M/S TECH SHARP ENGINEERS PVT. LTD. versus SANGHVI MOVERS LIMITED on 19 September 2022

922

SUPREME COURT REPORTS

[2022] 13 S.C.R.

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M/S TECH SHARP ENGINEERS PVT. LTD.

v.

SANGHVI MOVERS LIMITED

(Civil Appeal No. 296 of 2020)

BSEPTEMBER 19, 2022

[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]

Insolvency and Bankruptcy Code, 2016: s.9 – Initiation ofCorporate Insolvency Resolution Process (CIRP) – Applicability ofLimitation Act – Pursuant to agreement, respondent let out a craneCon hire to the appellant – Respondent raised invoices on theappellant between 03.01.2013 and 04.03.2013 for a sum ofRs.38,84,709/- – On 14.10.2013, Respondent issued statutory noticeto Appellant-Company for its winding up for payment of invoices–Appellant replied to notice on 07.11.2013, acknowledging itsDliability to the Respondent – Respondent filed a winding up petitionbefore High Court which was returned for curing of defects, firsttime on 05.01.2016 and second time on 24.05.2016 – IBC cameinto force on 01.12.2016 – Respondent again issued a demand noticeon 14.11.2017 u/s. 8(1) of IBC calling upon appellant to repay itsdues – On 30.03.2018, the Respondent filed petition u/s. 9 of theEIBC for initiation of CIRP in the NCLT, which was dismissed forbeing barred by limitation – Respondent approached NCLAT whichset aside the order passed by NCLT and remitted the case back toNCLT for admission – NCLAT directed that before admission of thecase, it would be open to the Respondent to settle the matter withFthe Appellant and that right to apply under s.9 accrued to appellanton 01.12.2016, when IBC came into force and, therefore, applicationu/s.9 filed by the Appellant is within the period of three years fromthe date of right to apply accrued – Hence instant appeal – Held:The pendency of the proceedings in a parallel forum is not sufficientcause for the delay in filing an application u/s.9 of the IBC –GMaterial date is on which the right to sue accrued and if the causeof action continued – By the time the application was filed, theclaim had become barred by limitation as is clear from the avermentsin the winding up petition, that there was no acknowledgment ofliability after 07.11.2013 and last payment was made in June 2013H– No help will be provided by ss. 14 and 18 of the Limitation Act as the last acknowledgment was in 2013 and the High Court neithersuffered from any defect of jurisdiction to entertain the winding upapplication nor was unable to entertain the winding up applicationfor any other cause of a like nature – Initiation of proceedings inHigh Court would not save limitation for initiation of proceedingsfor initiation of CIRP in the NCLT – Order of NCLAT is unsustainablein law.

Allowing the appeal, the Court

HELD: 1. The condition precedent for condonation of thedelay in filing an application or appeal, is the existence of sufficientcause. Whether the explanation furnished for the delay wouldconstitute “sufficient cause” or not would be dependent uponfacts of each case. There cannot be any straitjacket formula foraccepting or rejecting the explanation furnished by the Appellant/applicant for the delay in taking steps. When an appeal is filedagainst an order rejecting an application on the ground oflimitation, the onus is on the Appellant to make out sufficientcause for the delay in filing the application. The date ofenforcement of the IBC and/or the date on which an applicationcould have first been filed under the IBC are not relevant incomputation of limitation. It would be absurd to hold that theCIRP could be initiated by filing an application under Section 7or Section 9 of the IBC, within three years from the date on whichan application under those provisions of the IBC could have firstbeen made before the NCLT even though the right to sue mayhave accrued decades ago. [Paras 16 and 17][928-E-G]

2. The fact that an application for initiation of CIRP, mayhave been filed within three years from the date of enforcementof the relevant provisions of the IBC is inconsequential. What ismaterial is the date on which the right to sue accrues, and whetherthe cause of action continuous. The pendency of the proceedingsin a parallel forum, invoked by the Respondent, is not sufficientcause for the delay in filing an application under Section 9 of theIBC. By the time the application was filed, the claim had becomebarred by limitation. In a notice dated 24.05.2014 issued by theRespondent demanding payment, it was contended that theAppellant had agreed to pay its outstanding dues in five equated A

