a waiver of a licence to practice as a chiropractor.By November 1975, the appeals in the State proceedings beingexhausted, and the Respondent being denied any relief, the Respondentinstituted an action in the Federal District Court on 25th June, 1976.The Supreme Court of the United States of America held that the secondaction was clearly barred by the law of limitation, being filed three yearsBafter the cause of action had arisen. It was held that once the limitationperiod started running, it did not stop because a separate andindependent remedy had been pursued in the meanwhile. The Courtheld:

“No section of the law provides, however, that the time for filingCa cause of action is tolled during the period in which a litigantpursues a related, but independent cause of action.”

17. In Martiza Alamo-Hornedo v. Juan Carlos Puig andJose Perez-Riera 745 F.3d 578, the US Court of Appeals, First Circuitheld on the facts of the case, that a separate and independent actionDwhich was otherwise barred by limitation could not be brought withinlimitation merely because a prior suit had been filed. The Court held:

“4. The plaintiff also suggests that her prior suit in the Court ofFirst Instance somehow tolled the statute of limitations. Thissuggestion is fanciful.E

5. To begin, exhaustion of state remedies is not a conditionprecedent to the maintenance of a section 1983 action. See Patsyv. Bd. of Regents, 457 U.S. 496, 516, 102 S.Ct. 2557, 73L.Ed.2d 172 (1982); Rogers v. Okin, 738 F.2d 1, 5 (1[st] Cir.F1984). Thus, the commencement and pendency of a stateproceeding ordinarily does not toll the limitations period for aparallel action under Section 1983. See, e.g., Rodriguez-Garciav. Municipality of Caguas, 354 F.3d 91, 93 (1[st] Cir.2004);Ramirez de Arellano v. Alvarez de Choudens, 575 F.2d 315,319 (1[st] Cir. 1978). The plaintiff attempts to parry his thrust byGnoting that, under Puerto Rico law, the statute of limitations canbe “interrupted” by, among other things, suing on the relevantclaim. P.R. Laws Ann. tit. 31, 5303. Once the court action “comesto a definite end,” the “statute of limitations begins to run anew.”Rodriguez-Gracia, 354 F.3d at 97 (internal quotation marksHomitted).

*582. The plaintiff’s reliance on this principle elevates hope overreason. In order to have the tolling effect desired by the plaintiff,the complaint in the first action “must assert causes of actionidentical to” those asserted in the second action. Id. (internalquotation marks omitted).

6. The identicality requirement has three facets. The two actions“must seek the same form of relief”; they “must be based onthe same substantive claims”; and they “must be asserted againstthe same defendants in the same capacities.” Id. at 98. Theplaintiff offers no developed argumentation sufficient to show thatshe satisfies these conditions.

In all events, it is readily apparent that the plaintiff has notsatisfied the identicality requirement. The first action, brought inthe Court of First Instance, sought the equitable remedies ofreinstatement and back pay; the second action, brought in thefederal district court, sought the legal remedies of compensatoryand punitive damages. Thus, it is nose-on-the-face plain that thetwo actions did not seek the “same form of relief.”

We hasten to add that this conclusion breaks no new ground.This court has held, squarely and repeatedly, that under PuertoRico law, “seeking only equitable relief does not toll the statuteof limitations where the subsequent complaint… seeksdamages.” Nieves-Vega v. Ortiz-Quinones, 443 F.3d 134, 137(1[st] Cir. 2006) (collecting cases).

In view of the plaintiff’s failure to satisfy the first facet of theidenticality requirement, we need not inquire into the other twofacets. Puerto Rico law is pellucid that a plaintiff who seeks tointerrupt the running of a statute of limitations on this basis mustsatisfy all three facets of the identicality requirement. See, e.g.,Santana-Castro v. Toledo-Davila, 579 F.3d 109, 116 (1[st] Cir.2009); Nieves-Vega, 443 F.3d at 137-38.

That ends this aspect of the matter. When all is said and done,the plaintiff’s decision to sit idly by while the proceedings in theCourt of First Instance unfolded dooms her tardy attempt to asserta federal claim. Although waiting for the Commonwealth court’sruling may have served to strengthen the plaintiff’s belief thather firing was illegal, there is no requirement that a period who A

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wishes to pursue a Section 1983 claim premised on an allegedlywrongly termination of employment await an independent findingthat her dismissal was unlawful. Consequently, the plaintiff’selection to await a ruling by the Court of First Instance does notjustify her failure to bring her federal claim within the timeallotted by statute.”

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18. In Re Karnos Property Co. Ltd. (1989) 5 B.C.C. 14, alearned Single Judge of the Chancery Division (Companies Court) heldthat a local authority’s petition to wind up a company for non-paymentof rates was barred by the law of limitation, being presented more thansix years after the cause of action arose. The fact that the rateCdemanded had been the subject of distress warrants did not in anymanner impact the limitation period for the winding up petition. It wasthus held:

“Applying those words to the petition proceedings now in train itseems that the cause of the proceedings arose at the latest whenDthe company failed to pay the latest rate demand on 1 April 1981.That is more than six years before the presentation of the petition.Accordingly I conclude that the petition must be dismissedbecause it is founded on rates unpaid for more than six years.In other words a local authority petition for non-payment of ratesEis subject to the provisions of the Limitation Acts.

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Mr. Acton for the local authority conceded, as I understand, thatrates unpaid for six years and never the subject of a distresswarrant were irrecoverable in any way; so that the local authorityceases to be a creditor and thus may not petition. But, said Mr.FActon, once a distress warrant has been obtained it remainsalways available for execution and thus preserves the localauthority its character as a creditor and ever able to petition. Ido not accept this submission. If one assumes that the twodistress warrants issued in this case remain available to the localauthority, I do not think it follows that the provisions of theGLimitation Acts that I have mentioned do not operate to stop thepresentation of a petition. The effect of Section 2(1) of the 1939Act (or Section 9(1) of the 1980 Act) is that a petition may notbe presented if six years have passed since the rates weredemanded. There is nothing there to qualify the position if aHdistress warrant happens to be current. A petition lies not because a distress warrant has been or may be issued but because a localauthority is a “creditor” as that word is and has been used inthe Companies Acts (see the North Bucks case).

The remedies by way of distress and petition are separate anddistinct.”

19. The aforesaid judgments correctly hold that a suit forrecovery based upon a cause of action that is within limitation cannotin any manner impact the separate and independent remedy of a windingup proceeding. In law, when time begins to run, it can only be extendedin the manner provided in the Limitation Act. For example, anacknowledgement of liability under Section 18 of the Limitation Actwould certainly extend the limitation period, but a suit for recovery,which is a separate and independent proceeding distinct from the remedyof winding up would, in no manner, impact the limitation within whichthe winding up proceeding is to be filed, by somehow keeping the debtalive for the purpose of the winding up proceeding.

20. Shri Kaul, however, relied heavily on the judgment of a SingleJudge of the Bombay High Court reported as Re: Messrs: BhimjiNanji and Co. (1969) Mh.L.J. 827. That case arose under thePresidency-towns Insolvency Act, 1909, the question raised being asfollows:

“4. Whether the debt on the basis of which the petition foradjudication is presented and an adjudication order is soughtshould be a subsisting debt at the date of the hearing of thepetition or is it enough that it subsisted at the date of thepresentation of the petition?”

Section 13 of the Presidency-towns Insolvency Act, 1909 laiddown what factors are required to be proved by a petitioning-creditorat the hearing of the petition before the Court. Section 13(2) of thesaid Act, which fell for consideration before the Bombay High Court,is set out hereinbelow:

“At the hearing the Court shall require proof of –

(a) the debt of the petitioning creditor, and (b) the act of insolvency or, if more than one act of insolvencyis alleged in the petition, some one of the alleged acts ofinsolvency.”

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AThe observation that was made by the Court which is relied uponheavily by Shri Kaul is contained in paragraph 9, which is set outhereinbelow:

“9. Mr. Shah urged that if this view were accepted by the Courtit would cause great hardship to the creditor. Once an insolvencyBpetition is presented by a creditor, he normally expects that theadjudication order would be passed at the hearing of his petitionand simply because the hearing of the petition is delayed not forany default on his part but say on account of the exigencies ofthe Court work the creditor will have to meet the fate which hemay not have thought of or contemplated, if in the meantime theCdebt becomes barred by limitation. I do not see any hardshiparising to the creditor as suggested by Mr. Shah, for it would beopen to the creditor or rather it would be his duty to see that hekeeps the debt alive either by means of an acknowledgement orpart payment or by filing a suit in respect thereof in a propercourt well within the period of limitation, but to my mind, it isDclear that mere pendency of an insolvency petition withoutanything more cannot have the effect of saving the limitationprescribed by the Indian Limitation Act.”