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Amonthly installments of Rs.8,48,053/-. The Appellant had,however, defaulted after payment of one installment for the monthof June, 2013. [Paras 18-20][929-A-C]

3. From the averments in the Winding Up petition, it ispatently clear that there was no acknowledgment of liability afterB07.11.2013. The last payment was made in June 2013. It is nowwell settled that the provisions of the Limitation Act are applicableto proceedings under the IBC as far as may be. Section 14(2) ofthe Limitation Act which provides for exclusion of time incomputing the period of limitation in certain circumstances.Similarly, under Section 18 of the Limitation Act, anCacknowledgment of present subsisting liability, made in writingin respect of any right claimed by the opposite party and signedby the party against whom the right is claimed, has the effect ofcommencing of a fresh period of limitation, from the date on whichthe acknowledgment is signed. However, the acknowledgmentDmust be made before the period of limitation expires. Proceedingsin good faith in a forum which lacks jurisdiction or is unable toentertain for like nature may save limitation. Similarly,acknowledgment of liability may have the effect of commencing afresh period of limitation. In this case, the last acknowledgmentwas in 2013 and the Madras High Court neither suffered fromEany defect of jurisdiction to entertain the winding up applicationnor was unable to entertain the winding up application for anyother cause of a like nature. [Paras 21 and 23-26][930-F-G; 931-C, F-H; 932-A-B]

4. The limitation for initiation of winding up proceedings inFthe Madras High Court stopped running on the date on whichthe Winding Up petition was filed. The initiation of proceedingsin Madras High Court would not save limitation for initiation ofproceedings for initiation of CIRP in the NCLT under Section 7of the IBC. A claim may not be barred by limitation. It is theGremedy for realisation of the claim, which gets barred bylimitation. The impugned order of the NCLAT is unsustainablein law. This judgment, however, will not prevent the Respondentfrom pursuing any other remedy which the Respondent may beentitled to avail in accordance with law and/or pursue any pendingproceedings in accordance with law. [Paras 28, 29 and 31][932-HE-G]

M/S TECH SHARP ENGINEERS PVT. LTD. v. SANGHVIMOVERS LIMITED

B.K. Educational Services Pvt. Ltd. v. Parag Gupta andAssociates (2019) 11 SCC 633 : [2018] 12 SCR 794;Radha Export (India) Private Ltd. v. K.P. Jayaram andAnr (2020) 10 SCC 538 : [2020] 8 SCR 272; BabulalVardharji Gurjar v. Veer Gurjar Aluminium IndustriesPrivate Ltd. and Anr. (2020) 15 SCC 1 : [2020] 10SCALE 48; Ramlal, Motilal & Chhotelal v. RewaCoalfields Ltd. AIR 1962 SC 361 : [1962] SCR 762;Krishna v. Chathappan 1889 SCC Online Mad 1 –relied on.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 296 of2020.

From the Judgment and Order dated 23.07.2019 of the NationalCompany Law Appellate Tribunal, Delhi in Company Appeal (AT)(Insolvency) No.118 of 2019.

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Nakul Dewan, Sr. Adv., Jayesh Dolia, R. Chandrachud, R. V.Prabhat, Nikhil S. Nair, Advs. for the Appellant.

Shikhil Shiv Suri, Mrs. Madhu Suri, T. R. B. Sivakumar, Advs. forthe Respondent.

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

This appeal under Section 62 of the Insolvency and BankruptcyCode, 2016, hereinafter referred to as the “IBC” is against a judgmentand order dated 23[rd] July 2019 passed by the National Company LawAppellate Tribunal (NCLAT), New Delhi allowing Company Appeal(AT)(Insolvency) No. 118 of 2019 filed by the Respondent and settingaside an order dated 2[nd] January 2019 passed by the AdjudicatingAuthority, i.e., the National Company Law Tribunal (NCLT), Chennaiwhereby the Adjudicating Authority had dismissed an application filedby the Respondent as barred by limitation.

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A2. Pursuant to an agreement executed by and between theAppellant and the Respondent, the Respondent let out on hire to theAppellant, 150 MT crane for erection of equipment at the site of IndianOil Corporation Ltd. (IOCL) at Paradip in Odisha. The Respondent/Operational Creditor raised invoices on the Appellant between 3[rd] January2012 and 4[th] March 2013 for a sum of Rs.38,84,709/-.B

3. On or about 6[th] May 2013, the Respondent issued notice to theAppellant for payment of outstanding hire charges. By letter dated 17[th]May 2013, the Appellant replied to the said notice. Further correspondenceensued.