The context in which the learned Single Judge made anobservation that the filing of a suit within limitation would keep the debtEalive, is in the context of Section 13 of the Presidency-towns InsolvencyAct, 1909 - which requires that the debt of the petitioning creditor shouldbe alive even at the hearing of the insolvency petition. Obviously, if atthe hearing of the petition, the debt was time-barred, the stringent resultof insolvency of the individual concerned would not follow. It is in thisFcontext that the learned Single Judge held that a debt would besubsisting at the date of hearing of the insolvency petition if a suit wasfiled to recover it within the period of limitation. The context of Section13 of the Presidency-towns Insolvency Act, 1909 is far removed fromthe present context, in which what has to be seen is whether a windingup proceeding has been filed within the limitation period provided. InGthe facts of the present case, no question as to subsistence of a livedebt at the hearing of a winding up petition is at all involved. This caseis, therefore, wholly distinguishable.

21. Shri Kaul then relied strongly on the rationale for laws oflimitation generally, which was set out in Rajender Singh and Ors.Hv. Santa Singh and Ors. (1973) 2 SCC 705 as follows:

“17. The policy underlying statutes of limitation, spoken of asstatutes of “repose”, or of “peace” has been thus stated inHalsbury’s Laws of England Vol. 24, p. 181 (para 330):

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“330. Policy of Limitation Acts.—The Courts have expressedat least three differing reasons supporting the existence ofstatutes of limitation, namely: (1) that long dormant claims havemore of cruelty than justice in them, (2) that a defendant mighthave lost the evidence to disprove a stale claim, and (3) thatpersons with good causes of actions should pursue them withreasonable diligence.”

18. The object of the law of limitation is to prevent disturbanceor deprivation of what may have been acquired in equity andjustice by long enjoyment or what may have been lost by aparty’s own inaction, negligence, or laches.”

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These observations are apposite in the context of the facts ofthe present case. It is clear that IL&FS pursued with reasonablediligence the cause of action which arose in August, 2012 by filing asuit against La-Fin for specific performance of the Letter ofUndertaking in June, 2013. What has been lost by the aforesaid party’sown inaction or laches, is the filing of the Winding up Petition long afterthe trigger for filing of the aforesaid petition had taken place; the triggerbeing the debt that became due to IL&FS, in repayment of which defaulthas taken place.

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22. At this stage, it is necessary to set out Section 433(e) andSection 434 of the Companies Act, 1956, which read as follows:

“433. Circumstances in which company may be wound upby Tribunal.- A company may be wound up by the Tribunal,- F

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(e) if the company is unable to pay its debts;”

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A company shall be deemed to be unable to pay its debts- (a) if a creditor, by assignment or otherwise, to whom thecompany is indebted in a sum exceeding one lakh rupeesthen due, has served on the company, by causing it to bedelivered at its registered office, by registered post orotherwise, a demand under his hand requiring the companyH

Ato pay the sum so due and the company has for threeweeks thereafter neglected to pay the sum, or to secure orcompound for it to the reasonable satisfaction of the creditor; (b) if execution or other process issued on a decree or order ifany Court or Tribunal in favour of a creditor of the companyBis returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the Tribunal that thecompany is unable to pay its debts, the Tribunal shall takeinto account the contingent and prospective liabilities of thecompany.

C(2) The demand referred to in clause (a) of sub-section (1) shallbe deemed to have been duly given under the hand of the creditorif it is signed by any agent or legal adviser duly authorised onhis behalf, or in the case of a firm if it is signed by any suchagent or legal adviser or by any member of the firm.”