4. Ultimately, on 14[th] October 2013, the Respondent issued astatutory notice to the Appellant under Sections 433(e), 434 and 439 ofthe Companies Act, 1956 for Winding Up of the Appellant-Company.The Appellant duly replied to the notice on 7[th] November 2013,acknowledging its liability to the Respondent.

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5. On 9[th] November 2013, the Respondent called upon theAppellant to clear its dues. On 24[th] May 2014, the Respondent issued astatutory notice under Sections 433(e), 434 and 439 of the CompaniesAct, 1956 calling upon the Appellant to pay Rs.38,84,709/- towards cranehire charges.

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E6. On or about 22[nd] December 2015, the Respondent filed aWinding Up petition dated 4[th] July 2015 in the Madras High Court. On5[th] January 2016, the High Court returned the Winding Up petition to theRespondent for curing of defects. The Winding Up petition wasrepresented on 3[rd] February 2016, but again returned on 24[th] May 2016with an endorsement to comply with the defects as intimated earlier.F

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7. The IBC came into force on 1[st] December 2016. Thereafterthe Respondent issued a demand notice on 14[th] November 2017 underSection 8(1) calling upon the Appellant to repay its dues.

8. On 30[th] March 2018, the Respondent filed petition being CP/G724/(IB)/2018 under Section 9 of the IBC for initiation of the CorporateInsolvency Resolution Process (CIRP) in the NCLT. On 20[th] June 2018,the Adjudicating Authority (NCLT) directed the Registry to issue noticeto the Appellant.

9. By an order dated 2[nd] January 2019, the Adjudicating AuthorityH(NCLT) rejected the application as barred by limitation, placing reliance on the judgment of this Court in B.K. Educational Services Pvt. Ltd.v. Parag Gupta and Associates[1]. The application under Section 9 ofthe IBC was accordingly dismissed.

10. The Respondent appealed to the NCLAT under Section 61 ofthe IBC. By the impugned judgment and order, the NCLAT has setaside the order dated 2[nd] January 2019 passed by the AdjudicatingAuthority (NCLT) rejecting the application of the Respondent underSection 9 of the IBC and has remitted the case to the AdjudicatingAuthority for admission after notice to the parties. The NCLAT directedthat before admission of the case, it would be open to the Respondent tosettle the matter with the Appellant. The NCLAT held :-

“8. In the present case, it is not in dispute that right to applyunder Section 9 accrued to the Appellant on 1[st] December,2016, when ‘I&B Code’ came into force. Therefore, we findthat the application under Section 9 filed by the Appellant iswithin the period of three years from the date of right to applyaccrued.”

11. For the purpose of limitation, the relevant date is the date onwhich the right to sue accrues which is the date when a default occurs.In B.K. Educational Services Pvt. Ltd. (supra), cited before the NCLTand referred to in the judgment and order impugned, this Court held :- “42. It is thus clear that since the Limitation Act is applicableto applications filed under Sections 7 and 9 of the Code fromthe inception of the Code, Article 137 of the Limitation Actgets attracted. “The right to sue”, therefore, accrues when adefault occurs. If the default has occurred over three yearsprior to the date of filing of the application, the applicationwould be barred under Article 137 of the Limitation Act, saveand except in those cases where, in the facts of the case,Section 5 of the Limitation Act may be applied to condone thedelay in filing such application.”

12. In Radha Export (India) Private Ltd.v.K.P. Jayaram andAnr.[2], this Court referred to B.K. Educational Services Pvt. Ltd. (supra)and held the application under Section 7 of the IBC to be barred bylimitation.

1 (2019) 11 SCC 633

2 (2020) 10 SCC 538

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A13. In Babulal Vardharji Gurjar v. Veer Gurjar AluminiumIndustries Private Ltd. and Anr.[3], this Court held that limitation ofthree years as provided by Article 137 of the Limitation Act, whichcommenced from the date of the default, was extendable under Section5 of the Limitation Act, 1963.B14. It is well settled by a plethora of judgments of this Court as A

B14. It is well settled by a plethora of judgments of this Court asalso different High Courts and, in particular, the judgment of this Courtin B.K. Educational Services Pvt. Ltd. (supra) that the NCLT/NCLAThas the discretion to entertain an application/appeal after the prescribedperiod of limitation. The condition precedent for exercise of such discretionis the existence of sufficient cause for not preferring the appeal and/orCthe application within the period prescribed by limitation.