DA reading of the aforesaid provisions would show that the startingpoint of the period of limitation is when the company is unable to payits debts, and that Section 434 is a deeming provision which refers tothree situations in which a Company shall be deemed to be “unable topay its debts” under Section 433(e). In the first situation, if a demandis made by the creditor to whom the company is indebted in a sumEexceeding one lakh then due, requiring the company to pay the sum sodue, and the company has for three weeks thereafter “neglected to paythe sum”, or to secure or compound for it to the reasonable satisfactionof the creditor. “Neglected to pay” would arise only on default to paythe sum due, which would clearly be a fixed date depending on theFfacts of each case. Equally in the second situation, if execution or otherprocess is issued on a decree or order of any Court or Tribunal in favourof a creditor of the company, and is returned unsatisfied in whole or inpart, default on the part of the debtor company occurs. This again isclearly a fixed date depending on the facts of each case. And in thethird situation, it is necessary to prove to the “satisfaction of theGTribunal” that the company is unable to pay its debts. Here again, thetrigger point is the date on which default is committed, on account ofwhich the Company is unable to pay its debts. This again is a fixeddate that can be proved on the facts of each case. Thus, Section 433(e)read with Section 434 of the Companies Act, 1956 would show thatHthe trigger point for the purpose of limitation for filing of a winding up

petition under Section 433(e) would be the date of default in paymentof the debt in any of the three situations mentioned in Section 434.

23. Shri Kaul relied upon several well-known judgments, whichlay down the law under Section 433 and 434 of the Companies Act,1956. He relied upon M/s Madhusudan Gordhandas & Co. v.Madhu Woollen Industries Pvt. Ltd. (1971) 3 SCC 632, whereinin a case of a winding up petition filed under Section 433(e), the HighCourt had rejected the claim of the Appellant to wind up the Companyas creditors of the Company. Unlike the present case, the Appellanttherein gave no statutory notice to raise any presumption of inability topay debts. In this context, this Court held:

“20. Two rules are well settled. First, if the debt is bona fidedisputed and the defence is a substantial one, the court will notwind up the company. The court has dismissed a petition forwinding up where the creditor claimed a sum for goods sold tothe company and the company contended that no price had beenagreed upon and the sum demanded by the creditor wasunreasonable. (See London and Paris Banking Corporation[(1874) LR 19 Eq 444] ) Again, a petition for winding up by acreditor who claimed payment of an agreed sum for work donefor the company when the company contended that the work hadnot been properly was not allowed. (See Re. Brighton Club andHorfold Hotel Co. Ltd. [(1865) 35 Beav 204] )

21. Where the debt is undisputed the court will not act upon adefence that the company has the ability to pay the debt but thecompany chooses not to pay that particular debt, see Re. ACompany. [94 SJ 369] Where however there is no doubt thatthe company owes the creditor a debt entitling him to a windingup order but the exact amount of the debt is disputed the courtwill make a winding up order without requiring the creditor toquantify the debt precisely See Re Tweeds Garages Ltd. [1962Ch 406] The principles on which the court acts are first that thedefence of the company is in good faith and one of substance,secondly, the defence is likely to succeed in point of law andthirdly the company adduces prima facie proof of the facts onwhich the defence depends.”

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Amay, in its discretion, refuse such order. What was relied upon stronglyby Shri Kaul was paragraph 29, in which the Court held:

“29…In determining whether or not the substratum of thecompany has gone, the objects of the company and the case ofthe company on that question will have to be looked into. In theBpresent case the company alleged that with the proceeds of salethe company intended to enter into some other profitable business.The mere fact that the company has suffered trading losses willnot destroy its substratum unless there is no reasonable prospectof it ever making a profit in the future, and the court is reluctantto hold that it has no such prospect. (See Re Suburban HotelCCo. [(1867) 2 Ch App 737] and Davis and Co. v. Brunswick(Australia) Ltd. [(1936) 1 AER 299])…The company has notabandoned objects of business. There is no such allegation orproof. It cannot in the facts and circumstances of the presentcase be held that the substratum of the company is gone. Norcan it be held in the facts and circumstances of the present caseDthat the company is unable to meet the outstandings of any ofits admitted creditors. The company has deposited in court thedisputed claims of the appellants. The company has not ceasedcarrying on its business. Therefore, the company will meet thedues as and when they fall due. The company has reasonableEprospect of business and resources.”

24. According to Shri Kaul, it was not possible for his client toapproach the High Court with a winding up petition as on the date onwhich he filed the suit for specific performance, because La-Fin (i.e.the Company sought to be wound up), could not be said to have lost itsFsubstratum as on such date. It was for this reason that he approachedthe winding up Court in 2016, when the assets of La-Fin, which, as of2013 were worth over INR 1000 crores, had in 2016 become only worthINR 200 crores.

25. This judgment does not take Shri Kaul’s argument any further.Nowhere in the Winding up Petition is it alleged that the company soughtGto be wound-up has lost its substratum, in the sense that there is noreasonable prospect of it ever making a profit in the future, nor can itbe said that the company had abandoned its business and is, therefore,unable to meet the outstandings owed by it. On the other hand, whatemerges from this judgment (and paragraph 21 therein in particular), isHthat it is not open for a company to say that a debt is undisputed, that it has ability to pay the debt, but will not pay the debt. Equally, wherea debt is clearly owed, but the exact amount of debt is disputed, thecompany will be held to be unable to pay its debts. What has to beseen in each case is whether the debt is bona fide disputed. If so,without more, a winding up petition would then be dismissed. One otherthing must be noticed at this stage. The trigger for limitation is theinability of a company to pay its debts. Undoubtedly, this trigger occurswhen a default takes place, after which the debt remains outstandingand is not paid. It is this date alone that is relevant for the purpose oftriggering limitation for the filing of a winding up petition. Though it isclear that a winding up proceeding is a proceeding ‘in rem’ and not arecovery proceeding, the trigger of limitation, so far as the winding uppetition is concerned, would be the date of default. Questions as tocommercial solvency arise in cases covered by Sections 434(1)(c) ofthe Companies Act, 1956, where the debt has first to be proved, afterwhich the Court will then look to the wishes of the other creditors andcommercial solvency of the company as a whole. The stage at whichthe Court, therefore, examines whether the company is commerciallyinsolvent is once it begins to hear the winding up petition for admissionon merits. Limitation attaches insofar as petitions filed under Section433(e) are concerned at the stage that default occurs for, it is at thisstage that the debt becomes payable. For this reason, it is difficult toaccept Shri Kaul’s submission that the cause of action for the purposesof limitation would include the commercial insolvency or the loss ofsubstratum of the company.

26. The next judgment referred to and relied upon by Shri Kaulis Pradeshiya Industrial & Investment Corporation of U.P. v.North India Petrochemicals Ltd. and Anr. (1994) 3 SCC 348. Inthis case, it was found that Dalmia Industries had resorted to arbitrationproceedings, in which there was a substantial dispute raised on theamount claimed. The passage strongly relied upon by Shri Kaul is setout hereinbelow:

“27. What then is inability when the section says “unable to payits dues”? That should be taken in the commercial sense. In that,it is unable to meet current demands. As stated by William James,V.C. it is “plainly and commercially insolvent — that is to say,that its assets are such, and its existing liabilities are such, as tomake it reasonably certain — as to make the Court feel satisfied— that the existing and probable assets would be insufficient to AB

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Ameet the existing liabilities”. (In European Life AssuranceSociety, Re [LR (1869) 9 Eq 122] ; V.V. Krishna Iyer & Sonsv. New Era Mfg. Co. Ltd. [(1965) 35 Comp Cas 410 : (1965) 1Comp LJ 179 (Ker)])”

This passage is in the context of an order under 433(e) of theBCompanies Act, 1956 being discretionary, which is referred to in thepreceding paragraph 25. As stated hereinabove, the facts as tocommercial insolvency are to be pleaded and proved at the admissionstage of the winding up petition; the trigger for the winding up proceedingfor limitation purposes, as has been stated hereinabove, being the dateof default.C27. Shri Kaul then relied upon Mediquip Systems (P) Ltd. v.Proxima Medical System GMBH (2005) 7 SCC 42 and in particular,paragraphs 18 and 23 thereof, which state as follows:

“18. This Court in a catena of decisions has held that an orderDunder Section 433(e) of the Companies Act is discretionary. Theremust be a debt due and the company must be unable to pay thesame. A debt under this section must be a determined or adefinite sum of money payable immediately or at a future dateand that the inability referred to in the expression “unable to payits debts” in Section 433(e) of the Companies Act should be takenEin the commercial sense and that the machinery for winding upwill not be allowed to be utilised merely as a means for realisingdebts due from a company.

xxx xxx xxxF23. The Bombay High Court has laid down the followingprinciples in Softsule (P) Ltd., Re [(1977) 47 Comp Cas 438(Bom)] : (Comp Cas pp. 443-44)

Firstly, it is well settled that a winding-up petition is not legitimatemeans of seeking to enforce payment of a debt which is bonaGfide disputed by the company. If the debt is not disputed on somesubstantial ground, the court/Tribunal may decide it on the petitionand make the order.