15. In Ramlal, Motilal & Chhotelal v. Rewa Coalfields Ltd.[4],this Court affirmed the view taken by the Madras High Court in Krishnav.Chathappan[5] and held that Section 5 of the Limitation Act gives theCourt a discretion, which is to be exercised in the way in which judicialDpower and discretion ought to be exercised, upon principles which arewell understood.

16. The condition precedent for condonation of the delay in filingan application or appeal, is the existence of sufficient cause. Whetherthe explanation furnished for the delay would constitute “sufficient cause”Eor not would be dependent upon facts of each case. There cannot beany straitjacket formula for accepting or rejecting the explanationfurnished by the Appellant/applicant for the delay in taking steps.

17. When an appeal is filed against an order rejecting an applicationon the ground of limitation, the onus is on the Appellant to make outFsufficient cause for the delay in filing the application. The date ofenforcement of the IBC and/or the date on which an application couldhave first been filed under the IBC are not relevant in computation oflimitation. It would be absurd to hold that the CIRP could be initiated byfiling an application under Section 7 or Section 9 of the IBC, within threeGyears from the date on which an application under those provisions ofthe IBC could have first been made before the NCLT even though theright to sue may have accrued decades ago.

3 (2020) 15 SCC 14 AIR 1962 SC 361H5 1889 SCC Online Mad 1

3 (2020) 15 SCC 14 AIR 1962 SC 361H5 1889 SCC Online Mad 1

18. The fact that an application for initiation of CIRP, may havebeen filed within three years from the date of enforcement of the relevantprovisions of the IBC is inconsequential. What is material is the date onwhich the right to sue accrues, and whether the cause of action continuous.

19. The pendency of the proceedings in a parallel forum, invokedby the Respondent, is not sufficient cause for the delay in filing anapplication under Section 9 of the IBC. By the time the application wasfiled, the claim had become barred by limitation.

20. In a notice dated 24[th] May 2014 issued by the Respondentdemanding payment, it was contended that the Appellant had agreed topay its outstanding dues in five equated monthly installments ofRs.8,48,053/-. The Appellant had, however, defaulted after payment ofone installment for the month of June, 2013. A copy of the petition filedby the Respondent in the High Court of Judicature at Madras is enclosedto the paper book. The Respondent asserted - “The Petitioner states that without any valid reason theRespondent delayed the payment for the Services done bythe petitioner. Even after repeated and constant follow-upthe Responder did not settle the dues payable to the Petitionerand therefore, the Petitioner issued a notice dated 06.05.2013and demanded the Respondent to make the payment. TheRespondent sent a reply dated 17.05.2013 and in the saidreply the Respondent admitted the outstanding dues andagreed to settle the outstanding dues in six months andrequested the Petitioner to give discount. The Petitioner issueda rejoinder dated 21.05.2013 providing 10% discount andto settle the remaining amount in 5 equaled monthly instalment,commencing from 1[st] June, 2013. However, it is made clearthat the offer given by rejoinder dated 21.05.2013 is subjectto the condition that the Respondent issue and honour thepost-dated cheques for the five monthly instalments.

The Petitioner states that the Respondent sent a reply dated07.06.2013 stating that they are unable to pay 1[st] instalmenton 01.06.2013 and informed that the same will be paid on20.06.2013. The Petitioner sent a sur-rejoinder dated14.06.2013 and asked the Respondent to proceed with thepayment schedule proposed by them and it is made very clear A

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that the discount and the waiver of interest offered by thePetitioner is strictly on the condition that the Respondentadhere to the payment schedule. The Respondent paid the 1[st]instalment and failed to make any further payment andtherefore the Petitioner sent a reminder dated 02.08.2013.The Respondent did not honour their promise and miserablyfailed to make payment for the 2[nd] instalment and thereforethe Petitioner was constrained to revoke their offer and issuednotice dated 14.10.2013 demanding the Respondent to payRs.38,84,709/- (Rupees Thirty Eight Lakhs Eighty FourThousand Seven Hundred and Nine only) with interest.