Secondly, if the debt is bona fide disputed, there cannot be“neglect to pay” within the meaning of Section 433(1)(a) of theHCompanies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground thatthe company is unable to pay its debts is not substantiated.

Thirdly, a debt about the liability to pay which at the time of theservice of the insolvency notice, there is a bona fide dispute, isnot “due” within the meaning of Section 434(1)(a) and non-payment of the amount of such a bona fide disputed debt cannotbe termed as “neglect to pay” the same so as to incur the liabilityunder Section 433(e) read with Section 434(1)(a) of theCompanies Act, 1956.

Fourthly, one of the considerations in order to determine whetherthe company is able to pay its debts or not is whether thecompany is able to meet its liabilities as and when they accruedue. Whether it is commercially solvent means that the companyshould be in a position to meet its liabilities as and when theyarise.”

28. The Bombay High Court judgment referred to in paragraph23 of the judgment above states the law on winding up petitions filedunder Section 433(a) of the Companies Act, 1956 correctly. The primarytest is set out in paragraph 1, which is that a winding up petition is nota legitimate means of seeking to enforce payment of a debt which isbona fide disputed by the Company. Absent such dispute, the petitionmay be admitted. Equally, where the debt is bona fide disputed, therecannot be ‘neglect to pay’ within the meaning of Section 434(1)(a) ofthe Companies Act, 1956 so that the deeming provision then does notcome into play. Also, the moment there is a bona fide dispute, the debtis then not ‘due’. The High Court also correctly appreciates that whetherthe company is commercially solvent is one of the considerations in orderto determine whether the company is able to pay its debts or not.

29. Even on the facts of this case, the Winding up Petition allegesthat the ultimatumto the Respondent company asserting that theRespondent company was legally obliged to purchase the requisiteshares in accordance with the terms of the Letter of Undertaking wason 7[th] January, 2013. By this date at the very latest, the cause of actionfor filing a petition under Section 433(e) certainly arose. Also, as hasbeen correctly pointed out by Dr. Singhvi, the statutory notice given on3[rd] November, 2015 does not refer to any facts as to the commercialinsolvency of La-Fin. The statutory notice only refers to the suit AB

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Aproceedings and attachment by the EOW which had taken place longbefore in December 2013. Factually, therefore, no basis is laid for thelegal contentions argued before us by Shri Kaul.

30. In the Winding up Petition itself, what is referred to is thefall in the assets of La-Fin to being worth approximately INR 200 croresBas of October, 2016, which again does not correlate with 3[rd] November,2015, being the date on which the statutory notice was itself issued.This again is only for the purpose of appointing an Officer of the Courtas Official Liquidator in order to manage the day-to-day affairs andotherwise secure and safeguard the assets of the Respondent company.There is no averment in the petition that thanks to these or other factsCthe Company’s substratum has disappeared, or that the Company isotherwise commercially insolvent. It is clear therefore that even onfacts, the company’s substratum disappearing or the commercialinsolvency of the company has not been pleaded. Whereas, in Form-1,upon transfer of the winding up proceedings to the NCLT, what isDcorrectly stated is that the date of default is 19[th] August, 2012; makingit clear that three-years from that date had long since elapsed whenthe Winding up Petition under Section 433(e) was filed on 21[st] October,2016.

31. We therefore allow Civil Appeal (Diary No. 16521 of 2019)Eand dispose of the Writ Petition (Civil) No.455 of 2019 by holding thatthe Winding up Petition filed on 21[st] October, 2016 being beyond theperiod of three-years mentioned in Article 137 of the Limitation Act istime-barred, and cannot therefore be proceeded with any further.Accordingly, the impugned judgment of the NCLAT and the judgmentof the NCLT is set aside.F

SLP(C) (Diary No.13468 of 2019) & T.P. (C) No.817 of 2019

32. In view of the aforesaid, nothing survives insofar as SpecialLeave Petition (Diary No.13468 of 2019) and Transfer Petition (Civil)No.817 of 2019 are concerned, and they are accordingly disposed ofGas having become infructuous.

Nidhi Jain

Matters disposed of.

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