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The Petitioner states that the Respondent issued reply dated07.11.2013 and confirmed the non-payment of instalmentsas per their promise and further stated that the Respondenthas requested IOCL to make direct payment to the Petitionerand also enclose a draft letter to be sent by the RespondentDto IOCL. The Petitioner sent sur re-rejoinder dated09.11.2013 and informed the Respondent that the discountoffered has been withdrawn due to the failure on the partof the Respondent. However, considering the request ofthe Respondent gave final opportunity to settle the dues inEtwo instalments and it was made very clear that any failureon the part of the Respondent to clear dues will result inwithdrawal of discounts/waivers and the Respondent hasto pay the entire amount of Rs.38,84,709/- (Rupees ThirtyEight Lakhs Eighty Four Thousand Seven Hundred andNine only).”F

21. From the averments in the Winding Up petition, it is patentlyclear that there was no acknowledgment of liability after 7[th] November2013. The last payment was made in June 2013.

22. The Adjudicating Authority (NCLT) held :- G

“On perusal of the Application filed under Section 9 of theI&B Code, 2016, it appears that the claim amounting toRs.38,84,709/- has become due and payable on 28.02.2013.There is a single confirmation of the claim by the CorporateDebtor on 07.11.2013 as reflects from the document placed H

M/S TECH SHARP ENGINEERS PVT. LTD. v. SANGHVIMOVERS LIMITED [INDIRA BANERJEE, J.]

at page 60 of the typed set filed with the Application.Thereafter, there is nothing on record to suggest that at anypoint of time the Corporate Debtor confirmed/acknowledgedthe debt.

In the circumstances, the claim has become time barred andin view the judgment of the Hon’ble Supreme Court passed inB.K. Educational Services Pvt. Ltd. -vs- Parag Gupta andAssociates (2018 SCC Online SC 1921), the Petition standsdismissed.”

23. It is now well settled that the provisions of the Limitation Actare applicable to proceedings under the IBC as far as may be. Section14(2) of the Limitation Act which provides for exclusion of time incomputing the period of limitation in certain circumstances, provides asfollows:

“14. Exclusion of time of proceeding bona fide in court withoutjurisdiction.—

(1) ...

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

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

25. Proceedings in good faith in a forum which lacks jurisdictionor is unable to entertain for like nature may save limitation. Similarly,acknowledgment of liability may have the effect of commencing a freshperiod of limitation.

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26. In this case, the last acknowledgment was in 2013 and theMadras High Court neither suffered from any defect of jurisdiction toentertain the winding up application nor was unable to entertain the windingup application for any other cause of a like nature.

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27. The NCLAT held :-

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“From the facts as narrated above, it will be evident that thewinding up petition was filed before the Hon’ble High Courtof Judicature at Madras which had not reached finality andin the meantime, as the ‘I&B Code’ came into force, the demandnotice under Section 8(1) was issued on 14[th] November, 2017Cfor payment of outstanding amount along with the interest.Thus, as we find that there is continuous cause of action theclaim is within the period of limitation. The Appellant hadmoved before an appropriate forum for appropriate relief intime, in accordance with law and so we hold that the claim ofthe Appellant is not barred by limitation as the petition underDSection 433 & 434 of the Companies Act, 1956 becomeinfructuous; by operation of law.”

28. The limitation for initiation of winding up proceedings in theMadras High Court stopped running on the date on which the WindingUp petition was filed. The initiation of proceedings in Madras High CourtEwould not save limitation for initiation of proceedings for initiation ofCIRP in the NCLT under Section 7 of the IBC.

29. A claim may not be barred by limitation. It is the remedy forrealisation of the claim, which gets barred by limitation. The impugnedorder of the NCLAT is unsustainable in law.

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30. The appeal is allowed. The impugned order of the NCLAT isset aside.

31. This judgment, however, will not prevent the Respondent frompursuing any other remedy which the Respondent may be entitled toavail in accordance with law and/or pursue any pending proceedings inGaccordance with law.

Devika Gujral(Assisted by : Deepak Panwar, LCRA)

Appeal allowed.

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